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Fed chair Powell press conference live stream
Fed keeps interest rate unchanged at 5.25-5.50%, full statement
Fed keeps interest rates unchanged at 5.25-5.50% as widely expected, by unanimous vote.
Full statement below:
Recent indicators suggest that economic activity expanded at a strong pace in the third quarter. Job gains have moderated since earlier in the year but remain strong, and the unemployment rate has remained low. Inflation remains elevated.
The U.S. banking system is sound and resilient. Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. The Committee will continue to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lisa D. Cook; Austan D. Goolsbee; Patrick Harker; Philip N. Jefferson; Neel Kashkari; Adriana D. Kugler; Lorie K. Logan; and Christopher J. Waller.
US ISM manufacturing plummets to 46.7, longest contraction streak since Great Recession
In an alarming development for the US economy, ISM Manufacturing PMI for October has nosedived to 46.7, a stark contrast from last month’s 49.0 and shattering expectations which had anticipated it to remain steady. This marks the twelfth month in a row where the PMI has stayed below the critical 50-point mark, signaling a contraction in manufacturing activity. This persistent downturn is reminiscent of the distressing times during the 2007-2009 Great Recession.
Digging deeper into the data, new orders saw a decrease, moving from 49.2 to 45.5. This now marks the 14th month where new orders have contracted. Production levels, too, experienced a decline, sliding from 52.5 to a borderline 50.4. Employment metrics were not immune either, plummeting from 51.2 to 46.8. However, there was a minor uptick in prices, which moved from 43.8 to 45.1.
The ISM’s statement offered some insight into the broader implications of this data. They pointed out, “The correlation between the Manufacturing PMI and the entirety of the US economy suggests that the October reading of 46.7 percent equates to a decrease of minus-0.7 percent in real GDP, when viewed on an annualized basis.”
US ADP jobs grows 113k, slowing wage momentum
US ADP private sector employment gains in October fell short of expectations, with an addition of 113k jobs as opposed to the anticipated 135k. A breakdown by industry shows a modest increase of 6k in goods-producing jobs, while service sector added 107k. When considering the size of establishments, small firms contributed 19k jobs, medium-sized businesses accounted for 78k, and large enterprises added 18k.
A notable trend emerged in the wage segment. Employees who remained in their current positions reported a year-over-year pay growth of 5.7%, marking the slowest rate since October 2021. On the other hand, individuals who switched jobs experienced an 8.4% rise in wages, which is the least impressive figure since July 2021.
Nela Richardson, ADP’s Chief Economist stated, “October didn’t see a particular industry taking the lead in hiring. Moreover, the significant wage hikes we observed in the post-pandemic phase seem to be waning.”
She further added, “The data from October offers a comprehensive view of the employment sector. Although there’s a deceleration in the job market, it’s still adequately robust to sustain vigorous consumer expenditure.”
UK manufacturing downturn persists: PMI edges up but optimism plummets
UK PMI Manufacturing data was finalized at 44.8 in October, marking a modest improvement from September’s 44.3. However, the report by S&P Global underscores some concerning aspects: declining output, a drop in new orders, and shrinking employment. Furthermore, business optimism has plunged to a ten-month low.
Rob Dobson, Director at S&P Global Market Intelligence, underscored the severity of the situation. “The UK manufacturing downturn persisted at the outset of the final quarter, exacerbating the economy’s flirtation with recession,” he said.
“The ongoing contraction in production for eight straight months, the longest since the 2008-09 period, is primarily due to subdued domestic and international demand, resulting in a continued downturn in new order intakes.”
Dobson highlighted the skewed risks towards a negative outlook, with businesses’ growing caution leading to employment cuts, reduced purchasing, and lower inventory levels.
Although there’s a silver lining with a slight ease in input prices and output charges, Dobson warned that this faint inflation relief comes with an increased risk of recession, stemming from the prevailing weak demand.
Market eyes treasury refunding ahead of FOMC hold
Fed is widely anticipated to keep interest rates steady at 5.25-5.50%, marking a second consecutive pause. While the accompanying statement and Chair Jerome Powell’s press conference are expected to keep options open for future rate hikes, the focus will be on how firmly Powell adheres to his hawkish stance, hinting at the likelihood of an additional hike in December.
