Fed’s, ECB’s and SNB’s interest rate decisions along with the General Election in UK will be the main movers of the week with the first results of the election being published on Friday morning volatility on all GBP pairs will be increased.
USD
ISM manufacturing index for November came in at 48.1 vs 49.2 as expected and down from 48.3 the previous month. Not only did the expected rebound in manufacturing missed but the decline continued as well. New order and employment sub indices dropped the most while the production index was up. ISM non-manufacturing index also came weaker than expected with 53.9 vs 54.5. Employment sub index showed an improvement but huge drop in production index pushed the overall index down. The US economy is slowing down in Q4 according to these numbers. Trade balance in October came in at -$47.2bn vs $-48.5bn as expected. Lower deficit was achieved in the worst possible way by both falling export (-0.2%) and falling imports (-1.7%). Trade deficit with China fell to -$27.8bn which is a 7-month low.
NFP in November came in at 266k vs 180k as expected. The unemployment rate dropped to 3.5% from 3.6% the previous month, however participation rate also dropped to 62.3% from 62.3% the previous month. Average hourly earnings climbed to 3.1% y/y vs 3% y/y the previous month and underemployment ticked to 6.9% from 7%. This is a very strong report that will cement Fed’s decision to keep the rates on hold.
This week we will have inflation and consumption data with interest rate decision as the highlight of the week. The rate is expected to stay the same, so all of the attention will be on new economic projections and the accompanying press conference.
Important news for USD:
Wednesday:
CPI
Fed Interest Rate Decision
FOMC Press Conference
FOMC Economic Projections
Friday:
Retail Sales
EUR
Final Eurozone manufacturing PMI for November came in at 46.9 vs 46.6 preliminary on the back of improved German 44.1 and French 51.7 readings. The reading is slowly moving in the right direction and it looks like manufacturing PMI has bottomed out in September. Final services PMI came in at 51.9 vs 51.5 preliminary on the back of improved German and Spanish readings which propped composite up to 50.6 vs 50.3. Overall economic conditions in the EU are improving slowly as composite stays in the expansion territory.
Retail sales in October came in at -0.6% m/m vs -0.5% m/m as expected and down from 0.1% m/m the previous month. Bigger than expected slump to indicate weak start of Q4. Consumers are holding back, however the holiday season will bring retail sales back up. Final reading of Q3 GDP came in line with previous readings at 0.2% q/q and 1.2% y/y.
This week we will have ZEW survey, industrial production data and the first ECB monetary policy press conference led by new governor Lagarde. No changes to monetary policy are expected. In her first testimony she was not as dovish as expected which pushed EUR higher.
Important news for EUR:
Tuesday:
ZEW Economic Sentiment Index (EU and Germany)
Thursday:
Industrial Production
ECB Interest Rate Decision
ECB Monetary Policy Press Conference
GBP
Final manufacturing PMI for November came in at 48.9 continuing with contraction. Services also continued to be in contraction territory, however the reading improved to 49.3 vs 48.6 preliminary. Markit notes that after November’s PMI reading Q4 is projected at -0.1% q/q.
Latest election polls still show a double-digit lead for the Tory party. PM Johnson said that the UK will leave the EU by the end of January if the Tory party wins the majority.
This week we will have GDP as well as manufacturing and industrial data. Thursday is the day when elections will be held.
Important news for GBP:
Tuesday:
GDP
Manufacturing Production
Industrial Production
Construction Output
Thursday:
General Election
AUD
RBA has left the key rate at 0.75% as widely expected. Rates will remain low for a prolonged period of time and RBA is ready to further ease monetary policy if need arises. The decision to stay on hold with rates was necessary due to long lags in transmission of monetary policy. Lower rates are supporting employment and income growth. Outlook for the global economy has improved but risks connected to it are still tilted to the downside. The Australian economy appears to have reached a gentle turning point according to them. RBA’s next meeting is in February 2020 so although they hinted that they will hold rates steady there will be plenty of data to digest until the next meeting.
Q3 GDP came in at 0.4% q/q vs 0.5% q/q as expected but Q2 GDP has been revised up to 0.6% q/q which gives the more upbeat tone to the weak reading. Yearly GDP came in at 1.7% y/y as expected and up from 1.4% y/y the previous quarter. Consumption and exports were the main contributors to the GDP growth. Slow economic growth is the main reason for RBA to keep the rates low and if weakness in GDP persists, they may be pushed to lower them in H1 of 2020.
