USD
FED’s Clarida came out on Tuesday with a hawkish statement reiterating that gradual rate hikes are appropriate as data shows the way to neutral stance.
He added that it is important to see capital expenditures rebound after soft numbers in Q3. He also characterized US economic fundamentals as “robust”, GDP growth as “strong” and the labour market as “healthy”. Inflationary expectations are the main focus now and he expects inflation to remain anchored.
Second reading of Q3 GDP came in at 3.5% as expected. Personal Consumption came in at 3.6% vs 3.9% as expected. Core PCE came in at 1.5% vs 1.6% as expected. Wholesale inventories for the month of October rose 0.7% vs 0.4% as expected. Rise in inventories is troubling as it could be a result of massive imports and stockpiling done before the implementation of US tariffs.
Advanced Goods Trade Balance data came in at -$77.25bn vs -$77bn as expected with -$76.3bn the prior month. This is the highest trade deficit. Especially worrying is the fact that exports fell -0.6% in the month of October signalling decreased demand for US products abroad. Additionally, the strong dollar has made US goods somewhat less appealing for foreign countries.
FED Chairman Powell stated that rates are “just below” neutral range. Back in October he said that we are “a long way from neutral at this point”. His message was interpreted as overly dovish by the market and USD lost more than 100 pips against major currencies in first 2 hours after the statement. This seemed like an overreaction. The FED’s own estimates set the neutral rate in a range of 2.5-3.5 percent, with most policymakers’ bets clustered at the midline of this band at 3 percent. That is about 75-100bps away from the current 2-2.25 percent target FED Funds rate range which leaves room for additional rate hikes in 2019.
Core PCE inflation for the month of October came in at 1.8% y/y vs 1.9% y/y as expected, on the monthly level it came in at 0.1% m/m vs 0.2% as expected. Both personal spending and personal income beat expectations with the former coming in at 0.6% vs 0.4 as expected and the latter coming in at 0.5% vs 0.4% as expected. FED has turned its stance to data dependent so the core PCE is worrisome but rise in personal spending and income are encouraging.
This week we will have PMI data, FED Beige Book, Trade Balance and employment data on Friday. Data coming from the US will be closely monitored from now on since the FED has emphasized data dependence in its rhetoric. NFP will as always be a huge event with the headline number moving the markets, however much more important for FED will be data on Average Hourly Earnings.
Important events for USD:
Monday:
Markit Manufacturing PMI
ISM Manufacturing PMI
Wednesday:
Markit Services PMI
Markit Composite PMI
ADP Nonfarm Employment Change
Unit Labor Cost q/q
ISM Non-Manufacturing PMI
FED Beige Book
Thursday:
Trade Balance
Friday:
Nonfarm Payrolls
Unemployment Rate
Participation Rate
Average Hourly Earnings m/m
Average Hourly Earnings y/y
EUR
The ECB President Draghi stated that incoming data has been somewhat weaker than expected but that the slowdown may be temporary. According to Draghi, significant monetary policy stimulus is still needed and the ECB continues to anticipate the net asset purchase program to end. He remains confident that underlying inflation will gradually rise in the period ahead. Draghi added that World Trade Growth momentum has slowed “considerably” and that it is expected for headline inflation to fall in line with the decline of oil prices.
Recent news and developments suggest that President Trump could impose 25% tariffs on import duty on car imports from all countries except Canada and Mexico after the G20 Summit which could have a huge negative impact on German auto industry.
Preliminary CPI core reading for the month of November softened to 1% vs 1.1% as expected with headline CPI coming in at 2% as expected. Unemployment ticked up to 8.1% vs 8% the previous month. It is still at the very low levels signalling a strong and tight labour market.
This week we will have data on PMI from Germany as well as from EU, consumption, employments and 3rd estimate of Q3 GDP.
Important events for EUR:
Monday:
Markit Manufacturing PMI (Germany)
Markit Manufacturing PMI
Tuesday:
PPI m/m
PPI y/y
Wednesday:
Markit Services PMI (Germany)
Markit Composite PMI (Germany)
Markit Services PMI
Markit Composite PMI
Retail Sales m/m
Retail Sales y/y
Friday:
Industrial Production m/m
Industrial Production y/y
Employment Change q/q
Employment Change y/y
GDP q/q
DP y/y
GBP
The EU-Brexit deal was adopted very quickly by the EU. BOE and the UK Treasury came out with pessimistic forecasts for the British economy post-Brexit. According to them worries have not been fully priced in by the GBPUSD and GBP crosses. Brexiteers immediately attacked the forecasts stating that they are merely a part of “Project Fear” designed by the anti-Brexit camp to weaken Brexit sentiment. The Brexit vote will take place on December 11 and markets will get more nervous as we close in on that date.
This week we will get PMI data as well as more headlines regarding the Brexit process as we get closer to voting in the Parliament.
