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.
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:
• Treasury Refunding Announcement
• Fed Interest Rate Decision
• ISM Manufacturing PMI
• Unemployment Rate
• ISM Services PMI
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:
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:
• BoE Interest Rate Decision
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:
• Manufacturing PMI (China)
• Services PMI (China)
• Composite PMI (China)
• Caixin Manufacturing PMI (China)
• Caixin Services PMI (China)
• Caixin Composite PMI (China)
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:
• Employment Change
• Unemployment Rate
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:
• Employment Change
• Unemployment Rate
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:
• BoJ Interest Rate Decision
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: