Weekly Market Recap (16-20 October)

<p>Monday</p><p>Over the weekend we got some tentative dialling back
of threats from Iran and Hezbollah as an Iranian ambassador told a journalist
that “Iran’s armed forces will not engage Israel provided it does not dare to
attack Iran, its interests and nationals”, while a Hezbollah spokesperson said
that “Sunday’s increase in the intensity of the exchanges doesn’t indicate
Hezbollah has decided to fully enter into the Hamas-Israel war. The fighting on
the border is “only skirmishes” and represents a “warning”. Moreover, the
Palestinian Authority President Mahmoud Abbas said that the actions of Hamas do
not represent Palestinian people. This has led to some positive risk sentiment
creeping into the new week. </p><p>ECB President Lagarde (neutral – voter) acknowledges
that the ECB will be patient at this point in time but remains vigilant of
inflation risks around the labour market and the oil market:</p><ul><li>Labor market still
shows no real sign of weakening.</li><li>Participation in the
employment and unemployment in nominal numbers are quite striking.</li><li>Downside risks
include weaker demand, due for example to a stronger transmission of
monetary policy or to a worsening of the international economic environment.
</li><li>Growth could be
slower if the effects of monetary policy turn out to be more forceful than
expected, or if the world economy weakens further and geopolitical risks
intensify. </li><li>Growth could also be
higher than projected if the strong labour market, rising real incomes,
and receding uncertainty boost confidence among consumers and businesses
and lead them to spend more.</li><li>It’s not a question
of being hawkish or dovish, but it requires us at this point in time to be
patient, as supply shocks reverse and new shocks arrive,
and be attentive to ensure that inflation expectations remain anchored
when inflation is still too high.</li><li>The ECB is watching
oil for inflation risks.</li></ul><p>The New Zealand Services PMI bounced back into
expansion:</p><ul><li>Services
PMI 50.7 vs. 47.1 prior.</li></ul><p>BoE Governor Bailey (neutral – voter) signalled that
rates are likely to remain at the current level as the BoE is ready to be
patient and wait for the tighter monetary policy to feed through the economy:</p><ul><li>Said he was puzzled
by the continued strength of pay growth in the UK.</li><li>Said it’s not yet
responded to the BoE's interest rate hikes.</li><li>Increases in
borrowing costs were having an impact on employment numbers and in the
housing market.</li><li>Potential growth in
the UK has fallen from 2.25-2.5% in the past to at best 1.5% and that
complicates monetary policy.</li><li>Signalled rates are
likely to remain at around the current 5.25 per cent as policy has to be
restrictive to get inflation back to 2%.</li><li>The last mile will
be the hardest.</li></ul><p>The PBoC left the MLF rate unchanged at 2.5% as
expected.</p><p>BoE’s Pill (neutral – voter) remains wary of
persistently higher inflation but acknowledges that the BoE has done a lot on
interest rates already and wage growth could decelerate:</p><ul><li>We have done a lot
on interest rates.</li><li>Persistent inflation
is the key element that we are watching.</li><li>If we have a
persistent component of inflation, need persistent monetary policy
response.</li><li>Not all wage
indicators are pointing the same way right now.</li></ul><p>Fed’s Harker (neutral – voter) reiterates that the Fed
is likely done with interest rates increases and it should now be patient:</p><ul><li>Current interest
rate environment draining housing market of new buyers.</li><li>Reiterates US
central bank very likely done with rate hikes.</li><li>Acknowledges the
impact of recent Federal Reserve actions on the mortgage climate.</li><li>Highlights the
Federal Reserve's commitment to price stability and the goal of returning
inflation to a 2 percent annual target.</li><li>Discusses the impact
of rising mortgage rates on housing market dynamics, including decreased
inventory and elevated prices.</li><li>Notes the growth in
new home sales but acknowledges the overall slowdown in the housing
