Daily Market Outlook by Kate Curtis from Trader's Way

Forex Major Currencies Outlook (Oct 30 – Nov 3)

We will have a massive week that will feature Fed, BoE and BoJ meetings, Treasury Refunding Announcement, employment data from the US, New Zealand and Canada, inflation data from Eurozone and Switzerland, PMI data from the US and China as well as preliminary Q3 GDP reading from the Eurozone.

USD

Q3 GDP came in scorching hot at 4.9% annualised vs 4.3% annualised as expected. Personal consumption made a great bounceback as it contributed with 2.69%, more than a half, to the final GDP reading, compared to just 0.55% contribution in the previous quarter. Gross fixed investment added 0.15%, government consumption added 0.79% while net exports were a drag and subtracted 0.07% from the GDP reading. Inventories added 1.32%. Atlanta Fed GDPNow sees Q4 GDP at 2.3%.

September PCE data came in line with expectations. Headline number came in at 3.4% y/y unchanged from August while core PCE dropped to 3.7% y/y from 3.9% y/y the previous month. There was an uptick in core PCE reading m/m as it came in at 0.3% compared to 0.1% in August. Personal spending rose 0.7% m/m showing the strong consumer as was evident in Q3 GDP reading while personal income increased by 0.3% m/m.

The yield on a 10y Treasury started the week and year at around 4.93%, rose to around 5.02% level and finished the week at around 4.82%. The yield on 2y Treasury reached the high of 5.15%, the level not seen since 2006. Spread between 2y and 10y Treasuries started the week at -16bp then tightened to -14 bp as curve resumed its bear steepening trend. The 2y10y is has now been inverted for over a year. FedWatchTool now sees the probability of a 25bp cut at November meeting at around 2% while probability of no change is at around 98%.

This week we will have ISM PMI data, Fed meeting, employment data and Treasury Refunding Announcement (TRA). With yields running wild due to over supply of Treasuries the TRA may draw more attention than the Fed meeting where no change to rate is certain. We will have a ton of employment data throughout the week with Employment Cost Index, JOLTS and ADP, culminating with NFP on Friday. Headline number is expected around 190k with the unemployment rate remaining at 3.8%.

Important news for USD:

Wednesday:​
• Treasury Refunding Announcement​
• Fed Interest Rate Decision​
• JOLTS​
• ISM Manufacturing PMI​
Friday:​
• NFP​
• Unemployment Rate​
• ISM Services PMI​

EUR

Preliminary October PMI data painted a picture of a declining economy. Manufacturing came in at 43 vs 43.7 as expected and down from 43.4 in September. German reading improved and beat expectations but French reading slumped hard. Services slumped to 47.8 from 48.7 in September (48.7 was expected) printing the lowest reading since February of 2021. German reading fell into contraction while French reading improved. Composite reading printed 46.5, lowest since November of 2020, with German reading declining and French reading improving. The economy is off to a dreadful start of Q4 with report stating that both Germany and France are in big downturn when it comes to manufacturing while France is faring a bit better in services sector.

ECB has left key interest rates unchanged as was expected. Incoming data has been broadly in line with assessment of medium-term outlook. Inflation is expected to remain too high for too long. There are signs that previous rate hikes are causing tighter financial conditions and in turn dampen demand. ECB remains data dependent in regards to future rate hike decisions. ECB President Lagarde stated in the press conference that they did not talk about rate cuts or changes to the PEPP and that now is not the time for forward guidance but for data-dependent approach. She characterized economy is weak and said that it will stay weak until the end of the year.

This week we will have preliminary Q3 GDP and preliminary October CPI data.

Important news for EUR:

Tuesday:​
• CPI​
• GDP​

GBP

August unemployment rate has ticked down to 4.2% from 4.3% in July while employment change saw a drop of 82k jobs in the past three months, a stark improvement from a 207k jobs reported previous month. It is important to note that these numbers have been adjusted to reflect lower sample sizes and their usefulness for making decisions is less reliable.

Preliminary PMI data for the month of October reinforce the view that manufacturing sector bottomed out in August. October printed 45.3 up from 44.3 in September for the second consecutive month of increases. Services ticked down to 49.2 from 49.3 while composite was propped up by manufacturing to 48.6 from 48.5 the previous month. UK economy is off to a sluggish start as well, but fares better than the EU economy. The report shows that “Encouragingly, cost pressures have continued to moderate, in part helped by reports of lower wage inflation and further falls in prices charged by manufactures. However, selling price inflation for services remains somewhat elevated, and even ticked higher in October, pointing to some stickiness of headline inflation around the 4% mark into the early months of next year.” The report then added “In this context, any upward inflation pressures due to higher oil prices will be a major concern, meaning it would be unlikely for policymakers to rule out the possibility of rates rising again later in the year.”

This week we will have BoE meeting. It maybe another close meeting but we see the chances of yet another pause prevailing.

