Quick update: Canadian Dollar dives as BoC sounds cautious in its statement. It notes that "projected export growth is slightly slower than before, in part because of a stronger Canadian dollar than assumed in July. Housing and consumption are forecast to slow in light of policy changes affecting housing markets and higher interest rates". Also, "wage and other data indicate that there is still slack in the labour market. This suggests that there could be room for more economic growth than the Bank is projecting without inflation rising materially above target." More improtantly, "governing Council will be cautious in making future adjustments to the policy rate."
Sterling is the star performer today as stronger than expected GDP data boosts the chance of November BoE rate hike. Euro and Dollar are not too far behind though. The common currency is supported as German Ifo business climate hit record high. That clears another hurdle for ECB to announce tapering of asset purchase tomorrow. Meanwhile, Dollar also remains firm on tax plan hope and expectation of December Fed hike. Data from US are also Dollar supportive. Headline durable goods orders rose 2.2% in September versus expectation of 1.0%. Ex-transport orders rose 0.7% versus expectation of 0.5%. Meanwhile, Aussie remains the weakest one as selloff accelerates after CPI data. Canadian Dollar is also soft ahead of BoC rate decision.
Sterling surges as GDP beats expectations
Sterling powers higher today after stronger than expected GDP data. Q3 GDP growth accelerated to 0.4% qoq, up from prior quarter's 1.3% qoq and beat expectation of 0.3% qoq. The acceleration in growth is certainly welcomed by BoE, which is widely expected to hike interest rate by 25bps in November. The data should also clear some concerns of BoE Deputy Governor Jon Cunliffe, who warned that the economy has "clearly slowed" this year. But then for Sterling traders, it should be noted again that the rise could be short lived. After a November hike, BoE Banks Rate is merely back at pre-Brexit referendum level. The central bank will still more likely hold their hands afterwards, until the Brexit picture becomes clear.
UK Brexit Secretary David Davis told a parliamentary committee today that he aimed to get the outlines of trade agreements agreed in the first quarter of 2018. And, UK would be able to seal the deal by March 2019, the Brexit date. While trade negotiation might start, it's technically impossible for UK, still as an EU member, to signal a trade agreement with EU. But Davis said that it could be signed a "nano second" after the exit.
German Ifo business climate hits all time high
German Ifo business climate rose to 116.7 in October, up from 115.3 and beat expectation at 115.1. That's also the highest level on record. Expectations gauge rose to 109.1, up from 107.5, beat expectation of 107.3. Current assessment gauge also rose to 124.8, up from 123.7 and beat expectation of 123.5. Ifo chief Clemens Fuest said in the statement that "companies are very optimistic about the months ahead. They also upwardly revised their very favorable assessments of the current business situation." Also, "Germany's economy is powering ahead."
ECB is widely expected to announce "recalibration" of the asset purchase program tomorrow. And policymakers have hinted the smaller for longer style of stimulus. That is, ECB would likely cut the monthly asset purchase from current EUR 60B a month. An option is to half the purchase to EUR 30B and extend till September 2018, or lower to EUR 20B and extend till the end of next year. While there are many possibilities for tuning the size and length, the direction is unchanged and the announcement will likely be Euro supportive.
Also released from Europe, Swiss UBS consumption indicator rose to 1.56 in September.
Aussie CPI miss suggests no RBA hike soon
Consumer inflation data from Australia surprised to the downside. Headline CPI rose 0.6% qoq in Q3, below expectation of 0.8% qoq. Annual rate slowed to 1.8% yoy, down from 1.9% yoy and missed expectation of 2.0% yoy. RBA trimmed mean CPI was unchanged at 1.8% yoy, missed expectation of 2.0% yoy. RBA weighted median CPI was unchanged at 1.9% yoy, below expectation of 2.0% yoy. The data suggested that it will be hard for RBA to considering raising interest rate any time soon.
Update on the 19th National Congress of CCP
In China, the 19th National Congress of the Chinese Communist Party culminated with the announcement of the new Politburo Standing Committee (PSC) - the group of officials leading the country in the coming five year. Five out of seven members of the previous PSC were replaced, with only President Xi Jinping and Premier Li Keqiang staying in power. The five new members are Li Zhanshu, Wang Yang, Wang Huning, Zhao Leji and Han Zheng. As we mentioned in the previous report, Li Zhanshu, Zhao Leji, Wang Huning and Chen Min'er have very strong link with President Xi. We are surprised that Chen is not chosen to be the core team. Derailing from the usual practice that has been in place since 1990s, Xi refrained from revealing who his successor is. This suggests that he refuses to step down after the coming 5-year term. More in Chinese Leadership Reshuffle: Xi Tightly Grips Power as He Refuses to Identify Successor
GBP/JPY Mid-Day Outlook
Daily Pivots: (S1) 149.11; (P) 149.60; (R1) 150.06; More
GBP/JPY's rebound from 146.92 resumes after brief consolidation and reaches as high as 151.38 so far. Intraday bias remains on the upside for 152.82 high. Firm break there will confirm resumption of medium term rise from 122.36 and target 163.87 resistance next. On the downside, break of 149.11 minor support will turn bias to the downside and extend the correction from 152.82. In that case, we'd expect strong support from 61.8% retracement of 139.29 to 152.82 at 144.45 to bring rebound.
In the bigger picture, medium term rebound from 122.36 is still expected to resume after corrective pull back from 152.82 completes. Firm break of 38.2% retracement of 196.85 to 122.36 at 150.43 will carry long term bullish implications. In that case, GBP/JPY could target 61.8% retracement at 167.78. However, break of 139.29 will indicate rejection from 150.43 key fibonacci level. And the three wave corrective structure of rebound from 122.36 will argue that larger down trend is resuming for a new low below 122.26.
Economic Indicators Update
|00:30||AUD||CPI Q/Q Q3||0.60%||0.80%||0.20%|
|00:30||AUD||CPI Y/Y Q3||1.80%||2.00%||1.90%|
|00:30||AUD||CPI RBA Trimmed Mean Q/Q Q3||0.40%||0.50%||0.50%|
|00:30||AUD||CPI RBA Trimmed Mean Y/Y Q3||1.80%||2.00%||1.80%|
|00:30||AUD||CPI RBA Weighted Median Q/Q Q3||0.30%||0.50%||0.50%|
|00:30||AUD||CPI RBA Weighted Median Y/Y Q3||1.90%||2.00%||1.80%||1.90%|
|06:00||CHF||UBS Consumption Indicator Sep||1.56||1.53|
|08:00||EUR||German IFO - Business Climate Oct||116.7||115.1||115.2||115.3|
|08:00||EUR||German IFO - Expectations Oct||109.1||107.3||107.4||107.5|
|08:00||EUR||German IFO - Current Assessment Oct||124.8||123.5||123.6||123.7|
|08:30||GBP||GDP Q/Q Q3 A||0.40%||0.30%||0.30%|
|08:30||GBP||GDP Y/Y Q3 A||1.50%||1.50%||1.50%|
|08:30||GBP||Index of Services 3M/3M Aug||0.40%||0.40%||0.50%|
|12:30||USD||Durable Goods Orders Sep P||2.20%||1.00%||2.00%|
|12:30||USD||Durables Ex Transportation Sep P||0.70%||0.50%||0.50%|
|13:00||USD||House Price Index M/M Aug||0.70%||0.40%||0.20%||0.40%|
|14:00||CAD||BoC Rate Decision||1.00%||1.00%||1.00%|
|14:00||USD||New Home Sales Sep||667K||556K||560K||561K|
|14:30||USD||Crude Oil Inventories||-2.6M||-5.7M|