sector.</li><li>Mentioned his
expectation of steady disinflation and a return to the 2 percent inflation
target.</li><li>Acknowledges
challenges in assessing trends in disinflation, such as monthly
variability in prices.</li><li>Advocates a steady
policy rate to press down on inflation and mentions outside factors
influencing the economy.</li><li>Expects GDP growth
to continue, with no anticipation of a recession.</li><li>Anticipates a slight
increase in the unemployment rate but does not foresee mass layoffs.</li><li>Acknowledges various
factors influencing the unemployment rate, such as labour force
participation.</li><li>Emphasizes the need
to balance both hard and soft data in making policy decisions.</li><li>Suggests that while
the economy has faced significant challenges, fundamental changes have not
occurred since 2018 or 2019.</li><li>Recognizes the
resilience of the economy and the need to consider new data and
viewpoints.</li><li>Believes a patient
approach to monetary policy will lead to a soft landing and stable
economic growth.</li><li>In the absence of
some turn in the data the Federal Reserve should hold rates steady</li><li>Fed should not be
considering more rate increases.</li></ul><p>The BoC Business Outlook Survey indicator fell further into negative
territory at -3.51% vs. -2.31% prior. </p><p>Details:</p><ul><li>Overall survey
indicator at the lowest since Q2 2020.</li><li>53% of firms expect
inflation over 3% for the next two years, down from 64% in Q2.</li><li>27% of firms think
it will take longer than three years to return to BOC's 2% inflation
target, down from 32% in Q2.</li><li>Future sales
indicator at 0 vs. 8 prior.</li><li>One third of firms
expect Canada to be in recession next year, the same as in Q2.</li><li>More than 70% of
firms say higher interest rates are negatively affecting them.</li><li>Firms report
widespread easing in intensity of labour shortage.</li></ul><p>ECB’s Lane (dove – voter) acknowledges the uncertainty that the ECB needs
to navigate but reaffirms that the central bank will keep interest rates at the
current level for some time:</p><ul><li>The ECB's decision
to raise interest rates took longer than the Federal Reserve's due to
several factors.</li><li>In 2021, demand
played a more significant role in driving US inflation, making monetary
policy more immediate.</li><li>The ECB did not cut
interest rates during the pandemic, unlike the Fed and BoE, so the initial
rate increases were reversing pandemic cuts.</li><li>The primary source
of inflation was the energy shock, as reflected in consumer surveys.</li><li>Raising rates helps
mitigate the impact of energy price increases on consumer prices.</li><li>The ECB aims to slow
down wage growth in 2024 to help inflation return to 2%.</li><li>The ECB's single
interest rate policy requires national policies to fill gaps in individual
countries.</li><li>The ECB's balance
sheet is shrinking as it stops reinvesting proceeds from maturing bonds,
and bond sales are not a primary concern.</li><li>The ECB will keep
interest rates high until inflation returns to 2%, but this may take some
time.</li><li>The
"neutral" level for interest rates is likely around 2%,
reflecting long-term average policy rates.</li><li>The ECB acknowledges
the need to express humility in the face of uncertainty and learn from
unexpected developments.</li><li>The ECB's policy decisions
are driven by the need to address high inflation rather than a particular
faction within the institution.</li></ul><p>The New Zealand CPI missed expectations:</p><ul><li>CPI Y/Y 5.6% vs. 5.9%
expected and 6.0% prior. </li><li>CPI Q/Q 1.8% vs. 2.0%
expected and 1.1% prior. </li></ul><p>Tuesday</p><p>The RBA released the Minutes of its October Monetary Policy Meeting:</p><ul><li>At October meeting
board considered raising rates by 25bp or holding steady.</li><li>Board members judged
that case for holding steady was the stronger one.</li><li>Members noted data
on inflation, jobs and updated forecasts would be available at November
meeting.</li><li>Members acknowledged
upside risks to inflation were a "significant concern".</li><li>Progress in lowering