Important news for GBP:

Thursday:​
• BoE Interest Rate Decision​

AUD

We got an inflation shock from Australia as all of the inflation measures in Q3 came in higher than expected. Headline number came in at 1.2% q/q vs 1.1% q/q as expected and up from 0.8% q/q in the previous quarter. Yearly figure came in at 5.4% which is lower than 6% in Q2, but it was a smaller drop than expected (5.3%). RBA Trimmed Mean CPI (core CPI) also rose 1.2% q/q vs 1.1% q/q as expected and it rose 5.2% y/y vs 5% y/y as expected. RBA is specifically targetting 2-3% in core CPI and since it was down from 5.9% y/y in Q2 it prompted Treasurer Chalmers to comment that inflation is moderating but that it is persistent. RBA Governor Bullock gave a rather dovish message when she said that inflation came in higher than expected but right where they thought it will be and said that they are still considering if this inflation print made a “material” change to the outlook. She added that job on rate hikes is not done yet. With inflation regaining upward momentum markets are now pricing in a rate hike in November.

This week we will have official and Caixin PMI data from China.

Important news for AUD:

Tuesday:​
• Manufacturing PMI (China)​
• Services PMI (China)​
• Composite PMI (China)​
Wednesday:​
• Caixin Manufacturing PMI (China)​
Friday:​
• Caixin Services PMI (China)​
• Caixin Composite PMI (China)​

NZD

This was yet another hard week for Kiwi. It was pushed down against the other pairs but managed to find some footing against the USD and possibly carve a bottom.

This week we will have Q3 employment data.

Important news for NZD:

Tuesday:​
• Employment Change​
• Unemployment Rate​

CAD

BoC has left rate unchanged at 5% as was widely expected. Members see clear signs that monetary policy has positive effects on moderating spending and easing price pressures. The new projections see GDP at 1.2% in 2023 vs 1.8% previously, 0.9% in 2024 vs 1.2% previously and 2.5% in 2025 vs 2.4% as seen in July. CPI has been adjusted higher for all three years and is now seen at 3.9% for 2023, 3% for 2024 and 2.2% for 2025. Inflation is now seen reaching 2% by the end of 2025 vs by mid-2025 as projected in July. BoC statement repeated that they are prepared to further increase interest rates if needed. BoC Governor Macklem stated that inflation is on a higher path than expected adding that overall inflation risks have increased since July. He added that pause at this meeting leaves time for monetary policy to continue cooling the economy and that although a lot of progress has been made, they are not at the finish line.

This week we will have employment data.

Important news for CAD:

Friday:​
• Employment Change​
• Unemployment Rate​

JPY

Preliminary PMI data for the month of October showed manufacturing unchanged at 48.5 while services dropped to 51.1 from 53.8 in September. This in turn has dragged composite into contraction territory of 49.9 for the first time this year. Output, new orders and new export orders showed stronger declines for manufacturing sector and weaker growth for the services sector. Both input and output prices for both sectors showed weaker inflation while future output has weaker positive outlook across the sectors.

The yield on a 10y JGB has risen to 0.86% as rumors spread that BoJ may tweak its Yield Curve Control at next week’s meeting. BoJ held unscheduled bond buying operation on Wednesday while government plans to extend fuel and utility price subsidies until April of 2024. Also on Wednesday USDJPY finally broke the 150 level.

This week we will have BoJ meeting. No changes to rate are expected but rumors regarding widening or full abandoning of Yield Curve Control may materialize.

Important news for JPY:

Tuesday:​
• BoJ Interest Rate Decision​

CHF

SNB total sight deposits for the week ending October 20 came in at CHF478.8bn vs CHF483.8bn the previous week. Geopolitical risks are keeping Swissy bid so the SNB can be on the sidelines as there is no point in fighting the battle against safe haven flows.

This week we will have inflation data.

Important news for CHF:

Thursday:​
• CPI

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Forex Major Currencies Outlook (Nov 6 – Nov 10)

After an intense week behind us the week ahead of us will give us time to digest new information and make informed decisions. Weak ahead of us will feature RBA meeting, a 25bp rate hike is expected and preliminary Q3 GDP reading from the UK.

USD

ISM manufacturing PMI for the month of October slumped deeper into contraction to 46.7 from 49 in September. Employment and new orders components fell hardest with former dropping into contraction. Additionally, prices paid component rose indicating that inflation is not defeated. Positives are drop in inventories and increase in new export orders.

Fed meeting brought us no change as expected. The rate is still in the range of 5.25-550%. The statement showed almost no changes to the September one, it was emphasized that economic activity in Q3 expanded at a stronger pace and that “tighter financial and credit conditions” will put some brakes on the economy. Chairman Powell stated that Fed is proceeding carefully, adding that economy expanded well above expectations and that full effects of monetary policy are yet to be felt. He reiterated that they are data dependent and that decisions will be made on meeting-by-meeting basis. During the press conference he stated that they are aware of moves in the longer-term yields and that they can have implications on monetary policy but they need to be persistent. Powell stated that there are not thinking nor talking about rate cuts.

