RBNZ meeting will dominate the week ahead of us with preliminary PMI data from Eurozone, the UK and Japan following suit. Thanksgiving holiday falls on Thursday, stock and bond markets will be closed on that day and close early on Black Friday as well, thus significantly lowering liquidity in the market.
USD
October retail sales came in at 1.7% m/m vs 0.8% m/m as expected indicating that holiday shopping came early this year. This could be seen in non-store retailers posting a jump of 4% m/m. Additionally, high gasoline prices attributed to the rise in retail sales. Ex-autos category also rose 1.7% m/m. Control group, data from it is used for GDP calculation, came in at 1.6% m/m vs 0.9% m/m as expected, thus pointing to a strong start to Q4 and potential for GDP to reach 6% in the stated quarter. Industrial production snapped a streak of 5 drops in yearly figures and in October came in at 5.1% y/y, up from 4.6% y/y in September. President Biden announced that he will announce his decision regarding next Fed Chairman before Thanksgiving. Current chairman Powell and Lael Brainard are candidates for the spot.
This week we will have second reading of Q3 GDP, Fed’s preferred measure of inflation (PCE) and FOMC minutes from the latest meeting.
Important news for USD:
Wednesday:
GDP
PCE
FOMC Minutes
EUR
Eurozone trade balance in October slumped to €6.1bn from €11.1bn in September. This is the first time that surplus was a single digit number since April of 2020. To further complicate the things and show how supply chain issues are devastating exporting countries the September reading was downgraded to €9.7bn. Q3 GDP second reading came in unchanged from the preliminary reading at 2.2% q/q and 3.7% y/y. Final inflation reading for the month of October showed headline number unchanged at 4.1% while core ticked down to 2% y/y from 2.1% y/y as preliminary reported. ECB sticks with their “transitory inflation” narrative and core staying at their targeted level leaves them with enough room to remain patient.
This week we will have preliminary November PMI readings, expected to point to further declines but still stay safely in the expansion territory.
Important news for EUR:
Tuesday:
Markit Manufacturing PMI (EU, Germany, France)
Markit Services PMI (EU, Germany, France)
Markit Composite PMI (EU, Germany, France)
GBP
October claimant counts came in at -14.9k vs -51.1k in September which led claimant count rate to drop to 5.1% from 5.2% the previous month. The ILO unemployment rate for September dropped to 4.3% from 4.5% in August with employment change showing 247k 3m/3m. Earnings showed a slight declines from the elevated levels seen in the previous months but that is no way detracting from a strong labor market which now shows 32.52m people employed. Additionally, earnings are higher than inflation. The expected rise in the unemployment rate after the furlough scheme ended is missing thus giving another nudge for BOE to go for a hike in December. They will have one more employment report before the meeting.
October inflation figures went through the roof with headline jumping to 4.2% y/y vs 3.9% y/y as expected and up from 3.1% y/y in September. The jump in core was less pronounced as it came at 3.4% y/y vs 3% y/y as expected and up from 2.9% y/y the previous month. Household and household services were the biggest contributor, electricity, gas and other fuels leading the way, while transport and restaurants and hotels also pushed prices higher. The reading should add more credence to the theory that BOE will hike 15bp in December and GBP is gaining strength on the back of it.
AUD
RBA minutes from the November meetings reiterated that the bank is not going to raise interest rates until wage growth and inflation targets are met. According to their central scenario these conditions will not be met until 2024. The bank did leave room open for a potential rate hike in 2023 if the criteria is met. RBA Governor Lowe stated in speech that underlying inflation of 2.5% will warrant a rate hike. He added that inflation needs to persistently stay in their targeted range of 2-3% for the rate hike to occur. Additionally, if the prices start rising sharply it will have different effects on policy, however, transitory spikes in core inflation will be overlooked if they are not followed by the growth in wages. Wage price index for Q3 came in at 0.6% q/q and 2.2% y/y, as was expected, thus confirming wage growth inadequate for a rate hike in 2022. RBA wants to see wages above 3% y/y in order to sustain inflation within the 2-3% targeted range.
Data from China showed improvements. Industrial production snapped a seven-month streak of declines in October and came at 3.5% y/y vs 3.1% y/y in September. Retail sales continued to improve and now we have a two months of improving data. October reading came in at 4.9% y/y, up from 4.4% y/y in September. Digging further into the details we can see mining contributing the most to the rise in industrial production while the beginning of the spending season prompted retail sales higher.
NZD
GDT price index came in at 1.9%, continuing its rise for the third consecutive auction. RBNZ’s Q4 survey of 2-year inflation expectations came in at 2.96% vs 2.27% in Q3. For the 1-year inflation expectation the reading printed 3.7%, up from 3.02% in Q3. The results give near certainty to the new 25bp rate hike at the upcoming RBNZ meeting while a possibility of a 50bp rate hike starts to gain traction.
This week we will have consumption data for Q3 as well as RBNZ meeting. All of the incoming data was uplifting so we expect RBNZ to continue down the rate hike path and hike by 25bp.
Important news for NZD:
Monday:
Retail Sales
Wednesday:
RBNZ Interest Rate Decision
CAD
Headline inflation in October continued to rise according to the trend from around the world. The reading printed 4.7% y/y, up from 4.4% y/y in September and it is now at the highest level since February of 2003. All of the inflation components rose with the biggest rise seen in transport category. Its rise was spurred by the exploding energy prices, gasoline primarily. Core readings were unchanged with median, common and trim readings coming in at 2.9% y/y, 1.8% y/y and 3.3% y/y respectively.
JPY
Q3 GDP data came in at -0.8% q/q vs -0.2% q/q and -3% y/y vs -0.8% y/y as expected. Household consumption fell -1.1% q/q while business investment fell by -3.8% q/q. Exports were down -2.1% q/q and it represents the first fall in 5 quarters. GDP deflator, measurement of inflation, came in at -1.1% q/q, continuing to decline making it a third consecutive declining quarter. Abysmal data was led by declines in autos (both investment and consumption) as well as household electronic consumption. Q3 was heavily impacted by the states of emergencies and other covid induced movement restrictions. Since they are now behind us we may expect to see a bounce back in Q4.
The government has revealed its stimulus package over the weekend and it is said to be north of JPY40 trillion. There will be JPY100k handouts in cash and vouchers for underage children as well as for students facing financial difficulties. The stimulus will also include aid of up to JPY2.5m per business for businesses suffering from virus caused issues. Japanese cabinet has approved the package and total size will be JPY55.7 trillion.
CHF
SNB total sight deposits for the week ending November 12 came in at CHF719.2bn vs CHF718.4bn the previous week. With EURCHF persistently below the 1.06 level, hovering around 1.0540, the SNB sees the need to increase their intervention in the markets by buying EUR and thus attempting to lift up the pair. During the week EURCHF pair has dropped below the psychological 1.05 level so total sight deposits in the coming weeks will show SNB’s resolution to fight the Swissy strength.
This week we will have Q3 GDP data.
Important news for CHF:
Friday:
GDP
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Please note that this analysis should not be used as investing advice as it is only an overview of the economic events influencing the markets. Please remember that our accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.