service sector inflation was slow.</li><li>Board had "low
tolerance" for a slower return of inflation to target.</li><li>Further tightening
may be required if inflation more persistent than expected.</li><li>Rising house prices
could support consumption, might be signal policy not as tight as assumed.</li><li>Full effects of past
hikes would not be evident in data for some months.</li><li>Data suggested
economy continued to grow modestly in the September quarter.</li><li>Members believed the
labour market had reached a turning point.</li><li>Members noted there
were few signs of wage price spiral materialising.</li><li>Fall in A$ vs. US$
had eased monetary conditions, though only at the margin.</li><li>Trade weighted A$
only slightly lower than at start of year, limiting impact on imported
inflation.</li><li>Challenges to China
economy could impact Australia if not contained.</li></ul><p>The UK September labour market report was only partial as the ONS delayed
some of the data to the next week due to falling response rates:</p><ul><li>UK Payrolls Change
-11K vs. -8K prior (revised from 0K).</li><li>Average weekly
earnings incl. Bonus 8.1% vs. 8.3% expected and 8.5% prior.</li><li>Average weekly
earnings ex-Bonus 7.8% vs. 7.8% expected and 7.9% prior (revised from
7.8%).</li></ul><p>The German October ZEW survey beat expectations although it remains deeply
negative:</p><ul><li>Current conditions
-79.9 vs. -80.8 expected and -79.4 prior. </li><li>Outlook -1.1 vs -9.3
expected and -11.4 prior.</li></ul><p>The Canadian CPI data missed expectations across the
board which lowered the risk of another rate hike from the BoC next week:</p><ul><li>CPI Y/Y 3.8% vs.
4.0% expected and 4.0% prior.</li><li>CPI M/M -0.1% vs. 0.1%
expected and 0.4% prior.</li><li>BoC Core Y/Y 2.8%
vs. 3.3% prior.</li><li>BoC Core M/M -0.1% vs. 0.1% prior.</li><li>CPI median 3.8% vs.
4.1% prior.</li><li>CPI trim 3.7% vs. 3.9% prior.</li><li>CPI common 4.4% vs. 4.8% prior.</li></ul><p>The US September Retail Sales beat expectations by a big margin with
positive revisions to the prior figures:</p><ul><li>Retail Sales Y/Y
3.8% vs. 2.9% prior (revised 2.5% prior).</li><li>Retail sales M/M
0.7% vs. 0.3% expected and 0.6% prior (revised from 0.2%).</li><li>Ex-autos 0.6% vs.
0.2% expected and 0.9% prior (revised from 0.6%).</li><li>Control group 0.6%
vs. 0.0% expected and 0.2% prior (revised from 0.1%).</li><li>Retail sales ex gas
and autos 0.6% vs. 0.3% prior (revised from 0.2%).</li></ul><p>The US NAHB Housing Market Index missed expectations
as it continues to fall given the surge in long term yields:</p><ul><li>NAHB 40 vs. 44
expected and 44 prior (revised from 45).</li><li>The index has fallen
for the 3rd straight month.</li><li>Single-family sales
current 46 vs. 50 prior.</li><li>Single-family sales
next 6 months 44 vs. 49 prior. </li><li>The traffic of
prospective buyers 26 vs. 30 prior.</li></ul><p>Fed’s Barkin (neutral – non voter) sees clear progress
on inflation and once again we hear a comment about long term yields doing the
job for the Fed:</p><ul><li>Anecdotal information
points to better labour demand and slowing growth.</li><li>Fed has time to see
data before making next rate hike move.</li><li>Path for inflation
is not yet clear, but sees clear progress.</li><li>Wage pressures
remain but overall, they have moderated.</li><li>Still seeking
confirmation that economy is slowing.</li><li>Businesses see less
pricing power but still willing to probe on price increases.</li><li>If recession
arrives, it's possible it would be milder than other downturns.</li><li>I see an economy
that is much further along the path to demand normalization.</li><li>Longer-term rates
have moved up and that has tightened conditions.</li><li>I believe we have a
restrictive policy stance.</li><li>Rate moves work
through financial conditions.</li><li>I don't know where
rates will be three weeks from now given what's happening globally.</li><li>Says the next
meeting will have a good debate.</li><li>Declines to say what
he will support at the next meeting.</li></ul><p>Late in the evening a rocket hit a hospital in