The Treasury lowered estimate for Q4 borrowing to $776bn from $852bn as was suggested in July. Additionally, Quarterly Refunding Announcement showed that they have altered the duration as they will be issuing more shorter-term bonds. This report combined with impression of Fed being done with rate hikes and Powell’s perceived dovish tones led to jump in bonds and risk assets and drop in USD.

After a long streak of beating the expectations NFP finally succumbed in October and came in at 150k vs 180k as expected. The unemployment rate ticked higher to 3.9% while participation rate ticked down to 62.7%. Wages were mixed as they rose 0.2% m/m vs 0.3% m/m as expected and 4.1% y/y vs 4% y/y as expected, but they were lower compared to September reading. Overall, this report shows that Fed’s tightening is producing results and that there is no need for future rate hikes.

ISM services PMI for the month of October recorded a significant miss as it came in at 51.6 vs 53 as expected and down from 53.6 in September. Employment index barely managed to avoid falling into contraction while new export orders plunged heavily as they fell from 63.7 in September to 48.8. Prices paid eased negligibly while new orders posted a healthy gain representing positives to the otherwise weak report.

The yield on a 10y Treasury started the week and year at around 4.84%, rose to around 4.94% level, then fell to 4.48 post NFP and finished the week at around 4.53%. The yield on 2y Treasury reached the high of 5.10%. Spread between 2y and 10y Treasuries started the week at -17bp then widened post NFP and finished the week at -35p as curve inverted further. The 2y10y is has now been inverted for over a year. FedWatchTool now sees the probability of a 25bp raise at December meeting at around 10% while probability of no change is at around 90%.

EUR

Preliminary October inflation data for the Eurozone saw it dropping to 2.9% y/y vs 3.1% y/y as expected and all the way down from 4.3% y/y in September. Headline inflation is now at the lowest level in two years as base effects caused inflation to plunge. Core CPI came in at 4.2% y/y as expected and down from 4.5% y/y the previous month. Spain CPI 3.5% y/y as expected and unchanged. German inflation dropped to 3.8% y/y from 4.5% y/y while expectations were for a drop to 4% y/y. Monthly reading was flat. Price drops are due to base effects in energy and food, but there are also drops in tourism and hospitality sectors which reflect drop in demand now that summer holidays are over. French inflation dropped to 4% y/y as expected from 4.9% y/y with food and energy prices leading the way in declines.

Preliminary Q3 GDP for the Eurozone showed a contraction of 0.1% q/q. German Q3 GDP came in at -0.1% q/q vs -0.3% q/q as expected and -0.3% y/y. French Q3 GDP came at 0.1% q/q as expected and 0.7% y/y. Household consumption grew 0.7% in Q3 vs being flat in Q2. Net exports were the biggest drag on French Q3 GDP reading with inventories also contributing negatively. Spanish GDP was a bright spot, rising 0.3% q/q while Italian was flat.​

GBP

BoE has left the rate unchanged at 5.25% as was expected. The vote was 6-3 with three members (Greene, Haskel and Mann) voting for a 25bp rate hike. The statement showed that rates will need to be restrictive for a prolonged period of time. Projection is for Q3 to be flat and to print 0.1% in Q4. Governor Bailey stated that inflation is still too high and that there is still a long way to go on taming inflation. Regarding GDP, he stated that incoming weaker than expected readings will not have impact on monetary policy decisions. There was a push back on rate cuts, as Governor Bailey commented that it is “too early” to talk about rate cuts, same as Powell stating that “monetary policy will need to be sufficiently restrictive for sufficiently long".

This week we will have preliminary Q3 GDP data.

Important news for GBP:

Friday:​

  • GDP​

AUD

All three of the official PMI data for the month of October from China missed expectations and came in lower than previous month. Manufacturing even fell back into contraction as it printed 49.6. Non-manufacturing declined to 50.6 and helped keep composite in expansion with 50.7 but down from 52 in September. Caixin manufacturing also dropped into contraction with 49.5 reading. Weaker foreign demand has caused new export orders to plunge. Caixin services managed to come at 50.4 vs 50.2 in September, but they were much weaker than expected (51.2). This has caused composite to barely stay in expansion with a 50 reading. New orders increased at the weakest pace in last ten months, foreign demand weakened with business optimism continuing to decline. Prices paid increased as companies are passing higher costs to consumers.

This week we will have RBA meeting as well as trade balance and inflation data from China. RBA is expected to raise interest rates by 25bp, even IMF has urged them to do so.

