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US: Retail Sales Came in Stronger Than Expected in September
Retail sales rose 0.4% month-on-month (m/m) in September, higher than August's 0.1% gain and ahead of consensus forecast calling for an increase of 0.3% m/m.
Trade in the auto sector was flat for the month, as the marginal increase at automotive parts and accessory stores (0.5%) was wholly offset by the slight decline at motor vehicle dealers (-0.01%).
Sales at gasoline stations dipped -1.6% m/m in September, though this was largely a price story, as prices at the pump fell 4.0% m/m last month. The building materials and equipment category rose by 0.2% m/m.
Sales in the "control group", which excludes the volatile components above (i.e., gasoline, autos and building supplies) and is used in the estimate of personal consumption expenditures (PCE), rose 0.7% m/m, a sizeable acceleration from the 0.3% monthly gain in August.
- Gains were concentrated across miscellaneous store retailers (4.0% m/m), clothing & accessories stores (1.5% m/m) and health & personal care stores (1.1% m/m).
- The largest decline was at furniture and electronics stores (-2.2% m/m).
Food services & drinking places – the only services category in the retail sales report – rose 1.0% m/m. August's data was also revised up to 0.5% (reported as flat previously).
Key Implications
The U.S. consumer continues to display notable resilience, despite the headwinds that have blown their way. Monthly sales rose at a relatively fast pace adding to previous gains earlier in the quarter. Sales in the key control group were also notable, remaining in positive territory for the fifth consecutive month. All said, with today's numbers, growth in sales for the third quarter was strong at 5.3% annualized – notably above the 1.8% annualized gain recorded in Q2 and significantly higher than the decline in Q1 (-0.8%).
After a brief stumble at the beginning of the year, consumers seem to have found their footing again. Recent revisions to income and spending data suggests that they may have even more room to run than we previously believed. While we no longer expect growth in consumer spending to dip below 2% annualized, a deceleration from our current tracking of above-3.0% in Q3 is still in the cards over the coming quarters.
EUR/USD Mid-Day Outlook
Daily Pivots: (S1) 1.0843; (P) 1.0872; (R1) 1.0891; More....
EUR/USD's fall from 1.1213 extends lower today and intraday bias remains on the downside. This decline is seen as the third leg of the corrective pattern from 1.1274. Deeper fall would be seen to 61.8% retracement of 1.0447 to 1.1213 at 1.0740 next. Firm break there will target 1.0601 support next. On the upside, above 1.0900 minor resistance will turn intraday bias neutral and bring consolidations first, before staging another decline.
In the bigger picture, rejection by 1.1274 resistance suggests that corrective pattern from 1.1274 (2023 high) is not completed yet. Instead, decline from 1.1213 might be another falling leg. Sustained break of 55 W EMA (now at 1.0877) will validate this case, and bring deeper fall towards 1.0447 support again. But downside should be contained by 50% retracement of 0.9534 (2022 low) to 1.1274 at 1.0404.
Dovish ECB Rate Cut Pressures Euro, Gold Breaks to Fresh Record
Euro tumbled broadly after ECB’s decision to cut its deposit rate by 25bps, as widely expected. During the post-meeting press conference, President Christine Lagarde maintained a cautious tone, stressing that ECB is "not pre-committing to a particular rate path." However, her overall stance leaned dovish, with a clear acknowledgment that "economic activity has been somewhat weaker than expected."
Lagarde further highlighted that risks to growth remain "tilted to the downside." Lower confidence could slow the recovery in consumption and investment. Reduced demand for Eurozone exports could potentially adding pressure to economic growth. Additionally, inflation risks could shift to the downside if weak confidence and concerns over geopolitical events continue to curb spending and investment, or if the global economic environment deteriorates unexpectedly.
Overall in the currency markets, Canadian Dollar has emerged as the day’s worst performer, struggling to maintain its brief recovery. Euro follows as the second weakest, with Yen also underperforming. On the other side, Australian Dollar leads the gains, supported by strong employment data, though its upward momentum remains capped. Sterling and Kiwi are also performing well, while Dollar and Swiss Franc occupy middle ground.
