PCE Core for September came in at +2% y/y as expected. Core PCE came in at +0.2% m/m vs +0.1% as expected. Personal income came in a bit softer at +0.2% vs +0.4% expected. Inflation continues along FED’s preferred path, but sluggish personal income growth gives reason for concern.
ADP Employment data for the month of October came in at 227k vs 189k. That is yet another strong month for US employment signalling a very strong labor market. Additionally, the US Q3 employment cost index came in at +0.8% vs +0.7% as expected. Wages rose 3.1% y/y which is the biggest jump in the last 10 years. FED will be very happy with this wage related data and can view them as a clear sign to proceed with their rate hike policies.
NFP figures came in at 250k vs 200k as expected. Unemployment stayed at 3.7% as expected while both participation rate and average hourly earnings y/y beat the expectations. Participation rate came in at 62.9% while the average hourly earnings y/y came in at 3.1%. Additional strong labor reports coming in from the US will keep FED on rate hiking path. The implied odds of a rate hike in December rose to 80% from 74%.
Trade balance data came in at -$54.0B vas -53.6B as expected. The trade deficit is getting bigger and is slowly approaching a 10 year-high. US-China Sept goods trade deficit $40.24B vs $38.57B previous month which is a record high. Small positives from this report are that Exports rose 1.5% and that overall trading volume has increased.
This week the most important event is the Mid-Term Elections on November 6th. It is expected that Democrats will take the House and Republicans will retain the Senate. This scenario is priced in by the market. If the Democrats lose the House, the dollar will rally on the assumption that president Trump will become even more aggressive, with another tax cut and more deregulation. We will have Rate Decision, rate hike is expected in December, however the FOMC Statement may provide us with more information on monetary policy. On Friday we will have PPI data.
Important events for USD:
- ---- Markit Services PMI
- ---- Markit Composite PMI
- ---- ISM Non-Manufacturing PMI
- ---- ISM Non-Manufacturing Employment
- ---- Fed Interest Rate Decision
- ---- FOMC Statement
- ---- PPI m/m
- ---- PPI y/y
- ---- Core PPI m/m
- ---- Core PPI y/y
Last Friday S&P kept Italy’s rating at BBB but they lowered the outlook from stable to negative. Affirmation of this rating helped Italian bonds rally on Monday which in turn is helping to lift sentiment in equities in the region as well. The 5y-5y inflation swap is one of the key gauges used by markets on long-term Eurozone inflation expectations; it is ECB president Dragghi’s preferred inflation measure and has fallen to 1.6575%, the lowest it has been in almost a year thus adding more worries for the EUR.
Flash GDP for Q3 in the Eurozone came in at +0.2% m/m vs +0.4% m/m as expected and +1.7% y/y vs +1.8% y/y as expected. Economic, Industrial and Services confidence as well as Business Climate indicator came in weaker than expected. Eurozone economic growth has slowed to its weakest since Q4 of 2014.
Unemployment in the Eurozone came in at 8.1% as expected which further shows tightening of the labor market. Eurozone CPI came in at +2.2% y/y vs +2.1% y/y as expected and Core CPI came in at +1.1% y/y vs 1.0% y/y as expected. Inflation came a bit better than expected but still below the targeted level of 2%.
This week there will be meetings in the Eurozone that may shine light on how the leaders view the weaker-than-expected data from the Eurozone. Also, we will see additional data in terms of services, changes in prices of manufactured goods (PPI) and consumption (Retail Sales).
Important events for EUR:
- ---- Economic and Financial Affairs Council Meeting
- ---- Markit Services PMI
- ---- Markit Composite PMI
- ---- PPI m/m
- ---- PPI y/y
- ---- Retail Sales m/m
- ---- Retail Sales y/y
Fitch has affirmed UK’s credit rating at AA with a negative outlook because of the uncertainty around the Brexit process. Manufacturing PMI for the month of October came in at 51.1 vs 53.0 as expected with prior reading revised to 53.6. This reading is weakest since July 2016. New orders and employment fell for the first time after the Brexit vote.
