Eurozone unemployment rate was unchanged at 7.5%, above expectation of 7.4%. That’s still the lowest level since July 2008. EU28 unemployment rate was unchanged at 6.3%, lowest since January 2000.
Among the Member States, the lowest unemployment rates in September 2019 were recorded in Czechia (2.1%) and Germany (3.1%). The highest unemployment rates were observed in Greece (16.9% in July 2019) and Spain (14.2%).
BoJ left monetary policy unchanged today as widely expected, but stepped up its signal for more easing ahead. Under the yield curve control framework, short term policy interest rate was held at -0.1%. Also, the central back will continue to increase monetary base at JPY 80T a year, with purchases of JGB to keep 10-year yield at around 0%. The decision was made by 7-2 vote, with Y. Harada and G. Kataoka dissenting as usual.
The forward guidance was changed to: “As for the policy rates, the Bank expects short- and long-term interest rates to remain at their present or lower levels as long as it is necessary to pay close attention to the possibility that the momentum toward achieving the price stability target will be lost.” Previously, BoJ said its committed to keep “current ultra-low rates for an extended period of time, at least until the spring of 2020.” It’s a clear message that BoJ is ready to cut interest rates again any time if outlook deteriorates further.
At the post meeting press conference, Governor Haruhiko Kuroda confirmed that the new forward guidance aimed at clarifying the stance that “policy bias is leaning towards additional monetary easing.” Regarding the tools, BoJ could “cut interest rates, increase asset buying or accelerate the pace of increase in base money”.
China NBS PMI Manufacturing dropped to 49.3 in October, down from 49.8 and missed expectation of 49.8. It’s the sixth straight month of contraction reading. Looking at some details, new export orders dropped for the 17th month to 47.0, down from 48.2. Employment improved slightly but remain deep in contraction at 47.3, up fro 47.0. NBS PMI Non-Manufacturing dropped to 52.8, down from 53.7 and missed expectation of 53.7. It’s also the lowest reading since February 2016.
The overall set of data suggests that while China’s growth is already at lowest pace in 30 years, there is not sign of a turn around yet. The improvements seen back in the end of Q3 were just ripples in a down trend, rather than the start of sustained recovery. The official PMIs will likely remain sluggish in the coming months while a Phase 1 US-China trade deal is unlikely to provide any immediate lift.
USD/CNH drops notably today, mainly thanks to weakness in Dollar. Rejection by 55 day EMA suggests more downside for the near term. But overall, USD/CNH is seen as in consolidation pattern from 7.1955. Hence, we’d expect strong support from 6.9909 cluster, 38.2% retracement of 6.6704 to 7.1955 at 6.9949, to contain downside to bring rebound.
Australian Dollar surges broadly today firstly with the help from post FOMC selloff in Dollar. In the background, Aussie has been riding on optimism towards US-China trade negotiations recently. The strong housing data today also eased concerns of a renewed downturn in the housing markets. Building permits rose 7.6% mom in September, way above expectations of 0.1% mom. Other data, while missed, were not disastrous. Private sector credit rose 0.2% mom in September versus expectation of 0.3% mom. Import price index rose 0.4% qoq in Q3 versus expectation of 0.5% qoq.
As Westpac noted in a report today, RBA should stand pat at its next meeting on November 5. Market pricing of a December cut also dropped from 80% back on October 4 to 25%. But most notably, market pricing of a February cut halved from 100% on October 4 to 50% today. While the pricing of February cut was not Westpac concurs with, that’s a factor in driving the Aussie higher today.
AUD/JPY’s rebound from 69.95 extends higher today and for now, near term outlook stays bullish as long as 73.93 support holds. Next target is 76.16 cluster resistance, which is close to 100% projection of 69.96 to 74.49 from 71.73 at 76.27. Reaction to this level will decide whether AUD/JPY has reversed the larger down trend, or it’s just in corrective rise.
After some post FOMC volatility, Dollar bears took over the markets overwhelmingly and sent the greenback sharply lower. The key takeaway was that while Fed Chair Jerome Powell indicated a pause after overnight’s rate cut to 1.50-1.75%, he was non-committal. There was a brief lift to Dollar as he said “monetary policy is in a good place”, and it would take a “material reassessment” of the outlook for considering another rate cut again.