Gaza killing hundreds of people and sparking a global outrage. It’s not yet clear who is responsible for the bombing as Israel and
Hamas trade blame as <a href="https://www.bloomberg.com/news/articles/2023-10-17/gaza-officials-say-hundreds-killed-at-hospital-in-israeli-strike">reported on Bloomberg</a> with Hamas blaming Israeli
airstrikes and Israel saying that it was a failed rocket launch by the
Palestinian Islamic Jihad group. Following this unfortunate episode though, <a href="https://www.forexlive.com/news/jordan-has-cancelled-the-summit-meeting-in-amman-with-biden-egypt-and-palestinian-leaders-20231017/">Jordan cancelled the summit</a> that was scheduled between
the US President Biden, the Palestinian President Abbas and the Egyptian
President al-Sisi in Amman. </p><p>Wednesday</p><p>ECB’s Holzmann (hawk – voter) remains wary of further
shocks that might require additional hikes:</p><ul><li>We
are not out of the woods yet on inflation.</li><li>Further
shocks may require additional ECB rate hikes.</li><li>Payments
on bank reserves are a huge problem.</li></ul><p>RBA Governor Bullock is worried about supply shocks
but acknowledges that we haven’t yet seen the full impact of past rate hikes:</p><ul><li>Bit more worried
about inflation impact from supply shocks.</li><li>We are seeing demand
slow, per capita consumption is declining.</li><li>Have not yet seen
full impact of past rate rises on consumption.</li><li>If inflation remains
higher than expected, will have to respond with policy.</li><li>We think we are
running narrow path, but very alert to upside inflation risks.</li></ul><p>The Chinese Q3 GDP beat expectations:</p><ul><li>GDP Q3 Y/Y 4.9% vs. 4.4%
expected and 6.3% prior.</li><li>GDP Q3 Q/Q 1.3% vs. 1.0%
expected and 0.8% prior.</li></ul><p>The Chinese Industrial Production Y/Y beat
expectations coming in at 4.5% vs. 4.3% expected and 4.5% prior.</p><p>The Chinese Retail Sales Y/Y beat expectations coming
in at 5.5% vs. 4.9% expected and 4.6% prior.</p><p>The UK CPI slightly beat expectations but it’s
unlikely to change the current BoE’s “wait and see” stance:</p><ul><li>CPI Y/Y 6.7% vs.
6.6% expected and 6.7% prior.</li><li>CPI M/M 0.5% vs.
0.5% expected and 0.3% prior.</li><li>Core CPI Y/Y 6.1% vs.
6.0% expected and 6.2% prior. </li><li>Core CPI M/M 0.5%
vs. 0.5% expected and 0.1% prior. </li></ul><p>ECB’s Visco (dove – voter) is wary of second-round
effects keeping underlying inflation above the ECB’s 2% target:</p><ul><li>Monetary policy
reaction was necessary.</li><li>Second-round effects
are keeping inflation at levels not consistent with underlying monetary
and price stability.</li></ul><p>Fed’s Harker (neutral – voter) reaffirmed his
preference for keeping rates steady:</p><ul><li>Pause on rate hikes
should be extended.</li><li>Workings of the
economy cannot be rushed.</li><li>Fed can wait until
early next year to decide if we have done enough.</li></ul><p>Fed’s Waller (neutral – voter) acknowledges the
improvements on the inflation front without too much damage to the economy and
leans towards keeping rates higher for longer rather than increasing rates
further:</p><ul><li>It's too soon to
tell if more policy action needed.</li><li>More action on
policy rate would be needed if demand, and economic activity keep up
recent pace.</li><li>We can wait, watch
and see before making definitive news on policy path.</li><li>If real economy
slows, we can hold policy steady.</li><li>Past few months'
data has been overwhelmingly positive for employment and inflation goals.</li><li>I will be watching
how recent long-term rate rise evolves and its impact on economy and
financial conditions.</li><li>I will be patient in
waiting for data to document how spending evolves.</li><li>Anticipate
'unusually tight' labour market to continue loosening but watching closely.</li><li>Will watch next
'several' inflation reports for clearer indication on trajectory to 2%.</li><li>We can run our
balance sheet down a total of $2 trillion to $2.5 trillion and keep
reserves ample.</li><li>If saw inflation
coming down to 2.5%, Taylor rule would say to cut rates.</li><li>We need to see how
inflation progresses in 6 to 12 months, then see about cutting rates.</li><li>We still have one