Important news for AUD:

Tuesday:​

  • RBA Interest Rate Decision​
  • Trade Balance (China)​

Thursday:​

  • CPI (China)​

NZD

Business confidence posted a huge jump in October as it printed 23.4 vs 1.5 in September. Export, investment and employment intentions all recorded big jumps with employment showing a big drop in construction but big jump in manufacturing. Inflation expectations remain unchanged and at a very high levels of almost 5%. Q3 employment report was a soft one as it showed employment change declining 0.2% q/q and the unemployment rate jumping to 3.9% from 3.6% in Q2. Participation declined to Q1 level of 72%. Hourly wages rose by 6.7% compared to 6.9% increase in Q2 indicating that wage-price spiral is missing and that RBNZ is not in the rush to continue raising interest rates.

CAD

Employment report for the month of October showed employment change of 17.5k vs 22.5k as expected. The unemployment rate jumped to 5.7% from 5.5% previous month while participation rate was unchanged at 65.6%. Wages are showing signs of cooling as they increased 5% y/y compared to 5.3% y/y in September. Additional weakness can be found in composition of jobs added as all of the jobs added are part-time jobs (20.8k) while full-time jobs recorded a decline of (3.3k) jobs. August GDP came in flat vs 0.1% m/m as expected. July GDP was also flat and preliminary data indicates that September GDP number will also be flat. That will make Q3 GDP flat as well.

JPY

On Monday Nikkei reported that BoJ is considering tweaking Yield Curve Control so it allows the yield on 10y JGB to go above 1%. This gave JPY a boost as it strengthened over 50 pips in five minutes against all majors. Then at the BoJ meeting it was stated that 1% will formally be the upper bound for 10y JGB yield. Markets were not happy with this, as they saw it for what it is, a continued monetary easing policy by BoJ and USDJPY quickly returned above the 150 level. There was no change to the rate, it remained at -0.10%. Inflation forecast has been revised up and it now stands at 2.8% for Fiscal Year (FY) 2023, it was at 2.5% in July, 2.8% for FY 2024, it was at 1.9% in July and 1.7% for FY 2025, it was 1.6% previously. GDP projection was improved to 2% for FY 2023 from 1.3% in July while FY 2024 was downgraded to 1% from 1.2% in July. GDP forecast for FY 2025 was left unchanged at 1%. BoJ announced they will stop with daily fixed-rate bond purchases. This should give more room for markets to the decide the rate, perhaps even letting yield rise above 1% before he bank steps in.

At the press conference BoJ Governor Ueda reiterated bank’s readiness to ease further if necessary and mentioned that sustainable price increases are not there. He emphasized importance of next spring’s wage negotiations (Shunto) for inflation outlook and stated that he does not believe that yields on long-term bonds will breach 1% level. The yields on 10y JGB reached the high of 0.965%.​

CHF

SNB total sight deposits for the week ending October 27 came in at CHF472.1bn vs CHF478.8bn the previous week. This is the second consecutive week of falling deposits and they are now back at the levels seen six weeks ago. SNB has announced changes to sight deposit remuneration scheme. The main goal of the change is to bring and maintain Swiss Average Rate Overnight (SARON) to the monetary policy rate which currently sits at 1.75%. Headline inflation for October was unchanged at 1.7% y/y while core CPI rose 1.5% y/y vs 1.3% y/y in September. The increase in core can be a bit of concern but both readings are well bellow targeted 2%.

Forex Major Currencies Outlook (Nov 13 – Nov 17)

The week ahead of us will have inflation data from the US and the UK, employment data from the UK and Australia, consumption data from the US and China as well as preliminary Q3 GDP from Japan.

USD

Senior Loan Officer Opinion Survey, conducted by the Fed, showed that lending conditions continue to tighten. Additionally, households and businesses showed lower demand for credit. If credit stops flowing freely through the system it will have negative impact on growth and that in turn will lead to lower demand which should bring inflation down. Precisely what Fed intended to happen with their rate hikes.

Fed Chairman Powell spoke at the IMF meeting and stated clearly that they are not confident that they have achieved sufficiently restrictive policy adding that if it becomes necessary to tighten further “we will not hesitate”. Hawkish rhetoric from Powell added fuel to USD and pushed back on markets’ dovish pricing. Powell’s speech was interrupted by climate activists and in the audio he can be heard dropping an f-bomb. In the Q&A section he stated that economy has been stronger than expected but that it should come down in the coming quarters.

The yield on a 10y Treasury started the week and year at around 4.55%, rose to around 4.67% level, then fell below 4.50% and finished the week at around 4.61%. The yield on 2y Treasury reached the high of 5.05%. Spread between 2y and 10y Treasuries started the week at -28bp then widened to -40p as curve inverted further. The 2y10y is has now been inverted for over a year. FedWatchTool now sees the probability of a 25bp raise at December meeting at around 10% while probability of no change is at around 90%.

This week we will have inflation and consumption data.