Trade balance for October came in at AUD4502m vs AUD6500m as expected. The big drop from the previous number of AUD7180m was due to the falling exports while imports remained flat. This is a very concerning sign since exports to China constitute 40% of total exports. Retail sales came in flat vs 0.3% m/m as expected adding another weak data point. Higher food sales managed to keep the reading flat while sales of household goods showed -0.8% y/y.
Official PMI numbers from China show improvement all over the board. Manufacturing PMI came in at 50.2 returning to the expansion territory for the first time since April. The new export orders also made a 7-month high. Services PMI came in at 54.5 vs 53.1 as expected which pushed the composite to 53.7 vs 52 the previous month. Government’s stimulus is producing results as the readings show. Caixin manufacturing PMI came in at 51.8 vs 51.7 the previous month for a fourth consecutive reading above 50. Caixin services PMI smashed the expectations coming in at 53.5 vs 51.2 as expected pushing composite PMI to 53.2 vs 52 the previous month.
This week we will have a speech by governor Lowe and inflation data from China.
Important news for AUD:
Monday:
RBA Governor Lowe Speech
Tuesday:
CPI (China)
NZD
First dairy auction of the month came in at -0.5% making it the first drop after four consecutive auctions of rising prices. NZD has started the week strong on the back of trade optimism and better than expected China data and rode on that strength till the end of the week. RBNZ governor Orr stated that they are in “hold phase” of monetary policy thus adding more to NZD strength.
This week we will have data on electronic card consumption.
Important news for NZD:
Tuesday:
Electronic Card Retail Sales
CAD
BOC has left the rate unchanged at 1.75% as widely expected. They see signs of the global economy stabilizing and feel that it is appropriate to keep rates at the current level. Inflation is around 2% and they expect it to stay close to 2% in the next 2 years. Future decisions will be guided by the BOC’s monitoring of consumer spending and housing markets and the damage from trade wars. Overall tone of the statement was neutral. Trade balance in October came in at -CAD1.08bn vs -CAD1.45bn as expected. Exports were up 0.8% while imports were up 0.5% indicating both strong external and domestic demand. Exports to China plunged 19.3% for a biggest drop since 2012 thus further increasing the deficit in trade. Consumer goods were the largest contributor to exports.
Net change in employment in November came in at -71.2k vs 10k as expected. Both full-time and part-time employment change showed a significant decline which propelled the unemployment rate to 5.9% vs 5.5% the previous month. Abysmal numbers came after the BOC decision to keep rates on hold. This will surely make them reconsider next their decision at their next meeting.
This week we will have a speech by governor Poloz.
Important news for CAD:
Thursday:
BOC Governor Poloz Speech
JPY
Final manufacturing PMI came in at 48.9 vs 48.6 preliminary while services PMI came in at 50.3 vs 50.4 preliminary but back in expansion territory from 49.7 in October for composite of 49.8. Q3 capex data came in at 7.1% y/y vs 1.9% y/y in the Q2. Next week’s Q3 GDP projection has been revised up on the back of strong capex data. Household spending in October came in at -5.1% y/y vs -3.2% y/y as expected due to sales tax hike. Average wages came in at 0.5% y/y, same as previous month.
Economic stimulus package in the amount of 26 trillion of which central government is 7.6 trillion. Japanese government further opening its purse to stimulate the economy and it is expected that it will push GDP up by 1.4%.
This week we will have final Q3 GDP and industrial production data as well as machinery orders data.
Important news for JPY:
Monday:
GDP
Thursday:
Core Machinery Orders
Friday:
Industrial Production
CHF
October’s retail sales came in at 0.7% y/y vs 1.6% y/y (revised up from 0.9 originally). The huge revision to previous month’s reading gives more positive note to October reading. November CPI came in at -0.1% m/m and -0.1% y/y as expected while core measure ticked up to 0.4% y/y from 0.2% y/y the previous month. The small rise in core reading will be welcomed by SNB, but considering the distance from the targeted inflation it is almost negligible.
This week we will have employment data and SNB rate decision.
Important news for CHF:
Monday:
Unemployment Rate
Thursday:
SNB Interest Rate Decision
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