Australia retail sales rose 0.6% mom in September, matched expectations.
Ben Dorber, ABS head of retail statistics said, “This month’s rise was again driven by the combined strength in the food industries. Food retailing rose 1.0 per cent, while cafes, restaurants, and takeaway food services rose 1.3 per cent.
“Many retailers remained open for the National Day of Mourning, an additional one-off public holiday in September, and this boosted spending on food, alcohol and dining out.”
Japan industrial production declined -1.6% mom in September, below expectation of -1.0% mom. That’s also the first contract in four months. The fall was driven by -12.4% mom decline in auto-related production, the steepest fall in eight months.
Manufacturers surveyed by the Ministry of Economy, Trade and Industry (METI) expected output to fall another -0.4% in October and then rise 0.8% in November.
Retail sales rose 4.5% yoy in September, above expectation of 4.1% yoy.
ECB GoverningCouncil member Klaas Knot said on Sunday, “we will take a significant interest step again in December,” adding that next hike would either be 50bps or 75bps.
He said, “we are not in even half-time yet” in the fight against inflation. “We are still returning interest rates towards their neutral level, for which we will also need the December meeting.”
“From 2023 we will play the second half, with smaller interest rate steps and by shrinking our balance sheet,” he said. “Then we will be in the zone where we will effectively cool down the economy, which is necessary to bring inflation down from 10% to 2% in the next 18 to 24 months.”
US personal income rose 0.4% mom or USD 78.9B in September, above expectation of 0.3% mom. Spending rose 0.6% or USD 113.0B, above expectation of 0.4% mom.
Headline PCE price index rose 0.3% mom, while core PCE price index rose 0.5% mom. Prices for goods dropped -0.1% mom while prices for services rose 0.6% mom. Food prices increased 0.6% mom and energy prices dropped -2.4% mom.
From the same month a year ago, PCE price index was unchanged at 6.2% yoy, above expectation of 5.8% yoy. Core PCE price index rose to 5.1% yoy, up from 4.9% yoy, below expectation of 5.2% yoy. Prices for goods rose 8.1% yoy while prices for services rose 5.3% yoy. Food prices rose 11.9% yoy and energy prices rose 20.3% yoy.
Canada GDP rose 0.1% mom in August, above expectation of 0.0% mom. Services-producing industries grew 0.3% mom but goods-producing industries contracted -0.3%). 14 of 20 industrial sectors grew.
Advance information indicates that GDP growth continued in September by 0.1% mom. With that, GDP growth reached 0.4% in Q3.
Eurozone Economic Sentiment Indicator fell from 93.6 to 92.5 in October. Industrial confidence dropped form -0.3 to -1.2. Services confidence dropped from 4.4 to 1.8. Consumer confidence improved from -28.8 to -27.6. Retail trade confidence rose from -8.4 to -6.9. Construction confidence rose from 1.8 to 2.6. Employment Expectations Indicator dropped from 106.6 to 104.9.
EU Economic Sentiment Indicator dropped from 92.4 to 90.9. Amongst the largest EU economies, the ESI fell in Germany (-1.0) and Italy (-0.9), while it remained essentially unchanged in the Netherlands (-0.3) and France (0.0) and improved in Poland (+0.4) and Spain (+1.4).
Germany GDP grew 0.3% qoq in Q3, much better than expectation of -0.2% qoq contraction. The economy finally exceeded pre-pandemic level in Q4 2019 for the first time.
Destatis said, “The German economy managed to hold its ground despite difficult framework conditions of the global economy, with the continuing Covid-19 pandemic, supply chain interruptions, rising prices and the war in Ukraine. The economic performance in the third quarter of 2022 was mainly based on private consumption expenditure.”
Swiss KOF Economic Barometer decreased from 93.8 to 90.9 in October, below expectation of 93.0. The index is now below its long-term average for the sixth month in a row. Outlook for the economy in the coming months “remains subdued”.
KOF said: “The downward movement of the barometer is primarily driven by bundles of indicators from the manufacturing as well as the accommodation and food service activities sectors. Indicators for the construction sector, the financial and insurance services, and private consumption remained almost unchanged compared to the previous month. By contrast, indicators for the sector other services showed a slightly positive trend.”
France GDP growth slowed to 0.2% qoq in Q3, matched expectations. That compares to 0.5% qoq growth in Q2.
Final domestic demand (excluding inventories) contributed positively to GDP growth this quarter (+0.4%). Thus, gross fixed capital formation (GFCF) accelerated strongly after an already relatively dynamic start to the year (+1.3%), while household consumption expenditure were stable (+0.0%). Foreign trade contributed negatively to GDP growth (-0.5%),
IMF lowered Asia’s growth forecast in to 4.0% in 2022, 4.3% in 2023, and 4.6% in 2024. Japan’s growth forecast was held unchanged at 1.7% in 2022, downgraded slightly to 1.6% in 2023, and raised to 1.3% in 2024. For China, growth forecasts was downgraded to 3.2% in 2022, 4.4% in 2023, and 4.5% in 2024.
“As the effects of the pandemic wane, the region faces new headwinds from global financial tightening and an expected slowdown of external demand,” the report said.
As for China, “with a growing number of property developers defaulting on their debt over the past year, the sector’s access to market financing has become increasingly challenging,” the report noted.”Risks to the banking system from the real estate sector are rising because of substantial exposure.”
BoJ left monetary policy unchanged as widely expected. Under the yield curve control framework, short-term policy interest rate is held at -0.10%. 10-year JGB yield is kept at around 0%, with bond purchases without upper limit. 0.25% fixed rate purchase operation will continue to be held to cap 10-year JGB yield. The decision was unanimous.