However, Powell did stick to script that current stance of monetary policy is likely to “remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook.” It’s also mentioned in the statement the timing of future adjustments will be based on “realized and expected economic condition”, taking in to account “a wide range of information” including domestic job and inflation data, as well ass international developments. That is, Fed is maintaining a highly data-dependent approach, without closing the door for further cuts.
Trade development is something that Fed will closely monitor. Powell said “We have that Phase One potential agreement with China which, if signed and put into effect, could have the effect of reducing trade tensions and reducing uncertainty. That would bode well for business confidence and perhaps activity over time.” If the economy was to experience “a sustained reduction in trade tensions, a broad reduction in trade tensions, and a resolution of these uncertainties, that would bode well for business sentiment.
Dollar index’s decline overnight raises the chance of rejection below 55 day EMA (now at 98.13). Focus would be back on 97.14 low immediately. Break will resume the fall from 99.66. If that happens, DXY cold also finally take out 55 wee EMA decisively too. that would be a rather bearish medium term development that should send the index back to 95.84 support at least.
Dollar jumps after Fed chair Jerome Powell said it would take “material change” in the outlook to justify another rate cut. After today’s cut to 1.50-1.75%, he noted that risks to outlook have shifted more positively. Though, he added that Fed will need to see considerably higher inflation before considering raising interest rate.
USD/JPY surges along with the comments in the press conference. It’s now pressing 109.31 key resistance level. Decisive break there will raise the chance of medium term reversal and turn focus back to 112.40 key resistance.
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Fed cut federal funds rate by -25bps to 1.50-1.75% as widely expected. The decision was made by 8-2 votes. Esther George and Eric Rosengren dissented and preferred to keep interest rates unchanged. James Bullard didn’t push for deeper rate cut as he did last time.
Fed seems to kept options for further easing open. It noted that “the Committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate.”
Also, “in determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective.”
Even though the APEC summit in Chile in November is canceled due to social unrest, US is still aiming to complete the phase one of trade agreement with China with the same time frame.
White House spokesman Gidley said in an e-mail that “we look forward to finalizing Phase One of the historic trade deal with China within the same time frame, and when we have an announcement, we’ll let you know”.
“As of now, it appears APEC will not occur in Chile, and it’s our understanding the organization does not currently have a secondary site prepared,” he said.
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Canadian Dollar is sold off sharply today after more dovish than expected BoC statement. USD/CAD’s rebound suggested that it has defended 1.3052 fibonacci level, thus retains medium term bullishness. EUR/CAD’s rebound now turns favor, slightly, to the case of medium term bottoming at 1.4415. It’s a bit early to call for near term bearish reversal in CAD/JPY, but the case could build up ahead.
EUR/CAD’s strong rise suggests that corrective pull back from 1.4689 has completed at 1.4455, ahead of 1.4415 low. Focus is now back on 1.4689 near term resistance. Note that bullish convergence condition in seen in daily MACD. Decisive break of 1.4689 should also have 55 day EMA sustainably taken out. Such development would suggests medium term bottoming at 1.4415. It’s early to tell if price actions from 1.4415 is developing into an up trend or a corrective rise. But in any case, break of 1.4689 should pave the way to 38.2% retracement of 1.5645 to 1.4415 at 1.4885.
CAD/JPY’s sharp decline suggests that short term top is formed at 83.55 on bearish divergence condition in 4 hour MACD. That also came after hitting 100% projection of 78.50 to 82.08 from 79.82 at 84.40. At this point, price actions from 83.55 are seen as a corrective pattern first and further rise is in favor. Break of 83.55 will target 85.23 key resistance next. However, break of 82.08 will solidify that case that corrective rise from 78.50 has completed with three waves up to 83.55. In that case, deeper fall would be seen to 79.82 support and below, to extend the consolidation pattern from 85.23.
BoC left overnight rate target unchanged at 1.75% as widely expected. But Canadian Dollar trades generally lower as the statement is more dovish than expected. Firstly, 2020 and 2021 GDP growth forecasts are revised down. Secondly, BoC warned that “resilience of Canada’s economy will be increasingly tested as trade conflicts and uncertainty persist”, And, the central bank will monitor the “extent to which the global slowdown spreads beyond manufacturing and investment”. For Canada, focuses will be on “consumer spending and housing activity”.
