Weekly Market Recap (11-15 September)

<p>Monday:</p><p>BoJ Governor Ueda
interviewed by Japanese media Yomiuri over the weekend said that his focus is
on a “quiet exit” to avoid significant impact on the market:</p><ul type="disc"><li>We could have enough
data by year-end to determine whether we can end negative rates.</li><li>Once we're convinced
Japan will see sustained rises in inflation accompanied by wage growth,
there are various options we can take. </li><li>If we judge that
Japan can achieve its inflation target even after ending negative rates,
we'll do so. </li><li>The BOJ will
patiently maintain ultra-loose policy.</li><li>While Japan is
showing budding positive signs, achievement of our target isn't in sight
yet.</li><li>Wage rises are
beginning to push up service prices. The key is whether wages will keep
rising next year.</li><li>“There are some
things we cannot see, including overseas economies” and expressed his
cautious approach.</li></ul><p>BoE’s Mann (hawk –
voter) said that she prefers to err on the side of overtightening:</p><ul type="disc"><li>If I am wrong and
inflation and economy drop more significantly, I wouldn't hesitate to cut
rates.</li><li>It's a risky bet
that inflation expectations are sufficiently well-anchored, and we can
wait for core inflation to ease.</li><li>We need to prepare
for a world where inflation is more likely to be volatile.</li><li>The idea that 3%
inflation is 'close enough' can't be the BOE's guide.</li></ul><p>The NY Fed released its
August inflation expectations survey:</p><ul><li> Survey of consumers in
August puts one-year ahead expected inflation at 3.6% vs. July reading of 3.5%.</li><li> August three-year ahead
expected inflation at 2.8% vs. July 2.9%.</li><li>August five-year ahead
expected inflation at 3.0% vs. July 2.9%.</li><li>August expected home
price rise moves to 3.1% from July 2.8% (highest since July 2022).</li><li>Record number of
consumers said credit now harder to get.</li><li>Households more downbeat
on current and future finances.</li><li>Income growth
perceptions declined to 2.9 percent, the lowest reading since July 2021.</li><li>The mean perceived probability of losing one’s job in the next 12 months
rose by 2.0 percentage points to 13.8%, its highest reading since April 2021.</li></ul><p>Tuesday:</p><p>BoJ offered to buy an
unlimited amount of JGBs after the yield on the 10yr bond surged to the highest
level since 2014 (around 0.70%).</p><p>The UK August Payroll change printed at -1K vs. 30K
expected and -4K prior (revised from 97K!):</p><ul type="disc"><li>July ILO
unemployment rate 4.3% vs. 4.3% expected and 4.2% prior.</li><li>July employment
change -207k vs. -185k expected and -66K prior. </li><li>Average weekly
earnings incl. Bonus 3M/YoY 8.5% vs. 8.2% expected and 8.4% prior (revised
from 8.2%).</li><li>Average weekly
earnings ex-Bonus 3M/YoY 7.8% vs. 7.8% expected and 7.8% prior.</li></ul><p>German September ZEW survey fell to a new cycle low:</p><ul type="disc"><li>Current conditions
-79.4 vs. -75.0 expected and -71.3 prior.</li><li>Expectations -11.4
vs. -15.0 expected and -12.3 prior.</li></ul><p>BoE’s Breeden (neutral – non voter) will replace Jon
Cunliffe in November:</p><ul type="disc"><li>The risks to
inflation around August forecast are to the upside.</li><li>Sees balanced risks
to growth and unemployment in both directions.</li><li>Expects inflation to
be around the 2% target in two years.</li></ul><p>The US NFIB Small
Business Optimism Index missed coming in at 91.3 vs. 91.6 expected and 91.9
prior. </p><p>Wednesday:</p><p>The Japanese PPI slowed more in August on a year over
year basis:</p><ul type="disc"><li>PPI M/M 0.3% vs.
0.1% expected and 0.1% prior.</li><li>PPI Y/Y 3.2% vs.
3.2% expected and 3.4% prior (revised from 3.6%).</li></ul><p>The UK Monthly GDP missed expectations:</p><ul type="disc"><li>Monthly GDP -0.5%
vs. -0.2% expected and 0.5% prior. </li><li>GDP 3M/3M 0.2% vs. 0.3%
expected and 0.2% prior. </li><li>Services -0.5%.</li><li>Industrial output -0.7%.</li><li>Manufacturing output -0.8%.</li><li>Construction output -0.5%.</li></ul><p>Eurozone Industrial Production missed expectations:</p><ul><li>Industrial
Production M/M -1.1% vs. -0.7% expected and 0.4% prior (revised from 0.5%).</li><li>Industrial
Production Y/Y -2.2% vs. -0.3% expected and -1.1% prior (revised from -1.2%).</li></ul><p>The US CPI came basically in line with expectations
with the 3-month annualised Core CPI standing now at 2.4%:</p><ul type="disc"><li>CPI Y/Y 3.7% vs.