rate hike pencilled in, will be totally driven by the data if it
happens or when.</li><li>Higher long rates
for whatever reason puts in tightening.</li><li>If long rates go up
and persist, that will do some of the Fed work.</li><li>Still seems to be
more potential excess consumer saving than people think.</li><li>Consumer spending
has been surprising.</li><li>Still hopeful rate
hikes will slow spending, inflation.</li><li>Data shows job
market can call a reduction in job vacancies and not necessarily loss of
jobs.</li><li>Events in Middle
East horrific, but hard to see much impact on US macroeconomy.</li><li>Balance sheet
reduction was priced in a long time ago. All Fed is doing now is
fulfilling that expectation.</li></ul><p>Fed’s Williams (neutral – voter) just acknowledges the improvements on the
inflation front and reaffirms the commitment to keep at it until the job is
done:</p><ul><li>Inflation has come
down quite a bit.</li><li>Still has ways to go
getting inflation back to target.</li><li>Will "stick at
it" to get inflation back to target.</li><li>At some point it
will make sense to lower rates.</li><li>Fed needs
restrictive monetary policy for a while to cool inflation.</li><li>The path of monetary
policy depends on the data.</li></ul><p>Fed’s Bowman (hawk – voter) didn’t offer much on the policy outlook,
although she remains the most vocal member supporting another rate hike:</p><ul><li>Inflation has come down
but is still too high.</li><li>What has been somewhat
surprising, however, is that the relative strength in goods spending has
persisted, rather than reverting to its pre-pandemic trends.</li><li>This pattern we see in
the U.S. is also unusual relative to other advanced economies, where the
composition of goods versus services spending appears to have returned to
historical norms.</li></ul><p>The Fed’s Beige Book basically showed a stable economy with inflation and
labour market tightness easing: </p><ul><li>Most
Districts indicated little change in economic activity since September report.</li><li>Consumer spending was mixed.</li><li>Tourism activity continued to improve.</li><li>Consumer credit quality was generally described
as stable or healthy.</li><li>Real estate conditions were little changed and
the inventory of homes for sale remained low.</li><li>Manufacturing activity was mixed, although
contacts across multiple Districts noted an improving outlook for the sector.</li><li>The near-term outlook for the economy was
generally described as stable or having slightly weaker growth. </li><li>Expectations of firms for which the holiday
shopping season is an important driver of sales were mixed.</li><li>Labor market tightness continued to ease across
the nation.</li><li>Prices continued to increase at a modest pace
overall.</li><li>Districts noted that input cost increases have
slowed or stabilized for manufacturers but continue to rise for services
sector firms.</li><li>Firms expect prices to increase the next few
quarters, but at a slower rate than the previous few quarters.</li></ul><p>Thursday</p><p>The Australian jobs report missed expectations as the
labour market continues to soften:</p><ul><li>Employment
change 6.7K vs. 20.0K expected and 63.3K prior (revised from 64.9K).</li><li>Full-time
employment -39.9K vs. 7.2K prior (revised from 2.8K).</li><li>Unemployment
rate 3.6% vs. 3.7% expected and 3.7% prior.</li><li>Participation
rate 66.7% vs. 67.0% expected and 67.0% prior.</li></ul><p>The Canadian PPI beat expectations:</p><ul><li>PPI M/M 0.4% vs.
0.3% expected and 1.9% prior (revised from 1.3%).</li><li>PPI Y/Y 0.6% vs.
0.0% prior (revised from -0.5%).</li></ul><p>The US Initial Claims beat expectations once again,
but Continuing Claims missed for the second time in a row suggesting that
workers are finding it harder to get another job after being laid off:</p><ul><li>Initial
Claims 198K vs. 212K expected and 211K prior (revised from 209K).</li><li>Continuing
Claims 1734K vs. 1710K expected and 1705K prior (revised from 1702K).</li></ul><p>The Conference Board Leading Economic Index for
September fell -0.7% vs. -0.4% expected and -0.4% prior (revised from -0.5%).