BoC now projects GDP to growth 1.5% in 2019, 1.7% in 2020 and 1.8% in 2021. For 2019, growth projection was revised up from July projection of 1.3%. However, they’re notably lower than “about 2 percent in 2020 and 2021” as said in July statement. Inflation estimates are unchanged though. BoC said “CPI inflation likely will dip temporarily in 2020 as the effect of a previous spike in energy prices fades”. But, the “Bank expects inflation to track close to the 2 percent target over the projection horizon.”
Full statement below.
Bank of Canada maintains overnight rate target at 1 ¾ per cent
The Bank of Canada today maintained its target for the overnight rate at 1 ¾ percent. The Bank Rate is correspondingly 2 percent and the deposit rate is 1 ½ percent.
The outlook for the global economy has weakened further since the Bank’s July Monetary Policy Report (MPR). Ongoing trade conflicts and uncertainty are restraining business investment, trade, and global growth. A growing number of countries have responded with monetary and other policy measures to support their economies. Still, global growth is expected to slow to around 3 percent this year before edging up over the next two years. Canada has not been immune to these developments. Commodity prices have fallen amid concerns about global demand. Despite this, the Canada-US exchange rate is still near its July level, and the Canadian dollar has strengthened against other currencies.
Growth in Canada is expected to slow in the second half of this year to a rate below its potential. This reflects the uncertainty associated with trade conflicts, continuing adjustment in the energy sector, and the unwinding of temporary factors that boosted growth in the second quarter. Business investment and exports are likely to contract before expanding again in 2020 and 2021. At the same time, government spending and lower borrowing rates are supporting domestic demand, and activity in the services sector remains robust. Employment is showing continuing strength and wage growth is picking up, although with some variation among regions. Consumer spending has been choppy, but will be supported by solid income growth. Meanwhile, housing activity is picking up in most markets. The Bank continues to monitor the evolution of financial vulnerabilities in light of lower mortgage rates and past changes to housing market policies.
The Bank projects real GDP will grow by 1.5 percent this year, 1.7 percent in 2020 and 1.8 percent in 2021. This implies that the current modest output gap will narrow over the projection horizon. Measures of inflation are all around 2 percent. CPI inflation likely will dip temporarily in 2020 as the effect of a previous spike in energy prices fades. Overall, the Bank expects inflation to track close to the 2 percent target over the projection horizon.
All things considered, Governing Council judges it appropriate to maintain the current level of the overnight rate target. Governing Council is mindful that the resilience of Canada’s economy will be increasingly tested as trade conflicts and uncertainty persist. In considering the appropriate path for monetary policy, the Bank will be monitoring the extent to which the global slowdown spreads beyond manufacturing and investment. In this context, it will pay close attention to the sources of resilience in the Canadian economy – notably consumer spending and housing activity – as well as to fiscal policy developments.
US GDP grew 1.9% annualized rate in Q3, just slightly down from Q2’s 2.0%, and beat expectation of 1.6%. Headline PCE slowed to 1.5% qoq, down form 2.4% qoq, and missed expectation of 2.0% qoq. But Core PCE accelerated to 2.2% qoq, up from 1.9% qoq, and beat expectation of 2.1% qoq.
Looking at some details, GDP growth reflected positive contributions from personal consumption expenditures (PCE), federal government spending, residential fixed investment, state and local government spending, and exports. The were partly offset by negative contribution from nonresidential fixed investment and private inventory investment. Imports, which are a subtraction in the calculation of GDP, increased .
US ADP report showed private sector employment grew 125k in October, slightly below expectation of 132k. Prior month’s figure was revised sharply down from 135k to 93k. Looking at the details, small business jobs added 17k, medium business 64k, large business 44k. By sector, goods-producing jobs dropped -13k while service-providing jobs rose 138k.
“While job growth continues to soften, there are certain segments of the labor market that remain strong,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “The goods producing sector showed weakness; however, the healthcare industry and midsized companies had solid gains.”