3.6% expected and 3.2% prior. </li><li>CPI M/M 0.6% vs. 0.6%
expected and 0.2% prior.</li><li>Core CPI Y/Y 4.3%
vs. 4.3% expected and 4.7% prior.</li><li>Core CPI M/M 0.3%
(0.278% unrounded) vs. 0.2% expected and 0.2% prior.</li><li>Shelter M/M 0.3% vs.
0.4% prior. </li><li>Shelter Y/Y 7.3% vs.
7.7% prior.</li><li>Services less rent
and shelter M/M 0.5% vs. 0.2% prior.</li><li>Real weekly earnings
-0.1% vs. 0.0% prior.</li></ul><p>Thursday:</p><p>The Australian August Jobs report beat expectations
but most of the jobs added were part-time:</p><ul><li>Employment change
64.9K vs. 23.0K expected and -14.6K prior.</li><li>Full-time
employment 2.8K vs. -24.2K prior.</li><li>Part-time
employment 62.1K vs. 9.6K prior.</li><li>Unemployment rate
3.7% vs. 3.7% expected and 3.7% prior. </li><li>Participation rate
67.0% vs. 66.7% expected and 66.7% prior. </li><li>Hours worked M/M
-0.5%.</li></ul><p>The PBoC cut the RRR by 25 bps. The weighted average
RRR for financial institutions will be around 7.40% after the latest cut. The
central bank adds that it will keep prudent monetary policy and ensure
liquidity remains reasonably ample.</p><p>The ECB hiked interest rates by 25 bps as expected
bringing the deposit rate to 4.00% vs. 3.75% prior and signals the peak:</p><ul><li> Inflation continues to decline but is still
expected to remain too high for too long.</li><li> Past rate hikes continue to be transmitted
forcefully.</li><li> Financing conditions have tightened further
and are increasingly dampening demand.</li><li>ECB considers that key rates have reached
levels that, maintained for a sufficiently long duration, will make a
substantial contribution to the timely return of inflation to the target.</li><li> Future decisions will ensure that the key
rates will be set at sufficiently restrictive levels for as long as necessary.</li><li>ECB will continue to follow a
data-dependent approach to determining the appropriate level and duration of
restriction.</li></ul><p>Growth and Inflation forecasts:</p><ul type="disc"><li>2023 GDP at 0.7% (previously 0.9%).</li><li>2024 GDP at 1.0% (previously 1.5%).</li><li>2025 GDP at 1.5% (previously 1.6%).</li><li>2023 inflation at 5.6% (previously 5.4%).</li><li>2024 inflation at 3.2% (previously 3.0%).</li><li>2025 inflation at 2.1% (previously 2.2%).</li></ul><p>Moving on to the press conference, President Lagarde didn’t
say anything hawkish and highlighted the slowing in the Eurozone economy:</p><ul type="disc"><li>Higher inflation
forecasts mainly reflect higher energy.</li><li>Rates will remain at
sufficiently restrictive levels for as long as necessary.</li><li>Rates were hiked to
'reinforce commitment to our target'.</li><li>The economy is
likely to remain subdued in the coming months.</li><li>The services sector,
which had been resilient, is now slowing.</li><li>Recent indicators
suggest a weak Q3.</li><li>Labour market remains resilient.</li><li>In the coming months
inflation will fall.</li><li>Most measures of
underlying inflation are starting to fall.</li><li>The risks to
economic growth are tilted to the downside.</li><li>We will continue to
follow a data dependent model and stand ready to adjust all our
instruments.</li><li>Some governors would
have preferred to pause and wait on more data.</li><li>A 'solid majority'
agreed with the decision.</li><li>Three quarters of
the rise in the 2024 rise in inflation is due to carry-over from 2023.</li><li>We didn't discuss
how long we will leave rates at these levels; we will continue to be data
dependent.</li><li>We are not saying
that we're now at the peak, we can't say that now.</li><li>The focus is
expected to move towards duration.</li><li>Policy transmission
is faster than previous cycles.</li><li>We are going through
a phase of very sluggish growth.</li><li>We see weak signs.</li></ul><p>The US Jobless Claims beat expectations across the
board:</p><ul type="disc"><li>Initial Claims 220K
vs. 225K expected and 217K prior (revised from 216K).</li><li>Continuing Claims
1688K vs. 1695K expected and 1684K prior (revised from 1679K). </li></ul><p>The US Retail Sales beat expectations with some
downward revisions to the prior figures:</p><ul type="disc"><li>Retail sales M/M
0.6% vs. 0.2% expected and 0.5% prior (revised from 0.7%).</li><li>Retail Sales Y/Y
2.5% vs. 2.6% prior (revised from 3.2%). </li><li>Retail Sales Ex-autos
0.6% vs. 0.4% expected and 1.0% prior.</li><li>Control group 0.1% vs.
