Weekly Market Recap (13-17 November)

<p>Monday</p><p>The New Zealand Services PMI fell back into
contraction:</p><ul><li>Services PMI 48.9
vs. 50.6 prior.</li><li>Below the long-term
average of 53.5.</li></ul><p>The RBA Assistant Governor Kohler highlighted how the
decline in inflation could be more gradual that previously thought and the main
risk is that high inflation today feeds into inflation expectations:</p><ul><li>Decline in inflation
to be more gradual than previously thought.</li><li>Bringing inflation
back to target is likely to be more drawn out.</li><li>Domestically sourced
inflation has been widespread and slow to decline.</li><li>Still-strong levels
of demand have allowed businesses to pass on cost increases.</li><li>Wages growth has
picked up, but now appears to have broadly stabilised.</li><li>Key risks is
possibility that high inflation today feeds into inflation expectations.</li><li>Encouragingly,
measures of medium-term inflation expectations consistent with target.</li><li>Labour market
conditions are easing but are still tight.</li><li>There is no doubt
that the RBA cash rate is at a restrictive level.</li><li>There is the risk of
shocks, the road ahead could be bumpy.</li></ul><p>The Japanese PPI missed
expectations with the 3-month and 6-month averages being in deflation:</p><ul><li>PPI M/M -0.4% vs. 0.0%
expected and -0.3% prior.</li><li>PPI Y/Y 0.8% vs.
0.9% expected and 2.0% prior.</li></ul><p>ECB’s Kazaks (hawk – non
voter) maintains a cautious approach as he hasn’t seen a peak in wage growth
yet:</p><ul><li>Too soon to say that
terminal rate has been reached.</li><li>Sees risk of
spillover into inflation.</li><li>No clear peak of
wage growth seen yet.</li></ul><p>ECB’s de Guindos (dove –
voter) continues to support the “wait and see” approach:</p><ul><li>Will be in a better
position to reassess inflation outlook in December.</li><li>Expect a temporary
rebound in inflation in the coming months.</li><li>It is likely that
euro area economy will remain subdued in the near-term.</li><li>There are signs that
labour market is beginning to weaken.</li><li>Will be in a better
position to reassess inflation outlook and required action in December
meeting.</li><li>Sees general
disinflationary process continuing over the medium-term.</li><li>Will ensure policy
remains sufficiently restrictive for as long as necessary.</li><li>Forward guidance is
out of fashion.</li></ul><p>BoE’s Mann (hawk – voter)
just delivered some general comments on inflation with no policy outlook,
although she remains one of most hawkish members:</p><ul><li>Research points to increased
inflation, increased inflation persistence, and increased inflation
volatility associated with climate shocks, policies, and spillovers.</li><li>Carbon price shocks
lead to more inflation persistence and then oil price shocks.</li><li>Redistribution of
revenues from carbon taxes or emission certificate auctions have economic
effects of direct interest to central banks.</li></ul><p>Tuesday</p><p>The UK Jobs data beat expectations across the board
with positive revisions to the prior figures:</p><ul><li>October Payrolls
change 33K vs. 32K prior (revised from -11K).</li><li>September ILO
unemployment rate 4.2% vs. 4.3% expected and 4.2% prior.</li><li>September employment
change 54k vs. -198k expected and -82K prior.</li><li>September average
weekly earnings 7.9% vs. 7.4% expected and 8.2% prior (revised from 8.1%).</li><li>September average
weekly earnings (ex bonus) 7.7% vs. 7.7% expected and 7.9% prior (revised
from 7.8%).</li></ul><p>SNB's Jordan maintains a hawkish tone as he
warns that they will not hesitate to tighten more if necessary, although the
conditions do not warrant such an action:</p><ul><li>We will not hesitate to tighten monetary policy further if necessary.</li><li>Will
review at the next meeting whether measures taken to date are sufficient to
keep inflation within price stability range on a sustainable basis.</li><li>To
this end, we will monitor inflation developments closely in the coming weeks.</li><li>I'm
not sure whether the terminal rate has been reached.</li></ul><p>The US NFIB Small Business Optimism Index ticked lower
to 90.7 vs. 90.8 prior. This marks the 22nd straight month that the
index sits below its 50-year average of 98. As such, it reaffirms that small
business sentiment is still struggling somewhat.</p><p>Fed’s Jefferson (neutral – voter) as other Fed
speakers recently, maintains a hawkish tone:</p><ul><li>Uncertainty on inflation persistence may warrant stronger policy
response.</li><li>Some
measures of economic uncertainty, particularly for inflation, are elevated.</li><li>Policy
decisions taken under uncertainty may look different from those optimal under
certainty.</li></ul><p>The US CPI report missed across the board triggering
huge moves and making the market to bring forward rate cut odds:</p><ul><li>CPI Y/Y 3.2% vs.