Recent comments from Fed policymakers have pointed to the rise in longer-term borrowing costs and the subsequent tightening of financial conditions as factors reducing the urgency for further tightening. Powell’s insights on this matter will be of particular interest to market participants.
However, substantial comments from Powell may be scarce at this juncture, given that the next set of economic projections, crucial for determining future policy, are set to be prepared and released in December. As a result, today’s FOMC decision might not deliver significant revelations.
In fact, a potentially more market-moving event could be the quarterly treasury refunding announcement preceding the FOMC decision. Investors already received a glimpse into the Treasury’s plans on Monday, with the announcement of a USD 776B debt auction for the last quarter of 2023. Key aspects that markets will scrutinize include the actual sizes of the auction and the mix of maturities.
The treasury market is currently grappling with a supply-demand mismatch, a significant factor contributing to the sharp rise in bond yields this year. Understanding how the Treasury plans to address this imbalance will be critical for investors, potentially overshadowing the FOMC decision in terms of immediate market impact.
China’s Caixin PMI manufacturing slips to 49.5, business optimism continues to wane
China’s Caixin PMI Manufacturing index slipped from 50.6 in September to 49.5 in October, falling below market expectations set at 50.8. This marks a renewed contraction in the nation’s manufacturing sector.
Wang Zhe, Senior Economist at Caixin Insight Group, highlighted several challenges facing the manufacturing industry. “Overall, manufacturers were not in high spirits in October,” he said. The decline in the sector was multifaceted – supply, employment, and external demand all experienced reductions, while domestic demand saw a slower pace of expansion.
The manufacturing environment was further complicated by rising costs and output prices. This was coupled with decrease in purchases and accumulation of inventories of finished goods. Reflecting the various pressures, “business optimism continued to wane”.
Kanda announces Japan is on “standby” as Yen plunges past 151 to Dollar
Amid the resumed selloff of Yen, which broke 151 level against Dollar overnight, Japan’s top currency official, Masato Kanda, has issued a stern verbal warning. The Vice Finance Minister for International Affairs emphasized that Japan remains vigilant and “on standby” to mitigate the excessive volatility observed in the currency markets.
However, Kanda refrained from divulging specific details on potential interventions. “But I can’t say what we’ll do, and when — we’ll make judgments overall, and we’re making judgments in a state of urgency,” he added.
Kanda voiced significant concern over the rapid and one-sided shifts in currency values, stressing the importance of calibrated responses against overblown foreign exchange movements. He emphasized that fundamental economic indicators don’t justify such abrupt currency shifts, hinting at other factors at play. “Speculative trading seems to be the biggest factor behind recent currency moves,” Kanda observed.
“The yen has weakened close to 25 yen against the dollar from the start of the year, and it’s also moved a few yen in a short amount of time,” he noted, highlighting the dramatic shift in the currency’s value.
Japan PMI manufacturing: Slump continues, yet optimism shines for 2024
Japan’s PMI Manufacturing for October was finalized at 48.7, a slight uptick from 48.5 in September. Despite the improvement, the index languished below the critical 50 threshold for the fifth consecutive month.
S&P Global’s analysis revealed that a significant decline in output occurred due to persisting sales reductions. This challenging environment also led to the first drop in employment figures since the beginning of 2021. On the brighter side, confidence remains robust regarding a potential return to growth in 2024.
Usamah Bhatti, representing S&P Global Market Intelligence, commented on the situation, emphasizing the continued hardships faced by the manufacturing sector. He mentioned the strategic measures companies are adopting to counter these challenges, including curtailed purchasing, optimal inventory management, and not filling vacancies created by departing employees.
However, the silver lining seems to be the positive outlook for the future. Bhatti noted that there’s optimism about finding a turning point soon, with many companies expecting a shift in the inventory cycle after extended destocking periods. Moreover, demand from Japan’s primary industrial sectors is projected to pick up in the coming year, potentially heralding better days for the nation’s manufacturing realm.
IMF to RBA: More tightening needed to curb inflation
In a report on Australia’s economy, IMF highlighted concerns about persistent inflation levels in the country. Even though inflation is “gradually declining”, it continues to hover “significantly above” RBA’s target, with the country’s output “remains above potential.”
The IMF staff “recommend further monetary policy tightening”. They believe this approach will realign inflation with RBA’s target range by 2025 and “minimize the risk of de-anchoring inflation expectations.”
