Forex Major Currencies Outlook (Nov 4– Nov 8)
RBA meeting, BOE meeting, trade data and final October PMI numbers will be on the docket this week.
First reading of Q3 GDP surprised to the upside coming in at 1.9% q/q vs 1.6% q/q as expected. Personal consumption was the main contributor coming in at 2.9% vs 2.6% as expected contributing 1.93pp (percentage point) to the GDP, although down from 4.6% in Q2. Government spending added 0.35pp to the reading while gross private investment fell 3%, the most in four years, and dragged GDP down -0.27pp. Core PCE was 2.2% q/q but GDP price index and GDP deflator all came weaker than expected at 1.7% and 1.6% respectively. This drop in inflation data is a worrying sign and it is preventing bigger USD strength on the headline reading. Personal spending came in ay 0.2% m/m vs 0.3% m/m as expected while personal income came in at 0.3% m/m as expected. PCE core deflator came in at 1.7% y/y as expected down from 1.8% y/y the previous month indicating slowing price pressures.
Fed has decided to cut interest rate down to 1.75%. The statement was hawkish and chairman Powell reiterated hawkish stance in his press conference stating that monetary policy is in a good place and abstained from adding any need for further accommodative action which indicated that this rate cut is the last in the cut cycle and USD rallied. He stated that only a broad “material reassessment” of outlook would prompt Fed to change its policy. Powell also added that consumer-facing companies are reporting good that consumers are doing well and that uncertainties in the global economy are now lowered with phase one of US-China deal and no-deal Brexit off the table. However, one sentence that spooked the markets and turned the USD down was that “significant move up in inflation that’s persistent before we would even consider raising rates to address inflation concerns." Basically saying that although chances of rate cuts are possible due to bad news, chances of rate hikes are very slim.
NFP number came in at 128k vs 85k as expected with prior reading being revised up. The unemployment rate ticked up to 3.6% as expected due to rise in participation rate to 63.3%. Average hourly earnings came in came in line with expectations at 0.2% m/m and 3% y/y. The employment numbers show a healthy improvement indicating labour market still going strong while earnings are still struggling to keep up.
This week we will gate trade balance data and ISM’s non-manufacturing PMI.
Important news for USD:
- Trade Balance
- ISM Non-Manufacturing PMI
Final consumer confidence for October came in at -7.6 as the preliminary reading showed. Economic confidence and industrial confidence both continued their decline and came in weaker than expected. It is worrisome that server confidence came weaker than expected indicating that weakness from industrial sector is spreading into services. The readings also indicates a weak start of Q4 for EU area.
Preliminary October CPI came in at 0.7% y/y as expected while core CPI came in at 1.1% y/y vs 1% y/y as expected. The headline did fall to the lowest level in almost 3 years, but the small rise in core number will be very welcoming, indicating that there still are some inflation pressures. Preliminary Q3 GDP reading came in at 0.2% q/q vs 0.1% q/q as expected for a small beat. The unemployment rate came in at 7.5%. Previous reading was revised up to 7.5% so that rate stayed unchanged, however the labour market seems to be plateauing and with the weak situation in the economy on the whole it may lead to increases to the unemployment rate in the future.
This week we will have final PMI readings and consumption data.
Important news for EUR:
- Markit Manufacturing PMI (EU, Germany, France)
- Markit Services PMI (EU, Germany, France)
- Markit Composite PMI (EU, Germany, France)
- Retail Sales
The EU27 have agreed to grant extension to UK until 31 January 2020. Boris Johnson will now take the chance and push for the election to strengthen his position in the Parliament. He will still need 2/3 majority in the Parliament. The third move by PM to ensure elections failed to secure 2/3 majority so he presented a simple bill that gained a majority and elections will be held on December 12. Labour party supported elections since no-deal Brexit is currently not possible. Brits came up with funny names for the pre-Christmas elections such as “jingle polls,” “Brexmas,” and also "New Year’s Leave."Parliament will be dissolved on November 6.
This week we will have services PMI and BOE rate decision. No change is expected in the rate, however BOE’s stance now that no-deal Brexit has been averted will be closely monitored.
Important news for GBP:
- Services PMI
- BOE Interest Rate Decision
- BOE Inflation Report
- BOE MPC Meeting Minutes
Fitch affirmed Australia’s AAA rating with stable outlook but significantly lowered their GDP growth from 2.7% in 2018 to 1.7% in 2019. However, they expect GDP to bounce back in 2020 to 2.3%. RBA governor Lowe stated that Australia is in for a protracted period of very low interest rates and added that rate cuts have had a positive impact on the economy so far. Markets are already pricing around 94% chance that there will be no rate cuts at November’s meeting. Both core trimmed CPI and headline CPI for Q3 came in line with expectations with former coming in at 0.4% m/m and 1.6% y/y while the latter came in at 0.5% m/m and 1.7% y/y. Since RBA targets 2-3% range for inflation this is yet another quarter of undershooting inflation.
