Canada CPI was unchanged at 6.9% yoy in October, slightly below expectation of 7.0% yoy. Excluding food and energy, prices slowed slightly from 5.4% to 5.3% yoy.
On a monthly basis, CPI rose 0.7% mom, below expectation of 0.8% mom, largely driven by the 9.2% mom rise in prices for gasoline.
Comparing to 5.6% you rise in average hourly wages, on average, prices rose faster than wages.
US retail sales rose 1.3% mom to USD 694.5B in October, above expectation of 0.9% mom. Ex-auto sales rose 1.3% mom, above expectation of 0.4% mom to USD 565.1B. Ex-gasoline sales rose 1.0% mom to USD 630.4B.
Comparing with October 2021, total sales were up 8.3% yoy. Total sales in the three months through October were up 8.9% yoy.
Kansas City Fed President Esther George told the WSJ, “‘I have not in my 40 years with the Fed seen a time of this kind of tightening that you didn’t get some painful outcomes”.
“I’m looking at a labor market that is so tight, I don’t know how you continue to bring this level of inflation down without having some real slowing, and maybe we even have contraction in the economy to get there.”
ECB Vice President Luis de Guindos said, “we will discuss about the reduction of our balance sheet,” at December meeting.
“I think this is important in terms of both to reduce the excess liquidity that we see in the marketplace, and secondly as well to alleviate the situation of scarcity of collateral,” he added.
De Guindos also noted, “it’s very difficult to have financial stability without price stability,” adding that “the main risk now for financial stability, for growth, is to have inflation at very high levels.”
UK CPI accelerated from 10.1% yoy to 11.1% yoy in October, above expectation of 10.6% yoy. That’s highest level since 1981 based on modelled data. Core CPI was unchanged at 6.5% yoy, above expectation of 6.4% yoy.
ONS said, “Despite the introduction of the government’s Energy Price Guarantee, gas and electricity prices made the largest upward contribution to the change in both the CPIH and CPI annual inflation rates between September and October 2022.”
“Rising food prices also made a large upward contribution to change with transport (principally motor fuels and second-hand car prices) making the largest, partially offsetting, downward contribution to the change in the rates.”
Also released, PPI input came in at 0.6% mom, 19.2% yoy, versus expectation of 1.0% mom, 17.7% yoy. PPI output was at 0.3% mom, 14.8% yoy, versus expectation of 0.0% mom, 14.8% yoy. PPI core output was at 0.5% mom, 13.3% yoy, versus expectation of 1.3% mom, 14.0% yoy.
GBP/CAD is a pair to watch today with inflation data from the UK and Canada featured. The cross tried to resume the rise from 1.4069 this week, and breached 1.5811 resistance. Yet, there is no clear follow through buying so far.
Looking at the bigger picture, it’s now pressing an important resistance at 1.5875 (2019 low). 55 week EMA (now at 1.6012) is also in proximity. Rejection by this resistance zone, followed by break of 1.5167 support, will keep medium term outlook neutral-to-bearish.
However, sustained break of the resistance will solidify the case of bullish trend reversal. Further break of 61.8% projection of 1.4069 to 21.5811 from 1.5167 at 1.6244 will likely prompt upside acceleration to 100% projection at 1.6909.
Japan private-sector machine orders dropped sharply by -4.6% mom in September, much worse than expectation of 0.7% mom. That followed a -5.8% mom decline in August.
Nevertheless, for October-December period, manufacturers surveyed by the Cabinet Office are expecting core orders to rise 3.6%.
The government also downgraded its view on machinery orders to “recovery is stalling”, from “economy was picking up”.
Australia Westpac Leading Index dropped from -1.09% to -1.19% in October, a new post-pandemic low. Westpac said the is consistent with “sustained weak growth” in 2023. It expects GDP growth to slow from around 3.4% in 2022 to just 1% next year.
It added, “key drivers of the slowdown are: monetary policy tightening; falling commodity prices; and softness in jobs growth as capacity constraints bite.”