3.3% expected and 3.7% prior.</li><li>CPI M/M 0.0% vs.
0.1% expected and 0.4% prior. </li><li>Core CPI Y/Y 4.0%
vs. 4.1% expected and 4.1% prior.</li><li>Core CPI M/M 0.2% vs.
0.3% expected and 0.3% prior.</li><li>Core Services
ex-Housing Y/Y 3.8% vs. 3.8% prior.</li><li>Real weekly earnings
-0.1% vs. -0.1% prior (revised from -0.2%).</li></ul><p>Fed’s Goolsbee (dove – voter) highlighted the progress
on the inflation front:</p><ul><li>Inflation progress
continues, economic growth has been strong, labour markets are vibrant.</li><li>This year could see
the fastest non-war related one-year fall in US CPI inflation in a
century, with an unemployment rate that never gets above 4%.</li><li>He attributed this
unusual situation to factors such as a rebound in supply following
COVID-19 disruptions, increased productivity, and well-anchored inflation
expectations.</li><li>Still have a way to
go before the US central bank 2% inflation goal is reached.</li><li>Positive supply
development allows blockbuster economic growth without added inflationary
pressure.</li><li>More concerned about
possible external shocks than about the economy overheating.</li><li>Central bank should
focus its attention mostly on inflation data.</li><li>Key to further
progress on inflation is housing, there will be some bumps.</li><li>October CPI report
'looked pretty good'.</li><li>Labor force
participation has come back more than we would have expected.</li><li>Commercial real
estate remains an area of concern.</li><li>There are a lot of
real pessimistic people that are spending a lot of money, that's a puzzle.</li><li>Consumer sentiment
data relationship to spending is 'utterly broken'.</li><li>Inflation is a very
real pain.</li></ul><p>Fed’s Barkin (neutral – non voter) is wary of the
risks from both over and under tightening:</p><ul><li>There are risks from
over and under-correcting on inflation.</li><li>The Fed is making
real progress on inflation.</li><li>Housing prices
remain strong despite slowing activity.</li><li>Hope to eventually
bring interest rates back to normal.</li><li>A lot of frenzy has
been taken out of the housing market.</li><li>Seeing banks pull
back credit, a not-unexpected outcome.</li></ul><p>BoE’s Pill (neutral – voter) highlighted the progress
on inflation and added that the resilience of the UK economy seems to be easing:</p><ul><li>There is significant
progress on inflation.</li><li>5% inflation would
be much too high still.</li><li>We still have some
work to do to curb inflation.</li><li>Resilience of the UK
economy seems to be easing.</li><li>BoE must focus on
inflation and not tackling other issues in the economy.</li></ul><p>Wednesday</p><p>The Japanese Preliminary Q3 GDP missed expectations:</p><ul><li>GDP Q3 -0.5% vs.
-0.1% expected and 1.2% prior.</li><li>GDP Y/Y -2.1% vs.
