After a very eventful week we will have a rather quiet week ahead of us with RBNZ meeting leading the way.
USD
ISM manufacturing PMI for October came in much stronger, 59.3, than it was expected at 56. This makes it the strongest reading in more than 2 years showing an impressive rebound in manufacturing sector. New orders component rose to an astonishing 67.9 from 60.2 in September while production went up to the 63 level. The employment component returned to expansion coming in at 53.2 vs 49.6 in September. ISM services PMI showed a different picture. It came in at 56.6 vs 57.5 as expected. Although the reading is well in the expansion territory, drops in new orders and particularly in employment are causing concerns.
October NFP was a very strong report that was largely overlooked by the market because of the election. Headline number came in at 638k vs 580k as expected. More impressively the unemployment rate fell a full percentage point to 6.9% from 7.9% in September. Even more impressively this was achieved with the participation rate rising to 61.7% from 61.4% in September. A drop in the unemployment rate will reduce the need for a big fiscal stimulus package.
The Senate race in Georgia has been postponed until January 5 which keeps chances of “blue wave” (Democratic party having majority in both The House and The Senate) alive. Markets are speculating that “blue wave” will bring a higher fiscal stimulus leading to rise in gold and stocks and a fall in USD. If Republicans retain the Senate, fiscal stimulus will be much lower and there are fears that they will undermine Biden’s presidency.
This week we will have inflation data.
Important news for USD:
Thursday:
CPI
EUR
Final manufacturing PMI for October improved to 54.8 from 54.4 as preliminarily reported. Improvements were seen in all major countries with output and new orders growing rapidly. Final services PMI came in at 46.9 vs 46.2 as preliminary reported on the back of improvement in German reading. Composite was thus brought to the 50 level. With restrictions being implemented around Europe we can expect November service reading to show further decline. Concerns about “double dip” in Q4 GDP are mounting. European Commission came out and downgraded their forecast for 2021 GDP from 6.1% to 4.2%. Expectations are for Q4 GDP to come in at -0.1% q/q. Forecast is based on no-deal Brexit on December 31.
This week we will have a second estimate of the Q3 GDP.
Important news for EUR:
Friday:
GDP
GBP
BOE has left the bank rate unchanged at 0.10% but they upped the QE program by £150bn to a total of £875bn. They have assessed the economic outlook as uncertain due to the downside skewed risks and are willing to increase their QE commitment in order to meet inflation target in medium-term. They also do not intend to tighten monetary policy until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target. Q4 GDP is now seen falling into contraction and rising in Q1 of 2021. There was no talk about negative interest rates.
With Covid-19 cases rapidly rising prime minister Johnson did not see an alternative but to announce a new lockdown. The new lockdown will be in place until December 2. Pubs and restaurants will be closed, takeaway and delivery will be available. Non-essential retail will also close while schools and universities will remain open. UK extended its wage furlough scheme for the workers until the end of March that will be affected by the lockdown. Workers will receive 80% of their regular pay. Preliminary expectations are that newly imposed lockdowns could decrease November GDP by 6-7%. Impact on Q4 GDP could be even bigger if lockdown is prolonged.
This week we will have employment data and preliminary Q3 GDP reading.
Important news for GBP:
Tuesday:
Claimant Count Change
Unemployment Rate
Thursday:
GDP
AUD
Expectations for RBA easing have been widely spread and RBA delivered. They have cut the cash rate to 0.1% from 0.25% and will cap 3-year yields at 0.1%. They will enlarge their bond buying program by AUD100bn and use it to buy government bonds of 5 to 10-year maturity over the next six months. Additionally, they have clarified that they do not expect to raise the cash rate for at least three years. The measures are intended to spur economic recovery and provide job creation. The unemployment rate is expected to peak just below 8% before decreasing. Bank members see their actions leading to a lower exchange rate for AUD. The bank is prepared to do more if they deem it necessary but governor Lowe stated that introduction of negative rates is “extraordinarily unlikely”.
Official PMI data from China showed a small drop in manufacturing (51.4 from 51.5 in September) while services rose to 56.2 from 55.9 from September thus pushing composite to 55.3 from 55.1 the previous month. All three readings show expansion in China with services picking up in Q3 and following through in Q4. Inland travel promoted by the government had a huge impact on the services industry. Chinese tourists travelled across the China instead of going abroad which lead to increases in jobs as well as money staying within the country. Caixin manufacturing improved to 53.6 from 53 in September due to a strong rise in output indicating strong domestic demand. Caixin services rose to 56.8 from 54.8 in September which pushed composite to 55.7 from 54.5.
This week we will have inflation data from China.
Important news for AUD:
Tuesday:
CPI (China)
NZD
Q3 employment change came in at -0.8% q/q while the unemployment rate climbed to 5.3% as was expected. Participation rate ticked up to 70.1% from 69.9% in Q2 and private wages rose 0.4% q/q vs 0.2% as expected and as was in Q2. Maintaining the unemployment rate this low will be the main challenge for the government and RBNZ. Latest GDT price auction came in at -2% making it the first auction with falling prices since early September. Preliminary business confidence for November improved slightly to -15.6 from -15.7 in October.
This week we will have RBNZ meeting. There are no expectations for a rate cut, however the tone of the statement will be scrutinized.
Important news for NZD:
Wednesday:
RBNZ Interest Rate Decision
CAD
Trade balance in September saw widening of trade deficit to -CAD3.25bn from -CAD3.21bn in August. Exports rose by 1.5% lead by lumber and aircraft while imports rose also by 1.5% thanks to rise in crude oil imports. Exports to countries other than the United States rose 10.9% with exports to the United Kingdom (gold and aircraft), Norway (aircraft and nickel) and Germany (copper and various other products) contributing the most to the growth. Imports from countries other than the United States rose by 2.1%. This makes both exports and imports to countries other than the US surpassing pre-COVID levels (February). Exports to the United States decreased to 1.6% while imports were up 1.2% making total exports CAD2.8bn short of pre-virus levels with imports around CAD1.2bn lower than in February.
October employment report showed a change in employment of 83.6k vs 75k as estimated. The unemployment rate has ticked down to 8.9% while the participation rate jumped to 65.2% from 64.8% in September. Another encouraging sign was that great majority of new jobs (69.1k) were full-time jobs. Labour situation is improving with participation rate almost reaching pre-pandemic levels.
JPY
Final manufacturing PMI for October improved to 48.7 from 48 as preliminary reported moving closer to the 50 level. This is the highest reading since January with new exports orders category growing for the first time in two years. Services reading improved to 47.7 continuing its rise toward expansion and it pushed composite reading to 48. The two readings are also highest since January indicating that economy is gradually moving in the right direction. Wages in Japan are also moving in the right direction but the pace is much slower than desired. September wages came in at -0.9% y/y vs -1.3% y/y in August. Household spending is not following that trend as it plunged -10.2% y/y. Although, we should be mindful that sales tax hike was introduced last October so in previous September there was a high amount of spending in order to circumvent the tax increase, that could explain a bit of the weak reading.
CHF
SNB total sight deposits for the week ending October 30 rose to CHF707.6bn from CHF706.9bn the previous week. CPI in October came in at -0.6% y/y, an improvement from -0.8% y/y in September, Core CPI came in at -0.1% y/y vs -0.3% y/y in September. SNB has already stated that they see deflation in 2021 so these results just reaffirm their view.
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