Mark Zandi, chief economist of Moody’s Analytics, said, “Job growth has throttled way back over the past year. The job slowdown is most pronounced at manufacturers and small companies. If hiring weakens any further, unemployment will begin to rise.”
Eurozone Economic Sentiment Indicator dropped to 100.8 in October, down from 101.7, and missed expectation of 101.1. Industrial confidence dropped to -9.5, down form -8.9, missed expectation of -8.9. Services confidence dropped to 9.0, down from 9.5, matched expectation. Consumer confidence was finalized at -7.6.
Looking at the member statements, the ESI remained broadly unchanged in Germany (-0.2), France (-0.1), Italy (+0.1) and the Netherlands (+0.2), while it saw another significant decrease in Spain (-3.0).
Eurozone Business Climate improved to -0.19, up from -0.23, and beat expectation of -0.21.
Swiss KOF Economic Barometer rose to 94.7 in October, up from 93.2, and beat expectation of 94.2. The index halted its downward movement, “at least for the time being”, but it’s still well below its long term average.
KOF said the increase is “attributable in particular to bundles of indicators from the banking and insurance sector as well as from accommodation and food service activities”. Also, “indicators regarding foreign demand and other services are pointing in a slightly less negative direction”. But “indicators from the manufacturing sector record a slight decline.”
France GDP grew 0.3% qoq in Q3, unchanged from Q2’s rate, and beat expectation of 0.2% qoq. Looking at some details, household consumption expenditures accelerated slightly (0.3% after 0.2%), while total gross fixed capital formation decelerated (GFCF: 0.9% after 1.2%). Overall, final domestic demand excluding inventory changes remained dynamic and grew at the same pace as the previous quarter: it contributed 0.5 points to GDP growth.
USD/CAD recovers mildly ahead of 1.3016 today, as markets await BoC and FOMC rate decisions. BoC is widely expected to keep policy rate unchanged at 1.75%. Upside surprise in GDP growth and solid inflation offered BoC much room to stand on the sideline. Additionally, the newly-elected government’s fiscal stimulus is expected to support the economy in the coming year. There is no imminent need for the central bank to act in either direction. Ongoing trade war uncertainty and global economic slowdown would be the main focuses of policy makers ahead, and that could determine whether BoC needs to do anything next year.
On the other hand, markets are generally expecting Fed to cut interest rate again by -25bps to 1.50-1.75% today. Fed fund futures are pricing in 97.8% chance for that. The main question is whether chair Jerome Powell will signal that it’s the end of the so called “mid-cycle adjustment”. Such message could also be reflected in changes in the forward guidance too. There is prospect of a Dollar rebound should Fed affirm this message.
Here are some suggested readings on Fed and BoC:
Australia CPI slowed to 0.5% qoq in Q3, down from Q2’s 0.6% qoq, but matched expectations. Annually, CPI rose to 1.7% yoy, up fro 1.6% yoy and matched expectations. RBA trimmed mean CPI rose 0.4% qoq, 1.6% yoy, matched expectations.
ABS Chief Economist, Bruce Hockman said: “Annual inflation remains subdued partly due to price rises for housing related expenses remaining low, and in some cases falling in annual terms. Prices for utilities (-0.3 per cent) and new dwelling purchase by owner-occupiers (-0.1 per cent) both fell slightly through the year to the September 2019 quarter, while rents (0.4 per cent) recorded only a small rise”.
Westpac said that there was some AUD depreciation pass-through to inflation but there is no broader impact of wider inflationary pulse. There is little pressure on the RBA to cut again this year. And Westpac maintains the forecast of another cut in February 2020.
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Eurozone GDP grew 0.2% in Q3, CPI slowed to 0.7% in Oct
Eurozone GDP grew 0.2% qoq in Q3, unchanged from Q2’s rate, beat expectation of 0.1% qoq. Over the year, GDP grew 1.1% yoy. EU28 GDP grew 0.3% qoq 1.4% yoy.
Eurozone CPI slowed to 0.7% yoy in October, down from 0.8% yoy, matched expectation. However, CPI core accelerated to 1.1% yoy, up from 1.0% yoy and beat expectation of 1.1% yoy.