3.5% prior. </li><li>GDP Deflator 5.1%
vs. 3.5% prior.</li></ul><p>The Australian Wage price index came in line with expectations
with the yearly growth rate ticking higher:</p><ul><li>Wage price index Q/Q
1.3% vs. 1.3% expected and 0.8% prior.</li><li>Wage price index Y/Y
4.0% vs. 3.9% expected and 3.6% prior.</li></ul><p>The PBoC kept the MFL rate steady as expected at 2.5%
vs. 2.5% prior. </p><p>Chinese Industrial Production beat expectations coming
in at 4.6% vs. 4.5% expected and 4.5% prior.</p><p>Chinese Retail Sales beat expectations coming in at
7.6% vs. 7.0% expected and 5.5% prior.</p><p>The UK CPI missed expectations across the board:</p><ul><li>CPI Y/Y 4.6% vs. 4.8%
expected and 6.7% prior.</li><li>CPI M/M 0.0% vs.
0.1% expected and 0.5% prior.</li><li>Core CPI Y/Y 5.7% vs.
5.8% expected and 6.1% prior.</li><li>Core CPI M/M 0.3%
vs. 0.4% expected and 0.5% prior.</li></ul><p>The US PPI missed expectations across the board:</p><ul><li>PPI Y/Y 1.3% vs.
1.9% expected and 2.2% prior.</li><li>PPI M/M -0.5% vs.
0.1% expected and 0.4% prior (revised from 0.5%). </li><li>Core PPI Y/Y 2.4%
vs. 2.7% expected and 2.7% prior. </li><li>Core PPI M/M 0.0%
vs. 0.3% expected and 0.2% prior (revised from 0.3%). </li></ul><p>The US Retail Sales beat
expectations with positive revisions to the prior figures:</p><ul><li>Retail Sales Y/Y
2.48% vs. 4.05% prior (revised from 4.10%).</li><li>Retail Sales M/M -0.1%
vs. -0.3% expected and 0.9% prior (revised from 0.7%). </li><li>Control group M/M
0.2% vs. 0.2% expected and 0.7% prior (revised from 0.6%).</li><li>Retail sales ex gas
and autos 0.1% vs. 0.6% prior.</li></ul><p>Fed’s Daly (neutral – non
voter) welcomes the progress on inflation but remains wary of risks and
declaring the end of the tightening cycle: </p><ul><li>Recent data showing
falling inflation “very, very encouraging”.</li><li>Refused to rule out
rate hikes, said they should be “thoughtful, take our time, not rush to
judgment and not make declarations”.</li><li>We have to be bold
enough to say ‘we don’t know’ and bold enough to say ‘we need to take the
time to do it right’.</li><li>What I worry about
is that without a sufficient amount of information about whether we’re
really on that disinflationary process that brings us back to 2 %, we have
to ‘stop-start’.</li><li>A stop-start would
hurt credibility.</li><li>Indicated little
concern about sharp fall in yields recently.</li><li>None of the concerns
that I’m hearing are really about a dire, fall-off-the-cliff economy.</li><li>Rate cuts are “not
happening for a while”.</li></ul><p>Thursday</p><p>The Australian Jobs data beat forecasts, although the
bulk of jobs added was from part-time:</p><ul><li>Employment Change
55K vs. 20K expected and 7.8K prior (revised from 6.7K).</li><li>Unemployment Rate
3.7% vs. 3.7% expected and 3.6% prior.</li><li>Participation Rate
67.0% vs. 66.7% expected and 66.8% prior (revised from 66.7%).</li><li>Full-time
employment 17.0K vs. -36.6K prior (revised from 39.9K).</li><li>Part-time
employment 38.0K vs. 46.5K prior.</li></ul><p>BoE’s Greene is firmly in the “higher for longer” camp
as she’s worried about high wage growth and inflation persistence:</p><ul><li>I am not thinking
about rate cuts.</li><li>Latest inflation
data is good news.</li><li>But there are
reasons to worry about inflation persistence.</li><li>We might need to
stay restrictive for longer.</li><li>UK wage growth is
still incredibly high.</li><li>Need to see how UK
activity is holding up before next rate vote.</li></ul><p>ECB’s Centeno (dove –
voter) is not foreseeing interest rates going back to zero:</p><ul><li>Interest rates will not
desirably return to zero.</li><li>But interest rates will