Important news for USD:

Tuesday:​

  • CPI​

Wednesday:​

  • Retail Sales​

EUR

Final services reading for the month of October for the Eurozone was unchanged from preliminary reading at 47.8, a drop from 48.7 in September. Spanish and French readings improved with former moving further in expansion with 51.1 print while Italian and German readings declined compared to September with former heavily missing on expectations while former managed to improve slightly from the preliminary reading. Composite for Eurozone came in at 46.5 vs 47.2 the previous month. The report shows that Eurozone started Q4 on a very weak note and there are no signs of improvement in the near-term.

ECB Chief Economist Phillip Lane stated that drops in underlying inflation pressures are welcomed but they are not enough. Progress has been made in pushing them down but that there is still room for more. He added that balance sheet will need to be shrinked but it will have to be at levels higher than those seen in its early years. ECB September survey of consumer expectations saw median expectations for one year rise to 4% from 3.5% previously. The reading is highest since April and with inflation expectations moving in undesired direction ECB will be pressed to revisit their monetary policy stance.

This week we will have second reading of Q3 GDP.

Important news for EUR:

Tuesday:​

  • GDP​

GBP

Preliminary Q2 GDP reading printed flat on quarter and 0.6% y/y. Details show that construction increased 0.1% while services sector declined 0.1% with production coming in flat. On the expenditure side details were abysmal. Household consumption declined 0.4%, government expenditure declined 0.5% while business investment plunged -4.2% while adding 4.1% in the previous quarter. Net trade showed surplus of 0.7% GDP as exports increased 0.5% and imports declined -0.8%.

This week we will have employment and inflation data.​

Important news for GBP:

Tuesday:​

  • Employment Change​
  • Unemployment Rate​

Wednesday:​

  • CPI​

AUD

RBA has delivered another 25bp rate hike as expected bringing thus cash rate to 4.35%, the level not seen in the last 12 years. Inflation has passed its peak but remains too high. Inflation is coming down slower than expected and new projections see it at 3.5% by the end of 2024 and at the top of the target range of 2 to 3% by the end of 2025. The unemployment rate is expected to gradually increase to 4.5%. Uncertainties prevail regarding outlook and lags of monetary policy. The statement concludes with “Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.” This reaffirms their data-dependent stance, but it may mean that data will need to surprise even more to the upside in order for them to deliver more rate hikes.

Chinese trade surplus contracted in October and printed $56.53bn, down from $77.7bn in September. Exports have declined 6.4% y/y while imports rose 3% y/y. Declining exports are indicative of weak external demand and will have negative impact on GDP reading. Rising imports is encouraging sign for the world economy, all of exporters such as Australia, as it signals return of Chinese demand. IMF has raised forecast for China 2023 GDP to 5.4% from 5% previously and for 2024 to 4.6% from 4.2% previously. Inflation data for October saw decline in prices as CPI printed -0.2% y/y, down from being flat in September. A big drop in food prices, particularly in pork prices, caused a deflationary reading. PPI saw a decline of 2.6% y/y.

This week we will have employment data from Australia as well as production and consumption data from China.

Important news for AUD:

Wednesday:​

  • Industrial Production (China)​
  • Retail Sales (China)​

Thursday:​

  • Employment Change​
  • Unemployment Rate​

NZD

RBNZ’s survey of inflation expectations now sees inflation in one year at 3.6% while in two years it is seen at 2.76%. Inflation expectations have fallen to new lows not seen in the last couple of years. RBNZ was not planing on hiking rates in foreseeable future and this piece of data vindicates their stance.

CAD

BoC minutes from the latest October meeting saw members agree that “further tightening would likely be required to restore price stability” and that “Council members agreed to revisit need for rate hike at future decisions with benefit of more data, agreed to state clearly they were prepared to raise the rate further if needed.” These were hawkish remarks from BoC but they were not enough to help CAD gain strength.

JPY

September labor earnings came in at 1.2% y/y vs 1% y/y as expected and up from 1.1% y/y in August. However, when we take inflation into account we see that real wages fell 2.4% y/y, they have been declining since 2022. Declining real wages translated into drop in household spending which declined 2.8% y/y. One positive is that household spending rose 0.3% m/m. BoJ Governor Ueda spoke about importance of increasing productivity in order to raise real wages and added that the bank will not need to wait for positive real wages before exiting Yield Curve Control policy and negative interest rates.

This week we will have preliminary Q3 GDP reading.

Important news for JPY:

Wednesday:​

  • GDP​

CHF

SNB total sight deposits for the week ending November 3 came in at CHF474.6bn vs CHF472.1bn the previous week. A small improvement but overall sight deposits have been moving in a tight range for almost two months.

Forex Major Currencies Outlook (Nov 20 – Nov 24)

Preliminary November PMI data from Eurozone and the UK combined with inflation data from Canada and meeting minutes from FOMC will highlight the shortened week ahead of us. Please be mindful that on Thursday it is Thanksgiving holiday in the US and there will be early market close on Friday so liquidity in the markets will be thinner.