BOE left the bank rate unchanged at 0.75% and all 9 members of the MPC voted for no change in the rate as expected. The tone of the statement was hawkish as they foresee CPI at 2.1% over 1 and 2 -year horizon and at 2.0% over 3-year horizon.
Secretary of state for exiting the European Union Dominic Raab implied that he expects a Brexit deal to be done by November 21st. There is a talk that a deal on financial services has been struck between EU and UK. The report said that UK Financial services companies will have continued access to European markets after the Brexit. Financial services represent an important part of UK’s economy. This has given GBP a very nice boost. BOE Governor Carney stated that “no deal, no transition” is unlikely, but we must prepare.
This week we will expect more news on the Brexit process and confirmation whether a deal on financial services has been struck. Additionally, we will have data on housing, industrial and manufacturing production as well as trade balance and value of company’s expenditure in the private sector. On Friday we will receive information about GDP.
Important events for GBP:
- ---- Markit/CIPS Services PMI
- ---- Halifax HPI m/m
- ---- Halifax HPI y/y
- ---- Industrial Production m/m
- ---- Industrial Production y/y
- ---- Manufacturing Production m/m
- ---- Manufacturing Production y/y
- ---- Trade Balance
- ---- Trade Balance Non-EU
- ---- Business Investment q/q
- ---- Business Investment y/y
- ---- GDP q/q
- ---- GDP y/y
CPI data for Q3 came in at 0.4% q/q vs 0.5% q/q as expected and 1.9% y/y as expected. Trimmed mean CPI came in at 0.4% q/q and 1.9% as expected. A bit softer reading of CPI weighed down on AUD in the markets and it will give a headache to RBA whose core mandate is to maintain a trimmed mean inflation between 2 and 3%. The main problem for inflation in AUD is the housing market which again came in weaker than expected in September. Building approvals came in at 3.3% m/m vs 3.8% m/m expected and -14.0% y/y vs -9.0% y/y.
Trade Balance for month of September came in at A$3017M vs A$1700M as expected. Exports rose 1% and imports fell 1% compared to the last month. Export prices rose 3.7% vs 2.2% as expected while import prices rose to 1.9% vs 1.0% as expected.
PPI q.q for Q3 came in at 0.8% vs 0.3% in Q2. This is a very healthy rise compared to the previous quarter and it helped AUD in its big leap against the USD at the end of the previous week along with positive talks between Presidents Xi and Trump on US – China trade war.
This week’s events are headlined by the RBA Interest Rate Decision. Rates should stay on hold, however RBA Rate Statement and RBA Monetary Policy Statement can provide us with more information on RBA’s views regarding recent AUD strength and whether there is a need for them to act. There will also be data on the Home Loans in Australia as well as data regarding Trade Balance, inflation and changes in prices of manufactured goods from China.
Important events for AUD:
- ---- RBA Interest Rate Decision
- ---- RBA Rate Statement
- ---- Trade Balance (China)
- ---- Imports (China)
- ---- Exports (China)
- ---- RBA Monetary Policy Statement
- ---- Home Loans m/m
- ---- CPI m/m (China)
- ---- CPI y/y (China)
- ---- PPI y/y (China)
This week we have not had many data coming from New Zealand but NZD strengthened significantly against the USD on the back of AUD’s rise. The ANZ business confidence for the month of October came in at -37.1 versus -38.3 last month while the activity outlook came in at 7.4 vs 7.8 from last month.
Headlining this week will be the RBNZ Interest Rate Decision followed by Rate Statement, Monetary Policy Statement and Press Conference. RBNZ released its statement in August stating that it was going to keep rates lower for longer. However, since then the data has been pretty good so the Statement and Press Conference will show whether they are prepared to reverse their dovish stance. Additionally, there will be data on Commodity Price Index, GDT auction and employment.