come down eventually.</li></ul><p>BoE’s Ramsden maintains the view that rates will stay
higher for longer:</p><ul><li>Latest projections
indicate that monetary policy is likely to be restrictive for an extended
period.</li><li>Monetary policy will
need to be sufficiently restrictive for sufficiently long to return
inflation to 2% target.</li><li>I do not judge that
there are any financial stability grounds for adjusting our approach to
monetary policy or the level of interest rates.</li></ul><p>Fed’s Cook (dove – voter) maintains the “wait and see”
approach:</p><ul><li>I
believe that a soft landing is possible.</li><li>Risks are two-sided, must balance risk of not tightening policy enough
against risk of doing too much.</li><li>There’s
a risk that continued demand momentum could slow pace of disinflation.</li><li>Small
business conditions, housing sector. Lower-income households may be signalling stress
ahead.</li><li>Also
attentive to risk of renewed global economic shocks, including geopolitical and
muted growth in China, Europe.</li><li>Fed
policies have spillovers abroad.</li><li>Concurrent
global central bank tightening may mean each central bank need do a bit.</li><li>Supply
chain improvements, drop in commodity prices has also helped inflation's fall.</li><li>Increased
multifamily housing supply will contribute to the expected further reduction in
inflation.</li><li>Labor
supply, demand coming into better balance.</li></ul><p>The US Jobless Claims missed expectations once again:</p><ul><li>Initial Claims 231K
vs. 220K expected and 217K prior.</li><li>Continuing Claims
1865K vs. 1847K expected and 1833K prior (revised from 1834K). </li></ul><p>Fed’s Mester (hawk – non voter) is taking a more
neutral approach as she’s not pre-committing to anything:</p><ul><li>I am expecting
growth to slow below trend.</li><li>I don't have a recession
in my forecast.</li><li>It's been a strong
and resilient economy, but inflation has moved down.</li><li>Term premium played
a role in the rise of Treasury yields.</li><li>Data suggests things
are going off a cliff in the economy.</li><li>Has not assessed
whether she will pencil in another rate hike in her December projections.</li><li>Whether further
hikes are needed depends on the economy.</li><li>We're currently in a
very good spot for policy.</li><li>We are now in a more
balanced place.</li><li>It's not about
cutting rates, it's how long we stay in a restrictive stance, and possibly
higher.</li></ul><p>The US Industrial Production missed expectations
across the board:</p><ul><li>Industrial
Production -0.6% vs. -0.3% expected and 0.1% prior (revised from 0.3%).</li><li>Manufacturing output -0.7% vs. -0.3% expected.</li><li>Capacity utilization 78.9% vs. 79.4% expected.</li></ul><p>The US NAHB Housing Market Index missed forecast once
again and it’s getting near the cycle lows:</p><ul><li>NAHB 34 vs. 40 expected and 40 prior.</li><li>Single family
40 vs. 46 prior.</li><li>Next six months 39 vs. 44 prior.</li><li>Traffic of prospective buyers 21 vs. 26 prior.</li></ul><p>Friday</p><p>BoJ Governor Ueda delivered the same old comments:</p><ul><li>Capex rising moderately.</li><li>Japan's economy is
likely to keep recovering moderately.</li></ul><ul><li>Japans' trend
inflation likely to gradually accelerate toward 2% through fiscal 2025.</li><li>Must carefully watch
impact of market moves, including FX, on economy, prices.</li><li>Will patiently
maintain easy policy.</li><li>We cannot say yet
with conviction our price target will be stably, sustainably met.</li><li>Important to
scrutinise whether Japan sees positive wage-inflation cycle.</li></ul><ul><li>Will take some time