USD

Headline CPI in October fell to 3.2% y/y from 3.7% y/y in September. It fell more than expected (3.3% y/y). Inflation was flat on the month vs 0.1% m/m as expected. Energy was the biggest contributor to decline falling 2.5% m/m with gasoline prices declining 5% m/m. Core CPI inched lower and printed 4% y/y vs 4.1% the previous month while monthly figure saw a 0.2% increase vs 0.3% as expected. Shelter rose 0.3% m/m compared to 0.6% m/m increase in September. “Supercore”, which encompasses services ex energy and housing costs and to which Fed pays special attention, rose 0.2% m/m and declined to 3.75% y/y. Probability of a December hike plunged to a zero after the report came out and bonds saw increased decline leading to lower yields.

October retail sales came in negative dropping 0.1% m/m while a drop of 0.3% m/m was expected. This is the first drop after six consecutive months of increasing sales. September number was revised up to 0.9% m/m from 0.7% m/m as previously reported. Control group, used for GDP calculation, came in at 0.2% m/m as expected while September number was revised up. Ex autos and ex autos and gas categories both came in at 0.1% m/m.

The yield on a 10y Treasury started the week and year at around 4.64%, rose to 4.67%, then fell below 4.38% post CPI report and finished the week at around 4.45%. The yield on 2y Treasury reached the high of 5.08%. Spread between 2y and 10y Treasuries started the week at -41bp then widened to -42bp as curve inverted further. The 2y10y is has now been inverted for over a year. Post CPI, PPI and retail sales FedWatchTool saw the probability of no change at both December and January meetings at 100%.

This week we will have minutes from the November meeting.

Important news for USD:

Tuesday:​

  • FOMC Minutes​

EUR

ECB policymaker Martin Kazaks stated that it will be premature to say that terminal rate has been reached and thus left the possibility of additional rate hikes open. Second Q3 GDP reading saw no changes and came in at -0.1% q/q and 0.1% y/y. Final CPI reading for the month of October was unchanged with headline at 2.9% y/y and core at 4.2% y/y.

European commission has made changes to growth forecast and now sees 2023 GDP at 0.6%, down from 0.8% previously while 2024 GDP is seen at 1.2% and 2025 GDP at 1.6%. Inflation is seen declining and it is expected to print 5.6% in 2023, 3.2% in 2024 and 2.2% in 2025. So they do not see inflation falling to their target before 2026.

German ZEW survey for the month of November saw current conditions basically unchanged at -79.8 vs -79.9 in October, however huge improvements are seen in the outlook category. German outlook jumped to 9.8 from -1.1 in October while increase to 5 was expected. Euro area outlook surged to 13.8 from 2.3 the previous month, also surpassing expectations. Optimism regarding financial conditions are prevailing.

This week we will have preliminary November PMI data.

Important news for EUR:

Thursday:​

  • S&P Global Manufacturing PMI (Eurozone, Germany, France)​
  • S&P Global Services PMI (Eurozone, Germany, France)​
  • S&P Global Composite PMI (Eurozone, Germany, France)​

GBP

Payroll change for the month of October saw addition of 33k with previous month’s reading showing huge improvement to 32k from -11k as initially reported. September ILO unemployment rate remained unchanged at 4.2% while earnings posted declines. Average weekly earnings posted 7.9% 3m/y vs 7.4% 3m/y as expected but down from 8.2% 3m/y in August. Ex bonus wages came in at 7.7% 3m/y as expected, down from 7.9% 3m/y the previous month. A drop in wages will be a very welcome sign for BoE as they can remain in pause mode. It is notable though that this report excludes some metrics therefore its validity is compromised and it is questionable how much emphasis will BoE put on in it.

Headline inflation for the month of October fell by more than expected to 4.6% y/y from 6.7% y/y in September. It was flat on the month. Core reading also posted a decline as it printed 5.7 y/y vs 6.1% y/y the previous month. Base effects and drop in energy prices were the main culprit for fall in inflation while encouraging sign can be seen in falling services inflation (6.6% vs 6.9% previously).

This week we will have preliminary November PMI data.

Important news for GBP:

Thursday:​

  • S&P Global Manufacturing PMI​
  • S&P Global Services PMI​
  • S&P Global Composite PMI​

AUD

Q3 wage price index rose by 1.3% q/q as expected making it the biggest quarterly gain since this series is tracked (26 years). RBA has clearly incorporated this data into its last week’s decision to hike interest rates to 4.35%. October employment report saw employment change smash expectations and show 55k jobs added vs 20k as expected. The unemployment rate ticked up to 3.7% while participation rate jumped back to s in August (67%), Almost 2/3 of the jobs added were part-time (38k) with full-time printing 17k. The report shows that labor market is not weakening yet.

October activity data for China saw industrial production tick up to 4.6% y/y from 4.5% y/y in September and beat expectations of 4.4% y/y increase. Retail sales posted a big jump rising 7.6% y/y from 5.5% y/y the previous month with expectations of a 7% y/y increase. The report shows that spending on services outweigh goods spending. PBOC has left 1-year MLF rate unchanged at 2.5% but have injected CNY1450bn. This is the largest injection in almost seven years and is clearly intended to stimulate the economy.