In the new economic projections:
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US GDP grew at annualized rate of 2.6% in Q3, above expectation of 2.4%. PCE price index growth slowed from 9.0% to 4.1%, below expectation of 5.4%.
BEA noted that the increase in real GDP reflected increases in exports, consumer spending, nonresidential fixed investment, federal government spending, and state and local government spending, that were partly offset by decreases in residential fixed investment and private inventory investment. Imports, which are a subtraction in the calculation of GDP, decreased.
ECB raises interest rates by 75bps as widely expected. The main refinancing, marginal lending, and deposit rates are 2.00%, 2.25%, and 1.50% respectively, with effect from November 2. The central bank also maintains tightening bias, and said, it “expects to raise interest rates further, to ensure the timely return of inflation to its 2% medium-term inflation target.”
Future policy rate path will be based on the “evolving outlook for inflation and the economy”, and follow its “meeting-by-meeting approach.
Also, the terms and conditions of the TLTRO III refinancing operations are changed, and “recalibrated” to ensure consistency with broader monetary policy normalization process.
Germany Gfk Consumer Sentiment for November improved from -42.8 to -41.9, slightly below expectation of -41.8. In October, economic expectations dropped from -21.9 to -22.2. Income expectations rose from -67.7 to -60.5. Propensity to buy also rose from -19.5 to -17.5.
“It is certainly too early to speak of a trend shift at this time. The situation remains very tense for consumer sentiment,” explains Rolf Bürkl, GfK consumer expert. “Inflation has recently risen to ten percent in Germany, and concerns about the security of energy supplies continue to rise. Therefore, it remains to be seen whether the current stabilization will last or whether, considering the upcoming winter, there is reason to fear a further worsening of the situation.”
ECB is widely expected to raise interest rates by 75bps today. After that, the main refinancing rate will be at 2.00%, and the once negative deposit rate will be at 1.50%. President Christine Lagarde would signal that more tightening lies ahead, but the decision will stick to a meeting-by-meeting approach, and be data dependent.
There might be discussions on quantitative tightening, but it’s still too soon to make a decision. The markets are expecting that concrete steps on shrinking the balance will only happen early next year.
Here are some previews on ECB:
Regarding reaction to ECB decision, EUR/CHF is an interesting one to watch, as it’s now eyeing parity. The cross was in persistent decline from June to September, after SNB surprisingly acted on interest rate earlier than ECB. Back then, ECB was still adjusting their forward guidance that rate hike would come weeks after stopping asset purchases. Now that ECB is catching up with global tightening pace, there is more upside prospect in the crosses.
While upside momentum in EUR/CHF is not too convincing for the moment, further rise is expected as long as 0.9871 minor support holds. Next target is 100% projection of 0.9407 to 0.9798 from 0.9641 at 1.0032. It’s still too soon to judge whether rise from 0.9407 is a corrective bounce, or the start of an up trend. But in either case, stronger rally would be seen to 38.2% retracement of 1.1149 to 0.9407 at 1.0072. Reaction from there, as well as 55 week EMA (now at 1.0120) will reveal whether the trend is reversing.
RBNZ Governor Adrian Orr said in a speech that New Zealand’s financial systems remains “well placed to support the economy”, but there will be “stresses in business and amongst households as interest rates and asset prices adjust”.
Regarding monetary policy objective, he emphasized, “we have our eyes firmly focused on meeting our inflation target”. He also mentioned that inflation is still too high in an absolute sense.”
“Central banks globally — the Reserve Bank of New Zealand included — are working to actively slow domestic spending by raising interest rates so as to constrain inflation,” said Orr. “This means employment prospects will be increasingly compromised.”
EUR/CAD’s rise from 1.2867 accelerates upwards after smaller than expected rate hike by BoC. For now, further rally is expected as long as 1.3405 support holds even in case of retreat. Next target is 55 week EMA (now at 1.3753). Sustained break there will argue that stronger rise is underway, even as a corrective move. EUR/CAD would then target 38.2% retracement of 1.5991 to 1.2867 at 1.4060.
BoC hikes overnight by only 50bps to 3.75%, disappointing those expecting a 75bps hike. Bank Rate and deposit rate are at 4.00% and 3.75% respectively. The central bank maintains tightening bias, and noted that “the Governing Council expects that the policy interest rate will need to rise further”.
In the new economic projections, GDP growth was downgraded from 3.5% to 3.3% in 2022, from 1.8% to 0.9% in 2023, and from 2.4% to 2.0% in 2024. CPI inflation forecasts was also downgraded from 7.2% to 6.9% in 2022, from 4.6% to 4.1% in 2023, and from 2.3% to 2.2% in 2024.
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China PMI manufacturing and services fell to contraction
China PMI Manufacturing fell from 50.1 to 49.2 in October, below expectation of 50.0.
PMI Non-Manufacturing dropped from 50.6 to 48.7, below expectation of 50.2. Both readings were below 50-mark which separates growth from contraction on a monthly basis.
“In October, affected by the spread of the pandemic and other factors within the country, China’s PMI fell, with the manufacturing PMI, non-manufacturing PMI and comprehensive PMI standing at 49.2 per cent, 48.7 per cent and 49.0 per cent, respectively, and the foundation of China’s economic recovery needs to be further consolidated,” said senior NBS statistician Zhao Qinghe.
“In October, the composite PMI stood at 49.0 per cent, down 1.9 percentage points from the previous month, falling below the critical point, indicating a general slowdown in the production and operating activities of Chinese enterprises.”