Technically, Gold is maintaining steady momentum as it breaches to new record high today. For now, further rally is expected as long as 2638.13 support holds. Next target is 61.8% projection of 2471.76 to 2685.34 from 2604.53 at 2736.62.
In Europe, at the time of writing, FTSE is up 0.47%. DAX is up 0.92%. CAC is up 1.50%. UK 10-year yield is up 0.0228 at 4.091. Germany 10-year yield is up 0.015 at 2.204. Earlier in Asia, Nikkei fell -0.69%. Hong Kong HSI fell -1.02%. China Shanghai SSE fell -1.05%. Singapore Strait Times rose 0.96%. Japan 10-year JGB yield rose 0.0102 to 0.965.
US retail sales rise 0.4% mom in Sep, ex-auto sales jump 0.5% mom
US retail sales rose 0.4% mom to USD 714.4B in September, above expectation of 0.3% mom. Ex-auto sales jumped 0.5% mom to 580.5B, well above expectation of 0.1% mom. Ex-gasoline sales rose 0.6% mom to 633.2B. Ex-auto, gasoline sales rose 0.7% mom to 529.5B.
Total sales for the July through September period were up 2.3% over the sale period a year ago.
US initial jobless claims fall to 241k, match expectations
US initial jobless claims fell -19k to 241k in the week ending October 12, matched expectations. Four-week moving average of initial claims rose 5k to 236k.
Continuing claims rose 9k to 1867k in the week ending October 5. Four-week moving average of continuing claims rose 11.5k to 1843k.
ECB lowers rates by 25bps, cites economic downside surprises impacting inflation outlook
ECB cut its deposit rate by 25 basis points to 3.25% today, as widely anticipated. In its accompanying statement, ECB highlighted that the disinflationary process is "well on track," with inflation expected to decline to target levels by next year. Recent "downside surprises" in economic activity have also impacted the inflation outlook.
Despite the improvement, domestic inflation remains elevated, driven by persistent wage growth. However, ECB expects labor cost pressures to ease gradually, with profits buffering their inflationary impact.
The central bank reaffirmed its commitment to maintaining rates at restrictive levels for as long as necessary, emphasizing a "data-dependent", "meeting-by-meeting" approach to future policy decisions, without pre-committing to any specific rate path.
Eurozone CPI finalized at 1.7% in Sep, CPI core at 2.7%
Eurozone CPI in September was finalized at 1.7% yoy, down from August’s 2.2% yoy. Core CPI, which excludes volatile components like energy, food, alcohol, and tobacco, was finalized at 2.7% yoy, slightly lower than August’s 2.8% yoy.
The largest contributor to Eurozone CPI was the services sector, adding +1.76 percentage points to the annual rate, followed by food, alcohol, and tobacco (+0.47 pp). Non-energy industrial goods added +0.12 pp, while energy dragged inflation down by -0.60 pp as prices continued to ease.
On a broader level, EU inflation was also finalized lower at 2.1%, down from 2.4% in August. Inflation rates across member states varied significantly, with the lowest annual rates recorded in Ireland (0.0%), Lithuania (0.4%), and Slovenia and Italy (both at 0.7%).
In contrast, Romania (4.8%), Belgium (4.3%), and Poland (4.2%) registered the highest inflation rates. Compared to August, annual inflation fell in twenty Member States, remained stable in two, and rose in five.
Eurozone goods exports fall -2.4% yoy in Aug, imports down -2.3% yoy
Eurozone goods exports fell -2.4% yoy to EUR 216.7B in August. Goods imports fell -2.3% yoy to EUR 212.1B. Trade balance was a EUR 4.6B surplus. Intra- Eurozone trade fell -4.3% yoy to EUR 183.5B.
In seasonally adjusted term, goods exports fell -0.1% mom to EUR 237.9B. Goods imports rose 1.0% mom to EUR 226.8B. Trade balance reported EUR 11.0B surplus. Intra-Eurozone trade fell -0.5% mom to EUR 215.1B.
Australia's employment grows 64.1k in Sep, unemployment rate unchanged at 4.1%
Australia's employment figures for September showed stronger-than-expected growth, with 64.1k jobs added, significantly exceeding forecast of 25.2k. Full-time employment led the gains, rising by 51.6k, while part-time jobs increased by 12.5k.
