Forex Major Currencies Outlook (Nov 18– Nov 22)
FOMC minutes, preliminary PMI data from Europe and Japan as well as Canadian inflation and consumption data will mark the weak ahead of us.
CPI for the month of October came in at 1.8% y/y vs 1.7% y/y. The energy contributed for more than a half of the increase while healthcare and food also contributed. On the other hand, motor vehicle prices and apparel were the biggest drag. Core CPI came in at 2.3% y/y vs 2.4% y/y as expected. Both real average weekly and hourly earnings came weaker than previous month at 0.9% y/y and 1.2% y/y respectively.
Retail sales in October came in at 0.3% m/m vs 0.2% m/m as expected for a rebound from -0.3% m/m the previous month. Core retail sales came in as expected at 0.3% m/m. Home furnishings were the biggest drag followed by sales at food service and drinking places while online shopping and auto dealers contributed the most to the reading. US consumer starts the Q4 on an elevated note and with high consumer confidence it promises a healthy holiday shopping season (Black Friday and Christmas).
This week we will have housing data and minutes from the last FOMC meeting.
Important news for USD:
- Building Permits
- Housing Starts
- FOMC Minutes
- Existing Home Sales
ZEW survey of the current situation in German economy came a bit better than the previous month at -24.7 vs -25.3, however big improvements were made in expectations category with German expectations coming in at -2.1 vs -13 as expected and up from -22.8 the previous month. EU expectations came in at -1 vs 23.5 the previous month. Although the readings are still in the negative and significant rebound in global economy is farfetched expectations paint a picture of optimism. Industrial production for September nudged up to -1.7% y/y vs -2.3% y/y and added more optimism regarding slow recovery. Final core CPI in October came in unchanged at 1.1% y/y.
Preliminary German Q3 GDP came in at 0.1% q/q vs -0.1% q/q as expected. The surprisingly positive reading helped Germany avoid a technical recession in 2019. Second reading of EU Q3 GDP came in unchanged at 0.2% q/q but yearly figure was a bit stronger at 1.2% y/y vs 1.1% y/y preliminary.
This week we will have preliminary November readings for consumer confidence and PMIs.
Important news for EUR:
- Consumer Confidence Index
- Markit Manufacturing PMI (EU, Germany, France)
- Markit Services PMI (EU, Germany, France)
- Markit Composite PMI (EU, Germany, France)
Preliminary Q3 GDP came in at 0.3% q/q vs 0.4% q/q as expected, up from -0.2% q/q in Q2. UK has managed to avoid a technical recession in 2019. Total business investment came in flat vs -0.5% q/q as expected while private consumption came in line with the expectations at 0.4% q/q. Manufacturing and industrial production came in weaker than expected with former coming in at -0.4% m/m vs -0.2% m/m and latter at -0.3% m/m vs -0.1% m/m. All of the data points to the economy that is just dragging along, still watching for clarifying signs regarding Brexit. GDP growth of 1% y/y is the lowest in almost a decade.
Employment change in September came in at -58k vs -102k as expected, better than expected but the number of employees continues to drop and it is a biggest drop in 4 years. Average weekly earnings came in at 3.6% vs 3.8% 3m/y as expected, slowing down but still staying high. The claimant count, which is the number of people claiming unemployment benefits, rose to 33k, almost doubling from the previous month and reaching the highest level in two years. CPI for October came in at 1.5% y/y vs 1.6% y/y as expected and down from 1.7% y/y the previous month which is a new three-year low. Energy prices were the main drag on the reading. Core CPI held at 1.7% as expected. Retail sales came in at -0.1% m/m vs 0.2% m/m as expected. Jobs, inflation and consumption all show increasingly bad situation in UK’s economy which could push BOE more toward rate cuts in the future.