Official manufacturing PMI from China came in at 49.3 vs 49.8 as expected moving lower into the contraction territory. New orders fell into contraction while new export orders fell even deeper into the contraction. Output and employment index also fell. Non-manufacturing PMI dropped to 52.8 vs 53.6 as expected dragging down composite to 52. Caixin manufacturing PMI came in at 51.7 vs 51 as expected indicating that smaller business performed better than large ones at the start of Q4, however the divergence in readings make it difficult to gauge how economy will perform in Q4.
This week we will have consumption and trade balance data from Australia along with RBA rate decision. Markets expect RBA not to act now but December is open. Caixin services, trade balance and inflation data will be coming from China.
Important news for AUD:
- Retail Sales
- RBA Interest Rate Decision
- RBA Rate Statement
- Caixin Services PMI (China)
- Trade Balance
- RBA Monetary Policy Statement
- Trade Balance (China)
- Exports (China)
- Imports (China)
- CPI (China)
ANZ Business Confidence for October came in stronger than expected at -42.4 vs -53.5 the previous month. This is a great start for conditions to improver in the economy and analyst are pushing back calls for rate cut several months into 2020.
This week we will have bi-monthly GDT price auction as well as employment data.
Important news for NZD:
- GDT Price Index
- Employment Change
- Unemployment Rate
- Labour Cost Index
BOC left the rate unchanged at 1.75% as widely expected however its statement had a dovish tone stating that the resilience of Canadian economy “will be increasingly tested” as trade conflicts and uncertainty persist. Growth in H2 is expected to slow down below potential due to trade and weak energy sector. Growth for 2019 has been raised to 1.5% from 1.3% previously but growth for 2020 and 2021 have been lowered to 1.7% and 1.9% from 1.8% and 2% respectively.
GDP in August came in at 0.1% m/m vs 0.2% m/m as expected up from flat in July and 1.3% y/y as expected. Biggest contributor was manufacturing with 0.5% while construction made the biggest jump coming in at 0.3% vs -0.7% the previous month. Wholesale trade was biggest drag on GDP coming in at -1.3% vs 1.1% the previous month.
This week we will have trade balance and employment data.
Important news for CAD:
- Trade Balance
- Employment Change
- Unemployment Rate
CPI for Tokyo area in October came in at 0.4% y/y vs 0.7% y/y as expected. The effect of sales tax increase did not move the inflation higher in the first month of its inception. CPI excluding fresh food came in at 0.5% y/y vs 0.7% y/y as expected while only ex energy category came in as expected at 0.7% y/y. Retail sales for September, the last month before the tax sales rise, came in at 7.1% m/m vs 3.5% m/m as expected and 9.1% y/y vs 6% y/y as expected. Consumers grabbed the chance and bought items before tax rise, so it is safe to assume that next month’s reading will not be as good. Preliminary industrial production for September came in at 1.4% m/m vs 0.4% m/m as expected and up from -1.2% m/m the previous month. Projections by Ministry show November at 0.6% m/m and December at -1.2% m/m. The unemployment rate went up to 2.4% from 2.2% as expected. Final manufacturing PMI continued decline and came in at 48.4 vs 48.5 as preliminary reading showed for a 40 month low. New orders lead the decline and signals a weak start to Q4.
BOJ left the both the rate and monetary policy unchanged. Forward guidance on interest rates has been modified in order to signal more clearly future rate cut chances. They see the economy continue to expand and stated that momentum to push inflation is lacking strength. Risks concerning economy and prices are skewed to the downside. Median core CPI projections have been lowered for this and the following years although 2% inflation is still a target. Governor Kuroda stated that according to current economic conditions BOJ will have to maintain easing policy beyond Spring of 2020.
This week we will have services PMI, spending and earnings data and minutes from latest BOJ meeting.
Important news for JPY:
- Markit Services PMI
- BOJ Monetary Policy Meeting Minutes
- Household Spending
- Labour Cash Earnings
October CPI saw inflation drop to -0.2% m/m vs -0.1% m/m previously. Core CPI also dropped coming in at 0.2% y/y vs 0.4% y/y previously. Absence of inflationary pressures should push SNB to ease further. Retail sales in September saw a rebound to 0.9% m/m vs -1.4% m/m previously.
This week we will have employment data.
Important news for CHF:
- Unemployment Rate