Unemployment rate remained steady at 4.1%, slightly better than the expected 4.2%. Participation also increased by 0.1% to 67.2%, indicating higher workforce engagement. Monthly hours worked saw a modest rise of 0.3% mom.
Over the past year, employment has grown by 3.1%, outpacing the civilian population growth of 2.5%. This pushed the employment-to-population ratio to a historical high of 64.4%, reflecting robust labor market conditions.
Australia's NAB business confidence drops to -6 in Q3, inflation pressures ease slightly as margins squeezed
Australia’s NAB quarterly Business Confidence declined from -2 to -6 in Q3. Business conditions also dropped from 5 to 2, with trade conditions falling from 9 to 5, profitability slipping from 2 to 0, and employment conditions down from 5 to 3, signaling softer economic momentum.
Leading indicators weakened, with expected business conditions for the next 3 months falling from 11 to 10, and for the next 12 months from 15 to 12. Forward orders remained negative at -4, and capacity utilization eased from 83.6% to 83.0%. Capital expenditure plans also declined from 24 to 19, indicating reduced investment expectations.
Cost pressures remained persistent. Labor costs grew 1.2%, up from 1.1%, and purchase costs increased to 1.0%, up from 0.9%. Final product price growth, however, slowed from 0.6% to 0.4%, and retail price growth remained steady at 0.7%, suggesting inflationary pressures are easing but at the expense of business margins.
NAB Head of Australian Economics Gareth Spence noted, “Labor cost growth remains elevated, and wage costs are the top issue affecting business confidence. While purchase cost growth persists, the marked drop in final product price growth suggests progress on inflation, though margins are under pressure.”
Japan's exports fall -1.7% yoy in Sep, first decline in 10 months
Japan's exports in September dropped by -1.7% yoy to JPY 9.038T, marking the first annual decline in 10 months. This slump was driven by weaker demand from key trading partners. Exports to China, Japan's largest market, fell by -7.3% yoy, while those to the US dropped by -2.4% yoy.
On the other hand, imports rose modestly by 2.1% yoy to JPY 9.333T, leading to a trade deficit of JPY -294B, the third consecutive monthly shortfall.
In seasonally adjusted terms, there was a small improvement. Exports grew by 2.0% mom to JPY 8.956T, while imports fell by -1.2% mom to JPY 9.144T. This led to a seasonally adjusted trade deficit of JPY -187B.
EUR/USD Mid-Day Outlook
Daily Pivots: (S1) 1.0843; (P) 1.0872; (R1) 1.0891; More....
EUR/USD's fall from 1.1213 extends lower today and intraday bias remains on the downside. This decline is seen as the third leg of the corrective pattern from 1.1274. Deeper fall would be seen to 61.8% retracement of 1.0447 to 1.1213 at 1.0740 next. Firm break there will target 1.0601 support next. On the upside, above 1.0900 minor resistance will turn intraday bias neutral and bring consolidations first, before staging another decline.
In the bigger picture, rejection by 1.1274 resistance suggests that corrective pattern from 1.1274 (2023 high) is not completed yet. Instead, decline from 1.1213 might be another falling leg. Sustained break of 55 W EMA (now at 1.0877) will validate this case, and bring deeper fall towards 1.0447 support again. But downside should be contained by 50% retracement of 0.9534 (2022 low) to 1.1274 at 1.0404.
US initial jobless claims fall to 241k, match expectations
US initial jobless claims fell -19k to 241k in the week ending October 12, matched expectations. Four-week moving average of initial claims rose 5k to 236k.
Continuing claims rose 9k to 1867k in the week ending October 5. Four-week moving average of continuing claims rose 11.5k to 1843k.
US retail sales rise 0.4% mom in Sep, ex-auto sales jump 0.5% mom
US retail sales rose 0.4% mom to USD 714.4B in September, above expectation of 0.3% mom. Ex-auto sales jumped 0.5% mom to 580.5B, well above expectation of 0.1% mom. Ex-gasoline sales rose 0.6% mom to 633.2B. Ex-auto, gasoline sales rose 0.7% mom to 529.5B.