In terms of economic momentum, the IMF predicts a further slowdown in the near future, coinciding with a steady decrease in inflation. While risks to growth appears “broadly balanced”, the potential for inflation to surpass expectations remains a cause for concern.
NZ employment down -0.2% in Q3, unemployment rate jumps to 3.9%
New Zealand’s employment figures for Q3 came in weaker than anticipated. Employment contracted by -0.2%, sharply diverging from the forecasted growth of 0.40%.
Unemployment rate made a noticeable leap, rising from 3.6% to 3.9%, a figure that met market expectations. Additionally, both employment rate and labor force participation rate registered declines, moving from 69.8% to 69.1% and from 72.5% to 72.0% respectively.
Wage data presented a mixed picture. The all-sector wage inflation stood firm at 4.3% yoy.
The public sector experienced a particularly sharp uptick in salaries and wages, registering a 5.4% yoy increase. This significant rise is notable for being the steepest since the data series commenced in 1992, surpassing 4.2% yoy growth observed in Q2.
In contrast, the private sector saw wage cost inflation moderating to 4.1% yoy in Q3, slightly down from the 4.3% recorded in the previous quarter.
US consumer confidence fell to 102.6, third month of decline
Conference Board’s Consumer Confidence Index in the US recorded a dip in October 2023, falling from 104.3 to 102.6, though it managed to beat the anticipated 100.4. This decline marks the third consecutive month where consumer confidence has waned. Breaking it down further, Present Situation Index saw a decrease from 146.2 to 143.1, while Expectations Index also experienced a slight drop, moving from 76.4 to 75.6.
Dana Peterson, Chief Economist at Conference Board, highlighted, “Consumer confidence fell again in October 2023, marking three consecutive months of decline.” This drop in confidence reflects concerns in both the present economic conditions and future expectations.
One of the primary worries for consumers remains the rising prices, particularly noticeable in groceries and gasoline. These increasing costs continue to be a major concern, influencing overall consumer sentiment.
In addition to economic factors, political uncertainty and escalating interest rates have also contributed to the decline in confidence. Furthermore, increasing tensions and unrest in the Middle East have heightened worries around war and conflicts, adding another layer of apprehension among consumers.
Canada’s GDP essentially unchanged in Aug, missed expectations
Canada’s GDP was flat at 0.0% mom in August, essentially unchanged for a second month, below expectation of 0.1% mom growth. Services producing industries edged up by 0.1% mom in the month while goods-producing industries contracted -0.2% mom. Overall, 8 of 20 industrial sectors increased.
Statistics Canada noted, “factors such as higher interest rates, inflation, forest fires and drought conditions continued to weigh on the economy”.
Advance information suggests that real GDP was essentially unchanged again in September, as well as in Q3. Decreases in mining, quarrying, and oil and gas extraction and utilities were partially offset by increases in the construction and public sectors.
Eurozone CPI slows to 2.9% yoy, lowest since Jul 2021
Eurozone CPI cooled off further in October, decelerating from 4.3% yoy to 2.9% yoy. This slowdown in inflation was more pronounced than market predictions, which had forecasted a rate of 3.1% yoy. Notably, this is the most muted inflation pace the region has experienced since July 2021.
Excluding volatile components in energy, food, alcohol, and tobacco, core CPI experienced a deceleration from 4.5% yoy to 4.2% yoy, hitting its lowest mark since July 2022, and meeting the predictions set by market experts.
Breaking down the main components of inflation, food, alcohol, and tobacco observed the most significant annual inflation rate for October, registering 7.5% compared to 8.8% in September. Services prices recorded a marginal decline, moving from 4.7% in September to 4.6% in October. Non-energy industrial goods also experienced a slowdown, with prices rising 3.5% in October compared to 4.1% in the preceding month.
However, the most dramatic shift was observed in the energy component. Prices in this segment plummeted to -11.1% in October from -4.6% in September, reflecting the volatile nature of global energy markets.
Eurozone GDP contracts -0.1% qoq in Q3, EU grows 0.1% qoq
Eurozone’s GDP shrank unexpectedly in Q3, contracting by -0.1% qoq, defying expectations of a stagnant 0.0% growth. When compared with the same quarter of the previous year, Eurozone’s growth was barely positive at 0.1% yoy. Meanwhile, the broader EU reported a similar pattern, with a 0.1% growth both qoq and yoy.
The performance across member states varied significantly. Latvia emerged as the top performer with 0.6% growth over the previous quarter, followed by Belgium and Spain, recording 0.5% and 0.3% growth respectively. Conversely, Ireland faced the steepest decline with a -1.8% contraction, followed by Austria at -0.6% and Czechia at -0.3%.
Year-on-year growth rates revealed a similar disparity among the member states. Portugal, Spain, and Belgium led the way with 1.9%, 1.8%, and 1.5% growth respectively. However, Ireland experienced a sharp -4.7% decline, with Estonia (-2.5%), Austria and Sweden (-1.2% both) also facing significant contractions.
Yen feels the heat as BoJ’s yield cap redefinition underwhelms
Japanese Yen is facing renewed pressure following BoJ’s policy announcement, where expectations for significant changes were left largely unmet. Instead, the central bank introduced a minor tweak in the language concerning its yield cap, resulting in underwhelming market reactions. USD/JPY is back above 150 mark, after dipping to 148.79 overnight.
Under the Yield Curve Control framework, BoJ has maintained the short-term policy interest rate at -0.10%, while 10-year JGB yield target remains at around 0%. These decisions were reached unanimously. However, the central bank subtly altered its wording regarding the 10-year JGB yield cap, now referring to the 1.0% level as a “reference in its market operations.” This move is perceived as transforming the cap into a flexible upper boundary rather than a strict limit.
Adding to this, BoJ stated, “Given extremely high uncertainties over the economy and markets, it’s appropriate to increase flexibility in the conduct of yield curve control.” This sentiment was not universally shared, as Nakamura Toyoaki expressed dissent, suggesting that increasing flexibility should be contingent upon confirming a rise to firms’ earning power.
In a significant update, BoJ’s new economic projections reveal upgraded core inflation forecasts across the board, with a noteworthy jump from 1.9% to 2.8% for fiscal 2024.
Here’s a summary of the updated forecasts:
Core CPI Forecasts (July):
- Fiscal 2023: 2.8% (up from 2.5%)
- Fiscal 2024: 2.8% (up from 1.9%)
- Fiscal 2025: 1.7% (up slightly from 1.6%)
Core-Core CPI Forecasts:
- Fiscal 2023: 3.8% (up from 3.2%)
- Fiscal 2024: 1.9% (up from 1.7%)
- Fiscal 2025: 1.9% (up from 1.8%)
GDP Forecasts:
- Fiscal 2023: 2.0% (up from 1.3%)
- Fiscal 2024: 1.0% (down from 1.2%)
- Fiscal 2025: 1.0% (unchanged)
China’s official PMI indicates manufacturing back in contraction and non-Manufacturing slows
China’s economic pulse seems to have lost its rhythm, as indicated by the latest PMI figures for October. The official PMI Manufacturing dropped from 50.2 to 49.5, falling below the anticipated 50.4 mark. This downturn is not an isolated occurrence; the manufacturing sector has experienced contraction in six out of the ten months of 2023 so far.
In a similar vein, PMI Non-Manufacturing sector witnessed a decrease, moving from 51.7 to 50.6, which is also below the projected 51.8. Compounding these concerns is PMI Composite, which aggregates both manufacturing and non-manufacturing sectors. It fell from 52.0 to 50.7, registering its lowest reading since December 2022.
National Bureau of Statistics senior statistician Zhao Qinghe acknowledged these challenges in a statement. He noted, “China’s economic activity fell to an extent, and the foundation for a continued recovery still needs to be further solidified.”
Japan’s industrial output lags behind expectations; retail sales see mixed results
Japan’s industrial production in September posted subdued growth, clocking in at only 0.2% mom, significantly below the anticipated rise of 2.5% mom. When compared year-on-year , the figures revealed a drop of -4.6% yoy. Furthermore, the output for the third quarter (July-September) saw a decline, registering at -1.3% compared to the preceding quarter. In terms of a seasonally adjusted index, the production at factories and mines was at 103.3, benchmarked against 2020 base of 100.
Feedback from manufacturers, as sourced by the Ministry of Economy, Trade and Industry, paints a mixed picture for the upcoming months. They project an increase in the seasonally adjusted output by 3.9% for October, followed by a decline of -2.8% in November.