Important events for GBP:
Monday:
Markit Manufacturing PMI
Wednesday:
Markit Services PMI
AUD
Data regarding construction work completed in Q3 came in at -2.8% q/q vs 0.9% as expected. Numbers are much weaker than expected and this sharp fall will negatively impact GDP growth. Capex data for Q3 came in weaker than expected at -0.5% q/q vs 1% as expected. The weaknesses are seen in building and structures but equipment spending surprised to the upside.
This week we will have RBA Interest Rate Decision, expected to stay unchanged, followed by Rate Statement for further direction on monetary policy. Additionally we will have data regarding housing, current account, consumption, trade balance and GDP data for Q3.
Important events for AUD:
Monday:
Building approvals m/m
Business inventories q/q
Caixin Manufacturing PMI (China)
Tuesday:
Current Account
RBA Interest Rate Decision
RBA Rate Statement
Wednesday:
GDP q/q
GDP y/y
Caixin Services PMI (China)
Thursday:
Retail Sales m/m
Trade Balance
NZD
Retail sales for Q3 came in unchanged at 0% q/q vs 1.0% q/q as expected. This is a big miss and can have an impact on the GDP which RBNZ is closely monitoring to decide the next move in regards to interest rates. Sharp falling oil prices can be attributed to Q3 retail sales number but we will have to wait and see how RBNZ will interpret this number. Trade balance for month of October came in at -1295m NZD vs -850m NZD as expected. Exports were higher coming in at 4.88bn NZD and imports were higher as well coming in at 6.15bn NZD, highest ever imports in a month. Large import number is attributed to crude imports at high prices. Trade balance deficit grew to -5.79bn NZD which is the largest deficit in a decade.
Financial Stability Report announced that mortgage lending restrictions will be loosened from January 1st. Risks to financial stability have eased on the domestic side, however global risks have risen.
This week we will have dairy auction and it will be interesting to see if it will bring the stop to the falling dairy prices.
Important events for NZD:
Tuesday:
GDT Price Index
CAD
S&P affirmed Canada’s AAA rating with a stable outlook. Rating is unchanged since 2002. The priced-in probability of a rate hike in January fell to the lowest in a month, although trades still see the odds of an increase at 68.5 percent.
Current account balance for Q3 came in at -10.34bn CAD vs. -12.00bn CAD as expected with -16.67bn CAD for the Q2. Biggest drop was made in goods and services account which dropped to -8bn CAD from -12.7bn CAD in the previous quarter. Net goods trade deficit fell to -1.72 bn CAD vs – 5.67bn CAD the previous quarter. Oil fell below $50 for the first time since October 2017.
First reading of GDP for Q3 shows that it came in at 2% as expected.
This week we will have PMI data and trade balance data. BOC is expected to leave the interest rate as it is and keep the hawkish tone, maybe even add some optimism due to the signing of USMCA deal at the G20 Summit. OPEC meeting in Vienna on Thursday will be of huge importance for Oil, Canada’s leading export and therefore for the CAD. Employment data on Friday will also be of high importance for CAD.
Important events for CAD:
Monday:
Markit Manufacturing PMI
Wednesday:
BOC Interest Rate Decision
BOC Rate Statement
EIA Crude Oil Stocks Change
Thursday:
OPEC Meeting
Trade Balance
Ivey PMI
BOC Governor Poloz Speach
Friday:
Employment Change
Unemployment Rate
Participation Rate
JPY
The preliminary Nikkei Manufacturing PMI for the month of November came in at 51.8 vs 52.9 the prior month. This is lowest result in two years with new orders falling into contraction which is a worrying development and dampens hopes of a rebound.
Retail sales for the month of October came in at 1.2% m/m vs 0.4% m/m as expected and 3.5% y/y vs 2.7% y/y as expected. Figures beat the expectations and it may finally give some much-needed boost to the Japanese inflation.
Unemployment ticked up a bit to 2.4% vs 2.3% as expected. Job to application ratio ticked down to 1.62 vs 1.64 the previous month. Unemployment is still at extremely low levels so all attention was on the inflation figures. Tokyo CPI came in at 0.8% vs 1.1% with prior reading showing 1.5%. Fallout in the headline figure can be attributed to falling oil prices. CPI excluding fresh food and energy (this is the data BOJ uses when evaluating inflation) came in at 0.6% as expected. Still a long way from the targeted 2%.
This week we will have PMI data as well as data on household spending.
Important events for JPY:
Monday:
Nikkei Manufacturing PMI
Wednesday:
Nikkei Services PMI
Friday:
Household Spending m/m
Household Spending y/y
CHF
Swiss GDP for Q3 came in at -0.2% q/q vs 0.4% as expected and 2.4% y/y vs 2.9% as expected. Contraction for the Swiss economy is an unpleasant surprise. Exports and imports both fell heavily in the Q3 with exports falling 4.2% q/q.
This week we will have data on consumption and inflation.
Important events for CHF:
Monday:
Retail Sales m/m
Retail Sales y/y
Tuesday:
CPI m/m
CPI y/y
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