This is the 18th monthly decline in a row. </p><p>Fed Chair Powell (neutral – voter) delivered a very
comprehensive speech and the tl;dr is that the Fed wants to see more data
before increasing rates again especially given the rise in long term yields:</p><ul><li>FOMC is 'proceeding carefully'.</li><li>More evidence of above-trend growth or that the labour market is no longer
easing, could warrant further hikes.</li><li>Extent of additional firming and how long to keep policy restrictive will
depend on data, outlook and balance of risks.</li><li>Significant tightening financial conditions with higher bond yields can
have implications for policy, we are attentive.</li><li>Policy stance is restrictive.</li><li>Recent data shows ongoing progress toward inflation and employment goals.</li><li>Return to 2% inflation likely to require period of below-trend growth and
some further softening of the labour market.</li><li>A few months of good data is only the beginning of what it will take to
build confidence on the inflation path.</li><li>Indications of wage growth show a gradual decline towards levels that would
be consistent with 2% over time.</li><li>Inflation readings turned lower over the summer, a very favourable
development. The September inflation data continued the downward trend but
were somewhat less encouraging.</li><li>Shorter-term measures of core inflation over the most recent three and six
months are now running below 3 percent.</li><li>We are attentive to recent data showing the
resilience of economic growth and demand for labour.</li><li>Economy is very
resilient, growing strongly.</li><li>Growth is running
above its longer run trend. That is a
surprise.</li><li>Economy is a story
of stronger demand.</li><li>May be ways economy
is less affected by interest rates.</li><li>Interest-sensitive
spending is a showing impact of Fed policy.</li><li>We see policy
working through usual channels.</li><li>I don't think there
is a fundamental shift in how rates affect economy.</li><li>We are seeing a
change in the exchange rate which is disinflationary.</li><li>The fact that we
have a strong economy and job market, these are elements we want to see.</li><li>No precision in
understanding monetary policy lags.</li><li>Markets have been
front running Fed policy changes.</li><li>Household savings
are higher, spending has been higher. </li><li>We should be seeing
effects of monetary policy arriving.</li><li>Fed has slowed on
rates to give policy time to work.</li><li>We have to use eyes
and risk management to monitor monetary policy impact.</li><li>There is a lot of
uncertainty on lags.</li><li>We are moving
carefully with policy decisions.</li><li>Long-run potential
growth doesn't change much. It is
around 2%.</li><li>It is very hard to
know how economy can grow with higher rates.</li><li>Doesn't know where
monetary policy will settle.</li><li>Effective lower
bound is not an issue for economy, monetary policy.</li><li>By any reckoning,
neutral rates ebbed over recent decades, unsure where it is now.</li><li>Models useful but
have to look at what the economy is telling us.</li><li>The evidence is not
that policy is too tight.</li><li>It's possible we are
going into a more inflationary period, but it's hard to know.</li><li>Fed’s issue is
trying to get policy right to bring inflation back to 2%.</li><li>With hindsight
possible Fed could have done less during pandemic.</li><li>Our economy is doing
very well.</li><li>We were in a time of
disinflation. That period is over. We are now more in a balanced period.</li><li>The possible range
of events is now so much wider.</li><li>Bond yields analysis
needs humility.</li><li>Bond yields are not
about expectations of higher inflation, monetary policy review.</li><li>Bond yields rise
driven by term premiums.</li><li>Markets are seeing
economic resilience and revising views.</li><li>Markets may be
responding to deficits, Fed balance sheet actions.</li><li>Bond yield rise is
tightening financial conditions.</li><li>Bond yield rise is
not principally about expectations of Fed doing more.</li><li>Bond yield rise
doesn't seem to be about expectations of Fed doing more on rates.</li><li>Is unclear if bond
yield rise will be persistent, markets are volatile.</li><li>We will let market
yield rise play out, Fed will watch it.</li><li>For now, it's clearly
a tightening of financial conditions.</li><li>We know fiscal path
is ultimately unsustainable.</li><li>Current fiscal
situation does not affect Fed near-term policy choices.</li><li>Overseas treasury
buying has remained robust.</li><li>Business contacts
saying economy remains strong.</li><li>Cost of capital
could be issue for small companies.</li><li>Fed policy is blunt,
but it's what the Fed has to tackle inflation.</li><li>We know Fed actions