Total sales for the July through September period were up 2.3% over the sale period a year ago.
ECB lowers rates by 25bps, cites economic downside surprises impacting inflation outlook
ECB cut its deposit rate by 25 basis points to 3.25% today, as widely anticipated. In its accompanying statement, ECB highlighted that the disinflationary process is "well on track," with inflation expected to decline to target levels by next year. Recent "downside surprises" in economic activity have also impacted the inflation outlook.
Despite the improvement, domestic inflation remains elevated, driven by persistent wage growth. However, ECB expects labor cost pressures to ease gradually, with profits buffering their inflationary impact.
The central bank reaffirmed its commitment to maintaining rates at restrictive levels for as long as necessary, emphasizing a "data-dependent", "meeting-by-meeting" approach to future policy decisions, without pre-committing to any specific rate path.
(ECB) Monetary policy decisions
The Governing Council today decided to lower the three key ECB interest rates by 25 basis points. In particular, the decision to lower the deposit facility rate – the rate through which the Governing Council steers the monetary policy stance – is based on its updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. The incoming information on inflation shows that the disinflationary process is well on track. The inflation outlook is also affected by recent downside surprises in indicators of economic activity. Meanwhile, financing conditions remain restrictive.
Inflation is expected to rise in the coming months, before declining to target in the course of next year. Domestic inflation remains high, as wages are still rising at an elevated pace. At the same time, labour cost pressures are set to continue easing gradually, with profits partially buffering their impact on inflation.
The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner. It will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim. The Governing Council will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction. In particular, its interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. The Governing Council is not pre-committing to a particular rate path.
Key ECB interest rates
The Governing Council today decided to lower the three key ECB interest rates by 25 basis points. Accordingly, the interest rates on the deposit facility, the main refinancing operations and the marginal lending facility will be decreased to 3.25%, 3.40% and 3.65% respectively, with effect from 23 October 2024.
Asset purchase programme (APP) and pandemic emergency purchase programme (PEPP)
The APP portfolio is declining at a measured and predictable pace, as the Eurosystem no longer reinvests the principal payments from maturing securities.
The Eurosystem no longer reinvests all of the principal payments from maturing securities purchased under the PEPP, reducing the PEPP portfolio by €7.5 billion per month on average. The Governing Council intends to discontinue reinvestments under the PEPP at the end of 2024.
The Governing Council will continue applying flexibility in reinvesting redemptions coming due in the PEPP portfolio, with a view to countering risks to the monetary policy transmission mechanism related to the pandemic.
Refinancing operations
As banks are repaying the amounts borrowed under the targeted longer-term refinancing operations, the Governing Council will regularly assess how targeted lending operations and their ongoing repayment are contributing to its monetary policy stance.
***
The Governing Council stands ready to adjust all of its instruments within its mandate to ensure that inflation returns to its 2% target over the medium term and to preserve the smooth functioning of monetary policy transmission. Moreover, the Transmission Protection Instrument is available to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across all euro area countries, thus allowing the Governing Council to more effectively deliver on its price stability mandate.
The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:45 CET today.
EUR/USD Technical: Overstretched Decline Heading into ECB Meeting
- A 25bps cut by the ECB is likely to have been fully priced in.
- The current high expectation of another ECB rate cut in December faces an increased repricing risk.
- Watch the 1.0780/0750 key medium-term support on the EUR/USD.
In the past four weeks, the EUR/USD has plummeted by 3.3% from its 25 September high of 1.1214 to today’s current intraday low of 1.0849 at this time of the writing ahead of the European Central Bank (ECB) monetary policy decision.
Based on a one-month rolling performance basis, the Euro is the second weakest major currency against the US dollar with a loss of 2.5%, above the Japanese yen which was the weakest major currency as it shed -6.4% against the US dollar.
25 bps cut is likely to have been fully priced in
The current price movement of the EUR/USD is likely to have fully priced in today’s 25 basis points (bps) cut by the ECB, its third cut in 2024 to bring the key deposit rate to 3.25% as headline inflation in the Eurozone decelerated to 1.7% y/y in September, below ECB’s target of 2% for the first time in more than three years.