NZD

Electronic card retail sales, consisting of almost 70% of total retail sales, fell by 0.7% m/m and 22% y/y in the month of October. Q3 PPI data showed input coming in at 1.2% q/q vs -0.2% q/q in Q2 while output came in at 0.8% q/q vs 0.2% q/q the previous quarter. This report indicates that price pressures are still going strong and even increasing on the producer side. RBNZ will be worried after this report but it will not be enough for them to start hiking rates again.

This week we will have consumption data for Q3.

Important news for NZD:

Thursday:​

  • Retail Sales​

CAD

Housing starts in October printed 247.7k vs 252.9k and up from 270.7k in September. Despite higher interest rates which are slowing down housing market, there is still ample demand for housing in Canada and housing starts are printing healthy numbers.

This week we will have inflation data.

Important news for CAD:

Tuesday:​

  • CPI​

JPY

Preliminary Q3 GDP reading saw economy contract by 0.5% q/q and 2.1% on annualised basis more than expected (-0.1% q/q and -0.6% annualised). GDP deflator, a measure of inflation, jumped to 5.1% from 3.5% in the previous quarter. Private consumption was flat on the quarter with Q2 reading being revised down. Expectations were for it to increase by 0.2%. Capital expenditure fell for the second consecutive quarter coming in at -0.6% vs 0.3% as expected.

CHF

SNB total sight deposits for the week ending November 10 came in at CHF476.3bn vs CHF474.6bn the previous week. Total sight deposits are still within a two-month range. SNB chairman Jordan reiterated that they will not hesitate to further tighten monetary policy in order to contain inflation if need for that arises. He then proceeded to add that he is unsure if the terminal rate has been reached.

Forex Major Currencies Outlook (Nov 27 – Dec 1)

RBNZ meeting, preliminary inflation data from Eurozone, PCE inflation from the US coupled with GDP data from the US, Canada and Switzerland as well as official PMI data from China and employment data from Canada will highlight the week ahead of us. Additionally, OPEC+ meeting will be held on Thursday November 30 in Vienna.

USD

FOMC minutes from the November meeting showed that decision to keep rates steady was unanimous. Participants agreed that current market conditions are restrictive and as such they put a downward pressure on economic activity. Tightening of financial conditions was helped by rising long-term yields which happened due to increase in term premium. Inflation remains elevated but long-term inflation expectations remain well anchored. Real GDP in Q3 was very strong and was driven by consumer spending. Members remain prepared to tighten further if the need arises.

The yield on a 10y Treasury started the week and year at around 4.44%, rose to 4.47%, then fell below 4.38% and finished the week at around 4.48%. The yield on 2y Treasury reached the high of 4.95%. Spread between 2y and 10y Treasuries started the week at -44bp then widened to -46bp as curve inverted further. The 2y10y is has now been inverted for over a year. FedWatchTool sees the probability of no change at December meeting at 95% while there is a 5% chance of 25bp rate hike.

This week we will have second estimate of Q3 GDP, Fed’s preferred inflation measure PCE and ISM manufacturing PMI.

Important news for USD:

Wednesday:​

  • GDP​

Thursday:​

  • PCE​

Friday:​

  • ISM Manufacturing PMI​

EUR

Preliminary November PMI data for the Eurozone saw improvements across all three measures. Manufacturing came in at 43.8 vs 43.4 as expected and up from 43.1 in October with German manufacturing continuing to move up, although at a very low level of 42.3. However, the optimism surrounding German economy gave EUR a nice boost. Services PMI came in at 48.2, up from 47.8 the previous month with Germany and France also posting improvements. Composite was at 47.1, up from 46.5 the previous month. All three readings are below 50 indicating that the economy is still in contraction, but at least there is a slowdown in declines. Still these PMI readings point to yet another negative quarter of GDP, but may prove to be a shallow one. Additionally. the report shows that there is a weakness in employment growth which, if continued, can translate into higher unemployment rate. Inflation is declining, but report shows that input costs increased in November compared to the previous month which may indicate that there is still a way to go in battle against inflation.

Final German Q3 GDP came in unchanged at -0.1% q/q while yearly figure came in at -0.4% vs -0.3% as preliminary reported. There was, however, a positive revision to Q2 GDP to 0.1% y/y. Still it paints a very bleak picture of a struggling economy. The biggest drag on GDP was personal consumption while government spending and business investment softened the blow and supported economic activity.

This week we will have preliminary November inflation data.​

Important news for EUR:

Thursday:​

  • CPI​

GBP

BoE Governor testified in front of the Parliament and stated that they are on their way to reach the targeted level of 2%. He added that further rate hikes cannot be ruled out but for now they are in watchful data-dependent mode. Additionally, he stated that markets are underestimating the risk of inflation persistence.