Retail statistics for September also indicated a mix of growth and contraction. On a yearly basis, retail sales rose by 5.8% yoy, narrowly missing forecasted 5.9% yoy. However, assessing the data month-on-month reveals a slight decline of -0.1% mom in retail sales.
On the job front, there’s a glimmer of positive news. Unemployment rate experienced a marginal dip, moving from 2.7% to 2.6%, aligning with market expectations. The jobs-to-applicant ratio for September remained steady at 1.29, signifying that there were 129 job opportunities available for every 100 job seekers.
NZ ANZ business confidence jumped to 23.4, inflation pressures remain
New Zealand’s ANZ Business Confidence for October showcased a significant rise, moving from 1.5 to a robust 23.4. This upbeat sentiment was mirrored in the Own Activity outlook, which climbed from 10.9 to 23.1.
A broader analysis of the report’s details reveals positive shifts across multiple components: Export intentions rose from -0.4 to 6.1, Investment intentions moved from a negative -4.1 to a positive 3.8, and Employment intentions took a jump from 1.2 to 5.6.
However, while these figures indicate growing optimism in business activities and prospects, inflation front remains a concern. Cost expectations reduced slightly from 78.6 to 76.0. Similarly, Pricing intentions saw a minor drop, moving from 47.1 to 46.3. Inflation expectations also experienced a negligible downtick, adjusting from 4.95% to 4.94%.
Reacting to these numbers, ANZ remarked, “Just as we thought that the rebound in activity indicators in the ANZ Business Outlook survey might be running out of steam, we’ve seen a marked jump across most.”
The bank also cautioned against hasty conclusions based on the current data, especially considering the potential disruptions from the election, suggesting a wait-and-watch approach: “we’ll see whether the newfound (relative) optimism persists over the next few months.”
On the inflation front, ANZ noted that, “inflation pressures are gradually waning in the big picture.” Despite this, the bank emphasized that significant progress in curbing inflation has been missing over recent months. The journey back to the inflation target remains substantial. “We continue to expect it’ll take at least one more OCR hike to get us there.”
DOW soars and yields tumble in wake of FOMC
US stock market experienced a robust rebound overnight, with DOW recording its most substantial three-day gain since April, following Fed’s decision to maintain the interest rate at the widely anticipated range of 5.25-5.50%. This marks the second consecutive month of rate pause, but Fed has not ruled out the possibility of further tightening in the future.
Treasury yields witnessed a notable decline across the spectrum, a trend initially sparked by Treasury’s refunding plan. 2-year yield ended the day staying below 5% mark, settling at 4.96%, while 10-year yield broke through 4.8% level. closing at 4.789%.
During the post-meeting press conference, Fed Chair Jerome Powell underscored the flexibility of the FOMC. He emphasized, “The idea that it would be difficult to raise [rates] again after stopping for a meeting or two is just not right. The Committee will always do what it thinks is appropriate at the time.”
Further emphasizing the uncertainty of future meetings, Powell stated, “We have yet to finalize our decisions concerning the upcoming meetings.” He elaborated on the Committee’s objective to assess the need and degree of potential policy tightening, aiming to stabilize inflation at around 2% over a period.
Dismissing any speculations of rate cuts, Powell asserted that such discussions are currently off the table. The primary focus remains on evaluating if the present monetary policy is “sufficiently restrictive” to sustainably bring down inflation to 2% target.
Regarding the balance sheet runoff, Powell mentioned that there is no current consideration to alter its pace. The committee is not discussing or considering any changes in this aspect.
In response to these developments, Fed fund futures indicated a reduced probability of another rate hike in December, now standing at a 20% likelihood, down from the previous day’s 29%.
DOW’s strong rebound this week suggests that a short-term bottom was established at 32327.20 already. Risk is now mildly on the upside for the near term, with possibility of further rally to 55 D EMA (now at 33764.41). If 33764.41 resistance level continues to hold its ground, it could indicate that DOW is merely in a short term consolidation phase, and the decline from 35679.12 might resume at a later stage.
Shifting focus to 10-year yield, corrective pattern from 4.997 extended with yesterday’s fall. Bearish divergence condition in D MACD argues that the consolidation would extend further for a while. . But there is no clear indication of bearish reversal with TNX holding well above 4.532 support as well as 55 D EMA (now at 4.551). Nevertheless, upside potential should be limited for the near term.