In addition, lacklustre readings seen in September’s manufacturing and services PMIs data suggest increasing signs of a weakening economic condition in the Eurozone.
Hence, market participants are looking at one more rate cut of 25 bps by the ECB in December before 2024 ends.
Oversold and overstretched
Fig 1: Major & medium-term trends of EUR/USD as of 17 Oct 2024 (Source: TradingView)
Through the lens of technical analysis, the 4-week decline seen in the EUR/USD has led the daily RSI momentum indicator to reach its oversold region for the first time since 15 April 2024.
Current price action is also coming close to the major “Symmetrical Triangle” range support at 1.0780/0750 (see Fig 1).
In addition, the daily Bollinger Bandwidth indicator has risen sharply since 1 October 2024 which suggests an overstretched decline condition at this juncture that increases the odds of at least a short-term mean reversion rebound scenario.
If the 1.0780/0750 key medium-term pivotal support holds on the EUR/USD, it may shape a mean reversion rebound towards the 1.0950 intermediate resistance in the first step.
However, a breakdown and a daily close below 1.0750 see the continuation of the impulsive down move sequence to expose the next medium-term support at 1.0620.
AUD/USD Rises Following Strong Australian Employment Data
AUD/USD rebounded on Thursday after three consecutive days of declines. This was supported by robust employment data from Australia, which bolstered the hawkish outlook on the Reserve Bank of Australia's (RBA) monetary policy.
Key Employment Data Highlights:
- Job creation: the Australian economy added 64.1k jobs in September, significantly surpassing the expected 25.0k. This marked improvement suggests strong economic momentum
- Unemployment rate: the rate held steady at 4.1%, aligning with expectations and underscoring the labour market's resilience
- Labour force participation: the participation rate rose to a record 67.2% in September from 67.1% in August, beating the forecast of 67.1%. This increase reflects a growing workforce, which could sustain consumer spending and economic activity
These indicators of labour market strength make it less likely that the RBA will opt for rate cuts in the near term. Additionally, RBA Deputy Governor Sarah Hunter emphasised the central bank's commitment to controlling inflation, which continues to be a concern amid sustained price increases. Analysts now suggest that the RBA is unlikely to cut rates until at least the first half of the next year, considering the tight labour market conditions.
Technical analysis of AUD/USD
The AUD/USD pair is extending its downward movement towards a target of 0.6645. After testing the resistance at 0.6700 from below, it continues its decline. Once the 0.6645 level is reached, a new consolidation range is expected to form above this level. A breakout above this range could initiate a corrective phase towards 0.6790. This bearish trend is supported by the MACD indicator, which remains below zero and points downwards, indicating sustained downward momentum.
On the hourly chart, AUD/USD has completed a downward wave to 0.6660, followed by a corrective rise to 0.6700. The pair is expected to continue its decline to the 0.6645 level. After this target is met, a potential reversal could push the price towards 0.6710. The Stochastic oscillator supports this outlook, with its signal line below 50 and heading towards 20, suggesting that there may be further downside before any significant recovery.
Dollar Outlook: Continues to Advance on Cooling Fed Rate Cut Bets, Trump Election Victory Expectations
The Dollar continues to trend higher against the basket of its major counterparts and trades at the highest since early August during European session on Thursday.
Possibility of election win by Republican candidate Donald Trump and negative impact of recent upbeat US economic data to further Fed rate cut expectations, were the key factors to support dollar.
The dollar index is in strong uptrend for the third straight week and has so far retraced over 50% of larger 105.78/99.84 fall.
Recent break above pivotal barriers at 102.95/103.05 (100DMA / top of thick daily cloud) generated strong bullish signals, contributing to bullish daily studies.
Bulls pressure next key barriers at 103.51/56 (Fibo 61.8% / 200DMA) but may face headwinds here due to overbought conditions on daily chart.
Limited dips to be ideally contained by 103.00/102.80 zone (broken 100DMA / cloud top / broken Fibo 50%) to offer better levels to re-enter bullish market.
Release of US weekly jobless claims and September retail sales will be in focus today.
Res: 103.56; 103.80; 104.00; 104.38.
Sup: 103.26; 103.00; 102.81; 102.44.