-0.1% expected and 0.7% prior (revised from 1.0%).</li><li>Retail sales ex gas
and autos 0.2% vs. 0.7% prior (revised from 1.0%).</li></ul><p>The US August PPI surprised to the upside on the
headline readings, but the core measures were in line with forecasts:</p><ul type="disc"><li>PPI Y/Y 1.6% vs. 1.2%
expected and 0.8% prior.</li><li>PPI M/M 0.7% vs.
0.4% expected and 0.4% prior (revised from 0.3%). </li><li>Core PPI Y/Y 2.2%
y/y vs. 2.2% expected and 2.4% prior. </li><li>Core PPI M/M 0.2% vs.
0.2% expected and 0.4% prior (revised from 0.3%).</li></ul><p>Friday:</p><p>The New Zealand Manufacturing PMI for August fell
further into contraction:</p><ul><li>46.1 vs. 46.6
prior. </li></ul><p>The PBoC kept the MLF rate unchanged at 2.5% as
expected but cut the 14-day reverse repo rate by 20 bps from 2.15% to 1.95%. </p><p>Chinese activity data surprised to the upside:</p><ul><li>Retail Sales Y/Y
4.6% vs. 3.0% and 2.6% prior.</li><li>Industrial
Production Y/Y 4.5% vs. 3.9% and 3.7% prior.</li><li>Unemployment rate
5.2% vs. 5.3% expected and 5.3% prior.</li></ul><p>Comments from the National Bureau of Statistics (NBS):</p><ul type="disc"><li>In August, major indicators showed marginal
improvement.</li><li>National economy showed good momentum of
recovery.</li><li>Domestic
demand remains insufficient.</li></ul><p>ECB’s Lagarde (neutral – voter) didn’t push back on
yesterday’s hint on the end of the tightening cycle:</p><ul><li>We
will return to 2% inflation target.</li><li>To set rates at restrictive level as long as needed for that.</li><li>Eurozone
will not grow as much as expected earlier but should pick up in 2024.</li><li>Weaker
growth does not mean recession.</li><li>What
we do next on rates will be on a data-dependent basis.</li><li>We
have not discussed rate cuts. </li></ul><p>ECB’s
Kazaks (hawk – voter) basically confirmed that the ECB has reached its terminal
rate:</p><ul type="disc"><li>Latest monetary
policy move was not a 'dovish hike'.</li><li>It does not preclude
future decisions.</li><li>Comfortable with
current level of rates.</li><li>Sees inflation
target being reached in 2H 2025.</li><li>April rate cut would
be inconsistent with ECB's macro scenario.</li></ul><p>The US Industrial Production for August beat
expectations:</p><ul type="disc"><li>Industrial
Production M/M 0.4% vs. 0.1% expected and 0.7% prior (revised from 1.0%).</li></ul><ul type="disc"><li>Industrial Production
Y/Y 0.2% vs. 0.0% prior (revised from -0.2%)</li></ul><ul type="disc"><li>Capacity utilization
79.7% vs. 79.3% expected and 79.5% prior (revised from 79.3%).</li></ul><p>The University of
Michigan Consumer Sentiment survey missed forecasts across the board with
inflation expectations falling even after the rise in energy prices:</p><ul type="disc"><li>Consumer Sentiment 67.7
vs. 69.1 expected and 69.5 prior.</li><li>Current conditions
69.8 vs. 75.3 expected and 75.7 prior.</li><li>Expectations 66.3 vs
66.0 expected and 65.5 prior.</li><li>1-year inflation 3.1% vs. 3.5% prior.</li><li>5-10 year 2.7% vs. 3.0% prior.</li></ul><p>The highlights for next week
will be:</p><ul><li>Monday: NZ
Services PMI, US NAHB Housing Market Index.</li><li>Tuesday: RBA
Meeting Minutes, Canada CPI, US Building Permits and Housing Starts.</li><li>Wednesday: PBoC
LPR, UK CPI, BoC Summary of Deliberations, FOMC Policy Decision.</li><li>Thursday: NZ GDP,
SNB Policy Decision, BoE Policy Decision, US Jobless Claims.</li><li>Friday: Japan CPI,
BoJ Policy Decision, UK Retail Sales, Canada Retail Sales, Flash PMIs for AU,
JP, UK, EZ, US. </li></ul><p>That’s all folks, have a great weekend!</p>

This article was written by Giuseppe Dellamotta at www.forexlive.com.