Nigel Farage has stated in his campaign that his Brexit party will not contest the 317 seats Tory party won in 2017 and will fight Labour candidates in election. This will increase chances of Tory party to have the majority in the Parliament and GBP has risen on the comments. The Brexit party has also announced that it will step down from fighting for 43 non-Tory seats which additionally increases chances of Tory majority and GBPUSD really liked this news. Latest polls show a double-digit lead for the Tory party with some polls going even up to 14-point lead (42-28).
Chinese CPI in October came in at 3.8% y/y which is a 7-year high. The rise in food prices, mainly pork due to the swine flu epidemic, pushed inflation higher. PPI data continued their decline and came in at -1.6% y/y vs -1.2% y/y. The drop in PPI will make industrial profits suffer which in turn will have negative impact on the economy as a whole. Industrial production came in at 4.7% y/y vs 5.4% y/y as expected and 5.8% y/y the previous month. This is a substantial miss and shows the negative effects of the trade war on the external sector. Vehicles and smartphones recorded the biggest drops. Retail sales were also weaker than expected coming in at 7.2% vs 7.8%.
Australian employment change came in -19k vs 15k as expected for a huge miss. This led to the unemployment rate rising to 5.3% vs 5.2% previously. RBA wants to push the unemployment rate down to 4.5% so this reading shows that not only are they far away from the desired level, but they are moving in the opposite direction. Full time employment change saw a loss of 10.3k. Participation rate dropped to 66% from 66.1% while chances for RBA cut in December rose.
This week we will have minutes from the last RBA meeting.
Important news for AUD:
- RBA Meeting Minutes
As predicted in our last week’s article, RBNZ has left the cash rate on hold at 1%. This was seen as a surprise move by the markets, especially after inflation expectations data fell to 1.8% from 1.86% previously and NZD strengthened. RBNZ stated that they will continue monitoring economic developments and will act if required. Interest rates will remain at lower levels for a prolonged period of time and additional stimulus will be added if necessary. The weak NZD has helped offset the weaker global economic environment. Employment remains at around maximum sustainable level and inflation is within the target range, although it is below 2%. Governor Orr stated that the decision to leave the rate unchanged was unanimous and he expects thd economy to pick up the following year adding that current policy is very stimulatory.
This week we will have bi-monthly GDT auction.
Important news for NZD:
- GDT Price Index
BOC governor Poloz stated that wage inflation is above 4% in most measures, pointing out the strong wage growth. This month has been tough on CAD so far with the currency dropping against USD in almost every session. Risk off flows have been hurting CAD pushing it down, although by the end of the week it seems that USDCAD stabilised on the back of optimism surrounding the USMCA deal.
This week we will have manufacturing sales, inflation and consumption data.
Important news for CAD:
- Manufacturing Sales
- Retail Sales
Core machinery orders, which are a good indicator for capex down the road (6 to 9 months), came in September at -2.9% m/m vs 0.9% m/m as expected and 5.1% y/y vs 8.1% y/y as expected. Preliminary Q3 GDP came in at 0.1% q/q vs 0.2% q/q as expected and down from 0.3% q/q the previous quarter. Private consumption came in at 0.4% q/q vs 0.6% q/q the previous quarter. Business spending came in at 0.9% q/q as expected and up from 0.2% q/q the previous quarter for a positive note in the weak reading. Net exports were a drag on the reading with 0.2pp due to exports falling 0.7% q/q. Final industrial production in September has seen improvement since preliminary readings and came in at 1.7% m/m and 1.3% y/y.
This week we will have trade balance and national inflation data as well as preliminary PMIs.
Important news for JPY:
- Trade Balance
- Markit Manufacturing PMI
- Markit Services PMI
- Markit Composite PMI
SNB chairman Jordan stated that CHF is highly valued and reiterated readiness to intervene in the markets if necessary. The danger of deteriorating international situation remains large. SNB Maechler added that SNB wants to limit the burden of negative rates for banks.
This week we will have trade balance data.
Important news for CHF:
- Trade Balance