Important events for NZD:
- ---- ANZ Commodity Price Index m/m
- ---- GDT Price Index
- ---- Unemployment Rate
- ---- Participation Rate
- ---- Employment Change q/q
- ---- RBNZ Interest Rate Decision
- ---- RBNZ Rate Statement
- ---- RBNZ Monetary Policy Statement
- ---- RBNZ Press Conference
BOC governor Poloz has reiterated the need for rates to rise to neutral. Canada’s economy is operating at near capacity according to him and policy remains stimulative. Senior Deputy Governor Wilkins said that policy will be data-dependent and that income growth will strengthen to the 3 - 4 % range. Incomes will grow along with interest rates according to her and she sees this period as best for raising rates. Hawkish statements by both Governor Poloz and Deputy Wilkins.
Canadian GDP came in at 0.1% m/m vs 0.0% m/m as expected. Year over year GDP data came in at 2.5% vs 2.4% as expected. Mining, quarrying and oil and gas extraction sectors led the way with +0.9% while Manufacturing dropped down -0.6%.
Employment change in Canada for the month of October came in at 11.2k vs 15.0k as expected. The unemployment rate fell to 5.8% vs 5.9% as expected. Participation came in at 65.2% vs 65.4% prior month. A big miss was in hourly earnings for permanent employees - it came in at 1.9% y/y vs 2.3% y/y as expected. This soft report overall will have negative impact on CAD. Trade balance for the month of September came in at -$0.42B vs +$0.20B as expected. Not high impact data but it adds to the worries about CAD.
This week we will have a speech from Governor Poloz as well as housing data.
Important events for CAD:
- ---- BoC Governor Poloz Speach
- ---- Building Permits m/m
- ---- Ivey PMI
- ---- EIA Crude Oil Stocks Change
- ---- CHMC Housing Starts
- ---- New Housing Price Index m/m
Unemployment rate for the month of September came in at 2.3% vs 2.4% as expected. This is the lowest unemployment rate since October, 1992. Job to applicant ratio came in at 1.64 vs 1.63 as expected. Industrial production for the month of September came in at -1.1%m/m vs -0.3% m/m expected and -2.9% y/y vs -2.1% as expected.
The Bank of Japan keeps monetary policy remains steady as expected and maintains a short term interest rate target at -0.1%. Median core CPI forecast for 2018/19 at 0.9% vs 1.1% in July; median core CPI forecast for 2019/20 at 1.4% vs 1.5% in July; median core CPI forecast for 2000/21 at 1.5% vs 1.6% in July; median real GDP forecast for 2018/19 at 1.4% vs 1.5% in July; median real GDP forecast for 2019/20 at 0.8% as in July; median real GDP forecast for 2020/21 at 0.8% as in July. Downgrades on Core CPI show that inflation target of 2% is still out of reach for the Japanese economy. BOJ Governor Kuroda stated that impact of US – China trade has not had a big impact on Japanese economy thus far.
This week we will have Monetary Policy Meeting Minutes as well as a speech from governor Kuroda for more information regarding monetary policy. We will also have information about household spending as well as Current Account.
Important events for JPY:
- ---- BoJ Monetary Policy Meeting Minutes
- ---- BoJ Governor Kuroda Speach
- ---- Nikkei Services PMI
- ---- Household Spending y/y
- ---- Household Spending m/m
- ---- Current Account
- ---- Adjusted Current Account
KOF leading indicator, which measures overall economic activity in the Swiss economy, came in at 100.1 vs 101.0 expected. The Swiss Franc continues to trade at levels which SNB sees as very comfortable at the moment.
CPI data came in at 0.2% m/m vs 0.1% as expected and 1.1% y/y as expected with prior reading showing 1.0% y/y. Core CPI came in at 0.4% vs 0.5% as expected with prior reading showing 0.4%. This is a slight improvement to headline CPI reading compared to the previous month but the core measurement remained steady. Manufacturing PMI data came in at 57.4 vs 58.7 as expected with the prior reading showing 59.7. This is lowest reading since July 2017 and shows a slow down in factory activity. Retail sales for the month of September came in at -2.7% y/y vs -0.1% y/y as expected.
This week’s data from Switzerland will concern employment.
Important events for CHF: