German Ifo Business Climate rose from 85.8 to 86.9 in October. Current Assessment Index rose from 88.7 to 89.2. Expectations Index rose from 83.1 to 84.7.
By sector, manufacturing rose from -16.2 to -15.9. Services rose from -4.9 to -1.5. Trade dropped from -25.0 to 27.2. Construction ticked up from -31.2 to -31.1.
Ifo said: “Managers were less pessimistic in their view of the coming months. Germany’s economy can see a silver lining ahead.”
BoC rate decision is today’s market highlight, as the consensus veers towards maintaining interest rate at 5.00%. The potential for a rate hike has dwindled, especially after the September CPI data revealed a more rapid deceleration in inflation than anticipated. Now, speculations swirl regarding the possibility of a “hawkish hold,” which leaves the door open for further tightening.
Market consensus on the BoC’s next moves, however, isn’t unanimous. A recent Reuters poll showcased a split opinion. A slim majority of 8 of the 18 economists surveyed perceive a a “high” likelihood of another hike. As for rate reductions, opinions stand divided too. 19 economists project rates falling beneath the current benchmark by the end of June, while 11 anticipate maintaining or even exceeding the current level.
As the BoC is set to unveil its latest growth and inflation forecasts, market participants are keenly awaiting insights that might shed light on the bank’s future monetary stance.
Amid these discussions, the Canadian Dollar isn’t faring well, even when pitted against the underperforming Yen. Risk is mildly on the downside for CAD/JPY as long as 109.96 resistance holds. Deeper fall is slightly in favor as to 107.51 support and below to extend the corrective pattern from 111.14 high. While a break of 109.96 will resume the rebound from 107.51. Breaking 111.14 to resume larger up trend is not expected. So upside potential is limited for the near term.
Australian Dollar experienced a notable surge following the release of higher-than-anticipated consumer inflation figures. The data illustrates an accelerated quarterly inflation rate for Q3, and a more modest deceleration in the annual inflation rate than projected. Furthermore, the monthly CPI has been on the rise for two consecutive months. Given this backdrop, market participants are now anticipating another 25bps rate hike by RBA in their upcoming November 7th meeting, pushing the rate to 4.35%.
For a deeper understanding, one can refer to the minutes from RBA’s October meeting which highlighted the Board’s “low tolerance” towards unexpected surges in inflation. Adding weight to these expectations, Governor Michelle Bullock made it clear just a day prior, stating, “The Board will not hesitate to raise the cash rate further if there is a material upward revision to the outlook for inflation.”
GBP/AUD’s steep decline this week argues that corrective rebound from 1.8854 has completed at 1.9339 already. That came after failure to sustain above 55 D EMA (now at 1.9226). Risk will now stay on the downside as as 1.9339 resistance holds, in case of recovery. Break of 1.8854 support will confirm resumption of whole fall from 1.9967 to 61.8% projection of 1.9967 to 1.8854 from 1.9339 at 1.8651 next.
Australia’s CPI for Q3 registered a 1.2% qoq rise, exceeding expectation of 1.1% qoq and marking an acceleration from the previous quarter’s 0.8% qoq. Notably, some of the most pronounced price hikes were observed in automotive fuel (+7.2%), rents (+2.2%), new dwelling purchases by owner-occupiers (+1.3%), and electricity (+4.2%).
Over the twelve months, inflation saw a deceleration, with CPI moving from 6.0% yoy to 5.4% yoy in Q3. However, this figure surpassed the anticipated 5.3% yoy. It’s essential to note that this is the third consecutive quarter where the annual inflation rate has experienced a downturn, dropping from its high of 7.8% in Q4 2022.
The trimmed mean CPI, which excludes volatile items, recorded a 1.2% qoq increase again outpacing the forecasted 1.1% qoq and the previous quarter’s 1.0% qoq . When analyzing the annualized data, the trimmed mean CPI decelerated from 5.9% yoy to 5.2% yoy, surpassing the predicted 5.1% yoy.
Commenting on the latest figures, Michelle Marquardt, ABS head of price statistics, highlighted that “prices continued to rise for most goods and services.” However, she also noted a few sectors that registered price declines, notably child care, vegetables, and domestic holiday travel and accommodation.
Furthermore, the monthly CPI for September recorded acceleration from 5.2% yoy to 5.6% yoy , which was above the anticipated 5.4% yoy. Significant price surges in this period were identified in Housing (+7.2%), Transport (+9.4%), and Food and non-alcoholic beverages (+4.7%).
Reflecting on these trends, Marquardt stated, “This is the second consecutive rise in the annual movement up from 5.2% in August and 4.9% in July. While many industries’ price increases are slowing, automotive fuel has had large annual increases in the last two months, which has been driving the movement higher.”
US PMI Manufacturing ticked up from 49.8 to 50.0 in October. PMI Services rose from 50.1 to 50.9. PMI Composite rose from 50.2 to 51.0.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said:
“Hopes of a soft landing for the US economy will be encouraged by the improved situation seen in October. The S&P Global PMI survey has been among the most downbeat economic indicators in recent months, so the upturn in US output growth signalled at the start of the fourth quarter is good news. Future output expectations have also turned up despite rising geopolitical concerns and domestic political tensions, climbing to the joint-highest for nearly one-and-a-half years.
“Sentiment has improved in part due to hopes of interest rates having peaked, something which looks increasingly likely given the further cooling of inflationary pressures witnessed in October. In spite of higher oil prices, firms’ input cost inflation fell sharply to the lowest since October 2020, and average selling prices for goods and services posted the smallest monthly rise since June 2020.
“The survey’s selling price gauge is now close to its pre-pandemic long-run average and consistent with headline inflation dropping close to the Fed’s 2% target in the coming months, something which looks likely to be achieved without output falling into contraction. That said, the tensions in the Middle East pose downside risks to growth and upside risks to inflation, adding fresh uncertainty to the outlook.”
RBA Governor Michelle Bullock emphasized the central bank’s ongoing commitment to stabilizing inflation and promoting job growth in her speech today. While the Governor acknowledged the possibility of maintaining the current cash rate level to achieve these objectives, she did not shy away from highlighting potential challenges. “There are risks that could see inflation return to target more slowly than currently forecast,” she noted.
In response to the potential of inflationary pressures, Bullock assured that the Board remains vigilant: “The Board will not hesitate to raise the cash rate further if there is a material upward revision to the outlook for inflation.”
As the Board gears up for its subsequent gathering, Bullock emphasized the significance of upcoming data. She mentioned, “The Board will receive several pieces of information before its next meeting that will be important for this assessment.”
She elaborated on the forthcoming procedures, revealing, “This includes a full update of the staff’s forecasts. We will reconsider the outlook for the economy in light of incoming information and will have opportunities to explain our assessment in the media release and Statement on Monetary Policy that will follow the November meeting.”
UK PMI Manufacturing saw a modest uptick, moving from 44.3 to 45.2 in October. In contrast, Services sector edged downwards, marking a 9-month low, albeit by a marginal decrement from 49.3 to 49.2. Composite PMI slightly climbed, positioning at 48.6 from a previous 48.5.
According to Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, the UK is treading dangerously close to recessionary waters. Williamson highlighted the combined impacts of the rising cost of living, soaring interest rates, and dwindling exports as the chief culprits behind a third consecutive month of diminishing output.
While the rate of economic decline is currently moderate, with predictions hinting at just a -0.1% quarterly GDP drop, the darkening cloud of economic uncertainty suggests tougher times might be ahead. “A recession, albeit only mild at present, cannot be ruled out,” he added.
On a brighter note, the cost pressures evident earlier have started to soften, partly attributed to diminishing wage inflation and decline in prices set by manufacturers. Nonetheless, service sector continues to grapple with inflation, which even saw a slight bump. This indicates that headline inflation might persistently hover around the 4% range as we transition into early next year.
This poses a dilemma for policymakers, especially when factoring in potential inflationary pressures from surging oil prices. “It would be unlikely for policymakers to rule out the possibility of rates rising again later in the year,” he said.
Eurozone economy appears to be on shaky ground, with the latest PMI figures showing continued deterioration. October saw Manufacturing PMI slide to 43.0 from 43.4, while Services PMI dropped to a concerning 32-month low of 47.8, down from 48.7. Composite PMI wasn’t left behind, recording a 35-month low at 46.5, down from 47.2.
Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, stated, “In the Eurozone, things are moving from bad to worse.” He highlighted that manufacturing has been grappling with a slump for over a year now. When examining the top Eurozone players, France and Germany, de la Rubia noted that their manufacturing downturns are almost on par.
However, it’s not all gloom for France in the services sector. Despite a lower activity index compared to Germany, France showcases some resilience with new businesses not declining as rapidly. Moreover, companies in France are steadily adding jobs rather than eliminating them.
Another noteworthy aspect is the persistent price increases within the services sector. Comparing it to prior economic downturns, inflation for both input prices and prices charged has only marginally slowed down. This trend might be challenging for ECB. As de la Rubia points out, “these figures reinforce the case of a pause in the interest rate cycle instead of thinking aloud about loosening monetary policy.”
Germany PMI Manufacturing rose from 39.6 to 40.7 in October, a 5-month high. PMI Services fell from 50.3 to 48.0. PMI Composite fell from 46.4 to 45.8.
Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said:
“With the HCOB PMI indices baked into our GDP nowcast, we are calculating a -0.4 percent slip in GDP this quarter, after an estimated -0.8 percent slide the quarter before. If these nowcasts hit the mark, this would result in a -0.8 percent overall growth rate for 2023. This would make the German government’s -0.4 percent shrinkage call seem pretty rosy.
“The PMI results show that the downturn is broad based. Manufacturing output continues to fall at a steep rate and activity in the services sector, which grew last month, swung into the red again.
“Input prices in the German services sector are continuing to rise at an unusual high rate. Increased energy prices and high wage pressures are most likely at the core of this development. Firms are still managing to roll some of those inflated costs onto the customer’s tab, and October did not see much change in that. Thus, there is no reason to pull the plug on inflation concerns.”
France PMI Manufacturing fell from 44.2 to 42.6 in October, hitting a 41-month low. PMI Services improved from 44.4 to 46.1, a 3-month high. PMI Composite rose from 44.1 to 45.3, a 2-month high.
Norman Liebke, Economist at Hamburg Commercial Bank, said: “The French economy is still feeling the heat at the start of the fourth quarter… Our GDP nowcast model, with PMI figures in the mix along with a bunch of other indicators, is pointing to fractional growth in the fourth quarter.
“The services sector is hitting roadblocks… Things are going south in the manufacturing sector, and there is no relief in sight… Price indices are in perilous territory…. Higher inflation rates would put the European Central Bank into a difficult position as it more or less signalled at its last meeting that no further rate hikes will be carried out.”
Germany’s Gfk consumer sentiment for November fell from -26.7 to -28.1. In October, economic expectations improved slightly from -3.4 to -2.4. Income expectations fell form -11.3 to -15.3. Propensity to buy ticked up from -16.4 to -16.3. Propensity to save rose from 8.0 to 8.5.
“With the third decline in a row, hopes of a recovery in consumer sentiment this year must finally be laid to rest,” explains Rolf Bürkl, consumer expert at NIM.
“Above all, high prices for food are weakening the purchasing power of private households in Germany, so private consumption will not be able to support the economy this year.”
In September, UK payrolled employment fell -11k. Median monthly pay rose 5.7% yoy, slowed notably from August’s 7.7% yoy. Annual growth in median pay was highest in the transportation and storage sector, with an increase of 13.5%, and lowest in the health and social work sector, with a decrease of -0.3%.
In the three months to August, unemployment rate fell from 4.3% to 4.2%, below expectation of 4.3%.
Bitcoin is experiencing a significant surge this week, effortlessly crossing its previous resistance at 31815 and making its mark beyond 35k. Notably, Bitcoin is now approaching a critical long-term fibonacci resistance near 36k. While it’s uncertain whether Bitcoin can clear this barrier on its first attempt, a definitive break past this resistance could lead to profound long-term bullish implications. Such a move might propel Bitcoin swiftly past 40k next.
A potential catalyst for this robust rally is the market’s anticipation of a spot BTC ETF approval. Despite last week’s false report, the consensus among market participants suggests that this approval could materialize within the upcoming three months, if not sooner. Another factor worth considering is the role of geopolitical tensions in influencing Bitcoin’s demand. As many in the investment community have come to regard Bitcoin as the “digital gold”, it’s plausible that some are turning to the cryptocurrency as an alternative safe haven amid global uncertainties.
From a technical standpoint, near term outlook will stay bullish as long as 30021 resistance turned support holds. The key resistance is 38.2% retracement of 68986 to 15452 at 35901. Sustained break there will argue that it’s already reversing, rather than correcting, the whole down trend from 68986 (2021 high). Next near term target will be 100% projection of 15452 to 31815 from 24896 at 41259.
October saw Japan’s PMI Manufacturing remain unchanged at 48.5, missing expectations of 48.9 and marking the fifth consecutive month showing deteriorating operating conditions. Additionally, PMI Services and PMI Composite displayed downturns, with the former dropping from 53.8 to 51.1 and the latter declining from 52.1 to a sub-50 figure of 49.9.
Jingyi Pan, Economics Associate Director at S&P Global Market Intelligence, noted that this is the first instance of a decline in business activity for the private sector since December 2022. The drop, albeit marginal, was primarily due to a more pronounced decrease in manufacturing output – the fastest rate seen in eight months. On the other hand, services activity did continue its expansion, albeit at its slowest pace for the year.
The overall sentiment among firms was not particularly encouraging either. They expressed the least optimism since the beginning of the year concerning future output, suggesting a tempered outlook for the immediate future. However, a silver lining in the employment sector, which saw a resurgence, particularly in the service sector.
On the pricing front, both manufacturing and service sectors experienced diminished cost pressures. This deceleration resulted in output prices within the private sector rising at their most muted pace since February 2022.
Australia’s economic indicators from October paint a worrisome picture, as PMI Manufacturing dipped to a six-month low at 48.0, down from 48.7. More significantly, PMI Services plunged to a 10-month trough, dropping from 51.8 to 47.6. PMI Composite, which combines both manufacturing and services, dropped to a concerning 21-month low of 47.3 from 51.5.
Weighing in on these figures, Warren Hogan, Chief Economic Advisor at Judo Bank, mentioned PMI output index reverting to cyclical lows around 47 after a brief rise above the neutral 50 mark in September. These PMI indicators resonate with the ongoing narrative that Australia’s economic momentum has decelerated in 2023, aligning with the anticipated gentle slowdown most economists had projected.
A silver lining, however, emerges from the employment index, which remains steadfastly above the 50-mark. Hogan interprets this as a sign that the deceleration in business activities hasn’t notably dampened hiring trends.
However, a significant area of concern highlighted by Hogan is the enduring nature of inflation pressures, which he refers to as “stickiness”. Both input and output price indexes remain elevated, not hinting at an imminent return of inflation to RBA’s target.
As RBA prepares for its board meeting, set to coincide with Melbourne Cup day, the latest PMI readings, especially concerning inflation, are unlikely to drastically influence the interest rate decision. Hogan articulated, “A strong case exists for a further modest upward adjustment to the Australian cash rate target, to ensure the economy remains on the so-called ‘narrow path’. If we are to avoid recession, Australia will need an extended period of below-trend growth to ensure inflation returns to target by 2025.”
Following a robust rally last week, both Gold and Silver seem to be taking a breather, moving into a consolidation phase in today’s trading session.
Gold, in particular, seems to be encountering resistance around the much-watched 2000 psychological mark. But still, as long as 1907.99 support holds, bullish outlook is unchanged. That is, corrective fall from 2062.95 has completed with three waves down to 1810.26. Break of 1997.00 will resume the rise from there to retest 2062.95 resistance.
Meanwhile, Silver’s ascent last week was somewhat tempered compared to Gold’s. Nevertheless, the favored case is that corrective fall from 26.12 has completed with three waves down to 20.67 already. Further rise is expected as long as 22.26 support holds, to 25.00 structural resistance next. Firm break there will bring retest of 26.12 high.
Bundesbank’s latest monthly report revealed a likely contraction in Germany’s real GDP during Q3, attributing this slump to dwindling foreign demand for industrial goods. Elevated financing costs have not only hampered investments but also stymied domestic demand, particularly in the construction and industrial sectors.
Despite these economic headwinds, German job market has shown resilience, with pronounced wage increases amidst declining inflation offering a silver lining. However, this positive spin has yet to translate into increased consumer spending. Data suggests that private households are opting for caution, channeling additional funds into savings rather than expenditure, a trend underscored by diminished real sales in the retail and hospitality industries.
Inflation dynamics in September offer a mixed bag. The report highlighted a moderate uptick in energy and food prices, whilst services experienced an above-average increase. Bundesbank anticipates a deceleration in inflation in the forthcoming months.
Chinese Shanghai SSE Composite continue its descent below the psychological 3000 handle today, Copper has been dragged along in the downward spiral. The string of arrests and the investigation, over the weekend, into Foxconn Technology Group , Apple Inc.’s primary collaborator and one of China’s largest employers, have further dampened foreign investors’ confidence in the Chinese market.
Interestingly, this pessimistic trend emerged against the backdrop of optimistic economic data. Last week’s releases paint a rather favorable economic portrait for China, boasting GDP growth in Q3 that exceeded expectations, accompanied by robust performances in retail sales and industrial production for September. However, these optimistic numbers have not translated into positive momentum for the SSE, which plummeted by -2.89% over the week, underscoring a pervasive bearish sentiment.
Copper, not immune to these developments, now teeters precariously, with its immediate future hanging in the balance. The metal’s price is homing in on last week’s low at 3.5129. Decisive break of this support could unleash a torrent of selling pressure, igniting resumption of the downtrend from 4.3556. Under this scenario, the next stop for Copper would be 100% projection of 4.3556 to 3.5387 from 4.0145 at 3.1976, which is close to 3.1314 support (2022 low).
The trajectory of copper is closely entwined with that of AUD/USD, and a continued selloff in the former, spurred by dimming optimism about China, could unleash a cascade of selling pressure on the currency pair. Break of this month’s low at 0.6284 will resume AUD/USD’s down trend from 0.7156 to 100% projection of 0.7156 to 0.6457 from 0.6894 at 0.6195, which is close to 0.6169 support (2022 low).
Bitcoin, in today’s subdued Asian trading session, has shown promising signs of firmly grasping 30k level finally. Last week, the digital currency experienced a brief yet sharp ascent, triggered by a false report of the SEC approving a Bitcoin spot ETF. Although this ascent was short-lived, the subsequent pullback was moderate, underscoring the resilience of the ongoing rally.
Expectations surrounding the approval of a Bitcoin spot ETF continue to percolate through the crypto community. Most analysts harbor hopes for a green light sometime in 2023. The ephemeral spike in Bitcoin’s value last week underscores the market’s sensitivity to such developments, suggesting that potential approval is not yet fully accounted for in current prices. This dynamic could lead to heightened responsiveness to positive news, refocusing investor attention on cryptocurrencies ahead of the much-anticipated “halving” slated for April next year.
On the technical front, bullish sentiment in the near term is likely to prevail as long as 28071 support level remains intact, with eyes set on retesting 31815 high.
More comprehensive insights emerge when viewing the broader picture: robust support from 55 W EMA (now at 27115) coupled with 38.2% retracement of 15452 to 31815 at 25564 augments the bullish narrative.
Nevertheless, the real test lies ahead. For market enthusiasts to be convinced that Bitcoin’s “summer” is in full swing, a significant hurdle awaits. The cryptocurrency will need to convincingly break through long-term Fibonacci resistance at 38.2% retracement of 68986 to 15452 at 35901.
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BoC stands pat, concerned on slow disinflation progress
BoC left overnight rate unchanged at 5.00% as widely expected. Bank Rate and deposit rate are held at 5.25% and 5.00% respectively. The Governing Council expressed concerns that “progress towards price stability is slow and inflationary risks have increased”. The central bank is “prepared to raise the policy rate further if needed”, maintaining hawkish bias.
Growth projections are revised notably lower for 2023 and 2024, but raised slightly for 2025. GDP growth is projected to be at 1.2% in 2023 (vs prior 1.8%), 0.9% in 2024 (vs prior 1.2%), and 2.5% in 2025 (vs prior 2.4%).
CPI inflation forecasts are revised higher through the projection horizon, at 3.9% in 2023 (vs prior 3.7%), 3.0% in 2024 (vs prior 2.5%), and 2.2% in 2025 (vs prior 2.1%).
Full BoC statement and Monetary Policy Report here.