but inflationary pressure driven by cost-push factors are likely to
dissipate.</li><li>There is still high
uncertainty on whether Japan can see positive wage-inflation cycle.</li><li>Govt, BoJ share view
on desirable direction on economy, inflation.</li><li>Don't expect 10-year
JGB yield to rise sharply above our 1% reference even if yields come under
upward pressure.</li><li>We will consider
ending YCC, negative rate if we can expect inflation to stably, sustainably
hit price target.</li><li>In what order, what
part we will change policy will depend on economic, price, market
developments at the time.</li><li>Making strong
comments now on how we could change policy could have unintended
consequences in markets.</li><li>When market
expectations of future rise in long-term yields heighten, it is hard to
deal with fine-tuning of YCC alone.</li><li>Keeping yields
across the curve low with monetary easing has had big positive effect on
economy by stimulating demand, creating jobs.</li><li>US Fed may at some
point cut interest rates if effect of monetary tightening up till now
works its way through US economy.</li><li>If any US rate cut
is a result of soft landing in US economy, that could have positive impact
on Japan's economy.</li><li>If achievement of
our price target approaches, we can discuss strategy, guidelines on
exiting ultra-loose policy including fate of our ETF buying.</li><li>BoJ does not have
specific plan yet on how it will sell ETFs.</li><li>When we sell ETFs,
we will do in a way that avoids as much as possible causing market
disruption, huge losses on the BoJ's balance sheet.</li><li>Cannot say
decisively that weak yen is negative for Japan's economy.</li><li>Weak yen pushes up
domestic inflation via rise in import costs.</li><li>Weak yen is positive
for exports, profits of globally operating Japanese firms.</li><li>Won't comment on FX
levels.</li></ul><p>The UK Retail Sales missed expectations across the
board with negative revisions to the prior figures:</p><ul><li>Retail sales Y/Y
-2.7% vs. -1.5% expected and -1.3% prior (revised from -1.0%).</li><li>Retail sales M/M
-0.3% vs. 0.3% expected and -1.1% prior (revised from -0.9%).</li><li>Retail sales (ex
autos, fuel) M/M -0.1% vs. 0.4% expected and -1.3% prior (revised from
-1.0%).</li><li>Retail sales (ex
autos, fuel) Y/Y -2.4% vs. -1.5% expected and -1.5% prior (revised from
-1.2%).</li></ul><p>ECB’s Holzmann (hawk – voter) maintains his hawkish
stance but he’s definitely in the minority:</p><ul><li>We stand ready to
raise rates again if necessary.</li><li>Markets should know
that it's not the end of the story yet.</li><li>Anything can happen
in December meeting.</li></ul><p>The Canadian PPI missed expectations:</p><ul><li>PPI M/M -1.0% vs. 0.2%
expected and 0.4% prior. </li><li>PPI Y/Y -2.7% vs.
0.6% prior.</li><li>Raw material prices
M/M -2.5% vs. 3.9% prior (revised from 3.5%).</li><li>Raw material prices
Y/Y -0.8% vs. 2.9% prior (revised from 2.4%).</li></ul><p>The US Building Permits and Housing Starts beat
expectations:</p><ul><li>Housing Starts
1.372M vs. 1.350M expected and 1.346M prior (revised from 1.358M).</li><li>Building Permits
1.487M vs. 1.450M expected and 1.471M prior.</li></ul><p>The highlights for next week
will be:</p><ul><li>Monday: PBoC LPR.</li><li>Tuesday: RBA Meeting Minutes, Canada CPI, FOMC Minutes.</li><li>Wednesday: US Durable Goods, US Jobless Claims.</li><li>Thursday: US Thanksgiving Day, Australia/Eurozone/UK
PMIs, ECB Meeting Minutes, New Zealand Retail Sales.</li><li>Friday: Japan CPI, Canada Retail Sales, US PMIs, US Black
Friday (early markets close).</li></ul><p>That’s all folks. Have a great weekend!</p>

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