are having a negative impact on parts of the economy.</li><li>Fed must get back to
price stability.</li><li>The world count on us
to have lower and stable inflation.</li><li>Fed independence is
for time when policy choices are tough.</li><li>Higher bond yields
are producing tighter financial conditions which the Fed wants.</li><li>Higher bond yields
is a tightening, and at margin could reduce the need for Fed to tighten.</li><li>At margin higher
yields take some pressure off Fed to raise rates.</li><li>A whole lot of
people left the labour market and didn't come back after the pandemic.</li><li>There are many signs
labour market getting back into balance.</li><li>Labor market is gradually
cooling by so many measures.</li><li>There has been new
labour market supply.</li><li>It's still a very
tight labour market, but it's getting looser.</li><li>Labor force
increases, and immigration increases is being seen in the labour markets.</li><li>I don't think most
of inflation is from job market (Phillips curve), was demand driven.</li><li>Things have settled
down on the banking front.</li><li>Paid a lot of
attention to banks that appear to have issues.</li><li>Bank stress has
really settled down, Fed is still watching for trouble.</li><li>Banks are strong,
and well-capitalized.</li><li>Banks are much
better at managing risk compared to the past.</li><li>Banks in the US are
generally well-capitalized and strong.</li><li>Work from home is
affecting downtown real estate and a lot of big cities.</li><li>Commercial real
estate is not a big risk for biggest banks. It is a bigger risk for
smaller banks.</li><li>Doesn't see
systematic risk from commercial real estate problems.</li><li>Bank regulators are
working with banks that have concentrations of risk in commercial real
estate.</li><li>Regional banks are very
important. Mega banks are in very good position.</li><li>Regional bank
business model under pressure, Fed doesn't want to add to that pressure.</li><li>Fed strongly thinks
smaller banks are very important.</li></ul><p>ABS News reported that the Israeli Military has
received the “green light” to move into Gaza whenever it’s ready as tensions in
the Middle East intensify.</p><p>Fed’s Goolsbee (dove – voter) just stated the obvious:</p><ul><li>Haven't
seen a recession and I'm hopeful we can avoid one.</li><li>The
US labour market has eased but is still strong.</li></ul><p>Fed’s Bostic (dove – non voter) doesn’t see signs of a
wage-price spiral:</p><ul><li>Has not seen a
wage-price spiral.</li><li>Wages are a lagging
indicator in the current economy.</li><li>Believes that the
Fed can control inflation without causing big damage to the jobs market.</li><li>Sees no reason to
change the Fed's 2% inflation target right now.</li></ul><p>Fed’s Harker (neutral – voter) reiterates the Fed’s
“wait and see” stance:</p><ul><li>Says latest data is
slightly stronger than his forecasts.</li><li>Resolute and patient
policy stance should enable a soft landing.</li><li>Will support further
rate hikes if needed.</li></ul><p>Friday</p><p>Fed’s Logan (hawk –
voter) welcomes the rise in long term yields:</p><ul><li>Has seen welcome
progress on inflation but it's still too high.</li><li>Not yet convinced we
are moving to 2% inflation.</li><li>Economy continues to
outperform, labour markets still tight.</li><li>Important to have
restrictive financial conditions broadly speaking.</li><li>Fed has some time to
watch economy, markets before deciding on monetary policy.</li><li>Fed has been unified
in restoring price stability.</li></ul><ul><li>Some part of bond
yield rise is tied to term premiums.</li><li>Some part of bond
yield rise is also tied to strength of economic data.</li><li>Rise in bond yields
has been pretty orderly.</li><li>Bond markets are
functioning, but still watching for trouble.</li><li>Not thinking about
when Fed might cut rates.</li><li>Central bank market
support interventions should be rare, transparent.</li><li>Fed has taken
important steps to provide market liquidity backstops.</li><li>Anecdotal
information is important for policy making.</li><li>Persistent rise in
bond yields could mitigate need for Fed rate hikes.</li><li>Tighter financial
conditions desired, will slow economy.</li><li>NY Fed has extensive
dashboard to monitor money markets.</li><li>Reverse repo
facility running down very smoothly.</li><li>Quite uncertain what
right level of reserves is for banks.</li><li>Need to get Fed
reverse repo facility close to zero.</li><li>Unsure how fast
reverse repo facility will shrink.</li><li>Sees quite a bit of
time left for balance sheet runoff.</li></ul><p>The Japanese CPI
continues to ease but the Core-Core indicator still hovers around cycle highs:</p><ul><li>CPI Y/Y 3.0% vs. 3.2%
prior.</li><li>CPI M/M 0.3% vs. 0.2% prior.</li><li>Core CPI Y/Y 2.8% vs.