Regarding RBA policy, Westpac expects another 25bps rate hike at the December 6 meeting. And, “a mooted pause in the tightening is unlikely to occur in 2022 or the early months of 2023 as the Bank continues to underperform its inflation objectives.”
Philadelphia Fed President Patrick Harker said, “in the upcoming months, in light of the cumulative tightening we have achieved, I expect we will slow the pace of our rate hikes as we approach a sufficiently restrictive stance.” Next year, “I expect we will hold at a restrictive rate for a while to let monetary policy do its work,” he added.
“As long as we are moving consistently and meaningfully to collapse inflation down, I think again we can continue to raise as we need to but also pause when it makes sense along that path,” Harker explained. “I just don’t think we need to go way up…and way down, that doesn’t make sense to me, policy wise.”
Harker also noted there are signs of deceleration in the economy. “Credit card purchase data indicate that consumer spending, which comprises around 70 per cent of economic activity in the United States, is slowing, with services and retail leading the decline,” he said. “Investment in housing has weakened, and even the boom in manufacturing, which has buoyed the economy, is starting to wane.”
US PPI for final demand rose 0.2% mom in October, below expectation of 0.5% mom. Prices for goods rose 0.6% mom while services dropped -0.1% mom. PPI less foods, energy and trade services rose 0.2% mom.
For the 12 months period, PPI slowed from 8.4% yoy to 8.0% yoy. PPI less foods, energy, and trade services rose 5.4% yoy.
Germany ZEW Economic Sentiment rose from -59.2 to -36.7 in November, much better than expectation of -54.1. Current Situation index rose from -72.2 to -64.5, above expectation of -67.5.
Eurozone ZEW Economic Sentiment rose from -59.7 to -38.7, above expectation of -55.0. Current Situation index rose 5.5pts to -65.1.
“The ZEW Indicator of Economic Sentiment rises again in November. This is likely to be related above all to the hope that inflation rates will fall soon. In this case, policymakers would not have to hit the brakes on monetary policy as hard and/or for as long as feared. However, the economic outlook for the German economy is still clearly negative,” comments ZEW President Professor Achim Wambach.
In September, Eurozone goods exports, to the rest of the world, grew 23.6% yoy to EUR 210.1B. Goods imports rose 44.5% yoy to EUR 294.0B. Goods trade deficit came in at EUR -34.4B. Intra-Eurozone trade rose 27.3% yoy to EUR 247.6B.
In seasonally adjusted terms, Eurozone exports rose 1.6% mom to EUR 250.0B. Imports dropped -2.0% mom to EUR 287.7B. Trade deficit narrowed from EUR -47.6B to EUR -37.7B. Intra-Eurozone trade dropped from EUR 241.8B to EUR 238.9B.
Full trade balance release here.
According to the second estimate, Eurozone GDP grew 0.2% qoq in Q3, slowed from Q2’s 0.8% qoq. Employment grew 0.2% qoq, slowed from Q2’s 0.4% qoq.
In October, UK payrolled employees rose 0.2% mom or 74k. Comparing with October 2021, payrolled employees rose 2.7% yoy or 772k. Median monthly pay rose 6.0% yoy. Claimant counts rose 3.3k, versus expectation of -12.6k.
In the three months to September, comparing to the previous three month period, unemployment was down -0.2% to 3.6%. Employment rate was unchanged at 75.5%. Economic inactivity rate rose 0.2% to 21.6%. Average earnings excluding bonus rose 5.7% yoy. Average earnings including bonus rose 6.0% yoy.
China industrial production rose 5.0% yoy in October, below expectation of 5.2% yoy. Retail sales dropped -0.5% yoy, much worse than expectation of 1.0% yoy. That’s also the first decline since May. Fixed asset investment rose 5.8% ytd yoy, below expectation of 5.9%.
“We will focus on expanding effective demand, deepening structural reform on the supply side, continuing to stabilise employment and prices, stabilizing expectations, stimulating market vitality more, consolidating the economic recovery to a sound basis, and try to achieve better development results,” the NBS said in a statement.
Japan GDP contracted -0.3% qoq in Q3, much worse than expectation of 0.3% qoq. In annualized term, GDP contracted -1.2%, versus expectation of 1.1%. GDP deflator dropped -0.5% yoy, versus expectation of -0.2% yoy.
During the quarter, imports rose strongly by 5.2% yoy on higher energy costs and weak Yen exchange rate. Exports grew only 1.9% qoq and led to a decline in net exports, which dragged GDP down. Domestically, private consumption grew 0.3% qoq only.
“Increased imports due to the easing of supply constraints and a temporary increase in payments for external services contributed to the negative growth,” Chief Cabinet Secretary Hirokazu Matsuno said.
“The environment surrounding households and businesses is becoming more difficult, with declining real household incomes and rising corporate costs,” Matsuno added.
Minutes of RBA’s November 1 meeting revealed that board members consider both a 25 bps or a 50bps rate hike. There were “arguments in favour of both courses of action”, but the case for 25bps was stronger.
“Acknowledging the uncertainty, members did not rule out returning to larger increases if the situation warranted,” the minutes noted. “Conversely, the Board is prepared to keep rates unchanged for a period while it assesses the state of the economy and the inflation outlook. Interest rates are not on a pre-set path.”
At the meeting, RBA raised the cash rate target by 25bps to 2.85%.
SNB Chairman Thomas Jordan said yesterday, “it cannot be excluded that the SNB will raise interest rates in December,” given that interest rates are still low.
“There is a high probability that the SNB will have to tighten its monetary policy further,” he said. “The next meeting will be in December and there is a high probability that it will be necessary to tighten monetary policy again to make sure that inflation can be fought sufficiently.”
Fed Vice Chair Lael Brainard said yesterday, “I think it will probably be appropriate soon to move to a slower pace of increases, but I think what’s really important to emphasize is… we have additional work to do.”
“It’s really going to be an exercise on watching the data carefully and trying to assess how much restraint there is and how much additional restraint is going to be necessary, and sustained for how long, and those are the kinds of judgments that lie ahead for us,” she said.
“It makes sense to move to a more deliberate and a more data dependent pace as we continue to make sure that there’s restraint that will bring inflation down over time,” she said.
“As we go forward…risks are going to be two sided if we get into more restrictive or further into restrictive territory,” she said, “so we’ll be balancing those considerations.”
BoC Governor Tiff Macklem said in a speech, “to restore price stability, we need to rebalance demand and supply in the labour market to relieve price pressures.
“Monetary policy affects demand. By raising interest rates, we are moderating spending, and that will reduce the demand for workers,” he said.
“The other way to rebalance supply and demand is to increase the supply of workers. That takes time, and with inflation already far too high and with elevated risks that high inflation becomes entrenched, increasing labour supply is not an alternative to slowing demand.”
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BoE Bailey: We see some evidence of supply chain shock coming off
BoE Governor Andrew Bailey said in a Treasury Committee hearing, “The economy was hit by a huge shock in terms of the pandemic. What we’ve had since then is a series of supply shocks, which have reduced the supply capacity of the economy relative to demand. There was a supply chain shock in the recovery from Covid. We see some evidence of that shock coming off.”
Bailey added that the job market remains “tight”. But, “employers have now begun to say that they are seeing some reduction and competition for hiring,” he added. “As yesterday’s labor market statistics demonstrated, it’s still a very tight labor market.”
Deputy Governor Ben Broadbent said, recession in the UK “could quite easily turn out to be a little bit shorter or a little bit longer. “There’s a lot of uncertainty, including about the length. We could well be in another quarter of contraction right now.”
MPC member Swati Dhingra warned, “There is a risk of overtightening. There’s already about a fairly sizable chunk of the previous rate rises that have got to take effect in terms of what they do to GDP.”
Dhingra also noted, “it’s undeniable” that “we’re seeing a much, much bigger slowdown in trade in the UK compared to the rest of the world” and “we’re definitely performing below trend in terms of the exports numbers in terms of the inputs, even probably a bit bigger than that.”