Chancellor of Exchequer Jeremy Hunt announced that minimum wage for citizens older than 21 years will be raised by 10% and will total £11.44 per hour. Additionally, budget report contains information that taxes for businesses will be reduced and welfare benefits will be increased by 6.7%. Office for Budget Responsibility (OBR) sees CPI for 2023 at 7.4% vs 6.1% in March. 2024 CPI is seen at 2.8%, lower than 3% expected but way higher than seen in March. CPI is seen coming to target of 2% during 2025. OBR sees 2023 GDP at 0.6%, higher than 0.4% expected and much stronger than -0.2% seen in March. 2024 GDP is seen at 0.7%, higher than expected but this time lower than was seen in March (1.8%).

Preliminary PMI data for the month of November posted some encouraging results as all three readings beat expectations. Manufacturing improved to 46.7 from 44.8 in October. Services returned into expansion after a three month period of being below 50 and printed 50.5. This has helped lift overall economic activity as measured by the composite PMI to 50.1 from 48.7 the previous month, also back into expansion after three months of being in contraction. One concerning thing is that input costs rose for the first time in five months indicating that price pressures prove to be very sticky.

AUD

RBA minutes from the November meeting showed that risk of inflation expectations rising would increase if there was no change in rates. Board members stressed importance of preventing even mild increases in inflation expectations and stated that staff forecasts were based on one or two more rate hikes. Additionally, board members warned that there is a growing mindset among businesses to pass on price increases to consumers. These are hawkish remarks by RBA.

PBOC has left LPR rates unchanged as was expected. The 1-year LPR is at 3.45% while 5-year LPR is at 4.20%. Last week we had the biggest liquidity injection in almost seven years and with such a massive stimulus there was no need for rate cuts.

This week we will have official PMI and Caixin manufacturing data from China.

Important news for AUD:

Thursday:​

  • Manufacturing PMI (China)​
  • Non-Manufacturing PMI (China)​
  • Composite PMI (China)​

Friday:​

  • Caixin Manufacturing PMI (China)​

NZD

GDT auction saw flat dairy prices. Increase in Lactose prices was counteracted by a drop in Cheddar prices. Q3 retail sales came in stronger than expected with headline number being flat on quarter vs -0.8% q/q as expected and up from -1% q/q in Q2. The yearly number ticked a bit to -3.4% vs -3.5% in the previous quarter. Core retail sales printed 1% q/q improving significantly from -1.8% q/q in Q2.

This week we will have RBNZ meeting. No changes in rate are expected despite high inflation numbers.

Important news for NZD:

Wednesday:​

  • RBNZ Interest Rate Decision​

CAD

October inflation report was music to BoC ears. Headline inflation fell by more than expected and printed 3.1% y/y vs 3.8% y/y in September. Lower gasoline prices (-7.8%) were the biggest contributor for such a big drop. All three core measures have also declined with median at 3.6% y/y vs 3.9% y/y, trim at 3.5% y/y vs 3.7% y/y and common at 4.2% y/y vs 4.4% y/y the previous month. A small concern is inflation in services which rose to 4.6% y/y compared to 3.9% y/y in September while shelter component printed 8.2% y/y vs 7.3% y/y the previous month.

BoC Governor Macklem commented that inflation numbers are encouraging and that interest rates may be restrictive enough but added that in high inflation persists they will be ready to further increase rates. Near-term inflation expectations are slow to come down and that is concerning while long-term inflation expectations remain well anchored. He added that they are not considering rate cuts and that they will make decisions meeting-by-meeting.

This week we will have Q3 GDP and employment data.

Important news for CAD:

Thursday:​

  • GDP​

Friday:​

  • Employment Change​
  • Unemployment Rate​

JPY

Japanese government has made first reduction in its view on economy in the last ten months. They see recovery stalling as week demand weighs in on capital spending and consumer expenditure. They also added that the pace of recovery is “pausing”. The latest poll of economists conducted by Reuters shows that over 80% of participants see BoJ abandoning negative interest rate policy in 2024.

Nationwide inflation data for the month of October saw headline number increase to 3.3% y/y from 3% y/y in September. CPI ex fresh food ticked to 2.9% y/y from 2.8% y/y the previous month for the first increase in four months. CPI ex fresh food, energy printed 4% y/y, down from 4.2% y/y in September. All readings are way above 2% inflation target and have been there for more than a year. Preliminary PMI for November saw manufacturing decline to 48.1 from 48.7 in October due to decreased demand and falls in output and new orders. Services increased to 51.7 from 51.1 the previous month which helped keep composite at 50.

CHF

SNB total sight deposits for the week ending November 17 came in at CHF476.9bn vs CHF476.3bn the previous week. SNB seems to have found a sweet spot for total sight deposits as a means to conduct monetary policy as they have been hovering in a CHF30bn range for more than three months.

This week we will have Q3 GDP data.

Important news for CHF:

Friday:​

  • GDP