3.1% prior.</li><li>Core-Core CPI Y/Y 4.2% vs. 4.3% prior. </li></ul><p>The PBoC left the Loan
Prime Rates (LPR) unchanged as expected:</p><ul><li>LPR 1-year 3.45% vs.
3.45% prior.</li><li>LPR 5-year 4.20% vs.
4.20% prior.</li></ul><p>BoE Governor Bailey
(neutral – voter) expects inflation to fall markedly next month and the tone
suggests that he leans towards a pause at the upcoming rate decision:</p><ul><li>Expect a 'marked
fall' in inflation next month.</li><li>September inflation
figures not far off what we were expecting.</li><li>Core inflation fell
slightly from what we expected, that is quite encouraging.</li><li>We will see more
evidence of lower inflation by year-end.</li><li>Pay growth still
well above anything consistent with inflation target.</li></ul><p>The UK September Retail Sales missed across the board
by a big margin:</p><ul><li>Retail Sales M/M
-0.9% vs. -0.2% expected and 0.4% prior.</li><li>Retail Sales Y/Y
-1.0% vs. -0.1% expected and -1.3% prior (revised from -1.4%).</li><li>Retail sales ex
autos, fuel M/M -1.0% vs. -0.4% expected and 0.6% prior.</li><li>Retail sales ex
autos, fuel Y/Y -1.2% vs. -0.2% expected and -1.3% prior (revised from
-1.4%).</li></ul><p>BoJ Governor Ueda didn't offer much on the policy
outlook:</p><ul><li>Economy likely to
continue with moderate recovery.</li><li>Consumption is increasing steadily.</li><li>The pace of
inflation rise likely to slow, then re-accelerate again reflecting changes
in wages, price-setting behaviour.</li><li>Must carefully watch
financial market moves and their impact on the economy.</li><li>Need to manage
interest rate risk increasing given very high uncertainty on economic,
price outlook.</li></ul><p>The Canadian August Retail Sales slightly beat
expectations with the advance estimate pointing to a flat reading for September:</p><ul><li>Retail Sales M/M -0.1% vs. -0.3% expected and 0.4% prior (revised from 0.3%).</li><li>Retail Sales Y/Y 1.6% vs. 2.1%.</li><li>Retail Sales Ex autos M/M 0.1% vs. 0.0% expected and 1.1% prior (revised
from 1.0%).</li><li>Retail Sales Ex autos and gas M/M -0.3%.</li><li>September advance estimate 0.0%</li></ul><p>Canada Retail Sales YoY</p><p>The highlights for next week will be:</p><ul><li>Tuesday:
AU-JP-EZ-UK-US PMIs, UK Unemployment Rate.</li><li>Wednesday:
Australia CPI, German IFO, BoC Policy Decision.</li><li>Thursday:
ECB Policy Decision, US Durable Goods, US GDP Q3, US Jobless Claims.</li><li>Friday:
Tokyo CPI, Australia PPI, US Core PCE.</li></ul><p>That’s all folks. Have a great weekend!</p>

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