Weekly Market Recap (28-01 September)

<p>Monday:</p><p>BoJ Governor Ueda
spoke on the weekend at the Jackson Hole Symposium and leant again on the
dovish side:</p><ul type="disc"><li>We think that
underlying inflation is still a bit below our target.</li><li>This is why we are
sticking with our current monetary easing framework.</li></ul><p>China halved the
stamp duty on stock trading in another attempt to prop up the market and
investors’ confidence. Although the Chinese stock market gapped up at the open,
the gains were erased soon after. </p><p>BoE’s Broadbent (hawk
– voter) spoke on the weekend at the Jackson Hole Symposium and reaffirmed the
need to keep monetary policy in restrictive territory for some time wary of the
risks on the wage growth side:</p><ul type="disc"><li>Added effects of the
surge in prices, such as pressure to push up wages that has led to record
growth in pay, were unlikely to fade away as rapidly as they emerged.</li><li>As such, monetary
policy may well have to remain in restrictive territory for some time yet.</li><li>While it’s
reasonable to expect a decline in energy and core goods prices over next
few months, one can only be cautious about how quickly the pressure on
wages will ease off.</li></ul><p>The preliminary
data for Australian July Retail Sales beat expectations:</p><ul type="disc"><li>Retail Sales M/M
0.5% vs. 0.3% expected and -0.8% prior.</li><li>Retail Sales Y/Y
2.1% vs. 2.3% prior.</li></ul><p>ECB’s Holzmann
(hawk – voter) supports a rate hike in September barring any downside surprise
before the meeting:</p><ul type="disc"><li>There is a case for
rate hike if no surprises turn up.</li><li>Not in the clear yet
on inflation.</li><li>ECB is behind the
curve, can assess policy once at 4%.</li><li>Should start debate
on ending PEPP reinvestments.</li></ul><p>Tuesday:</p><p>Japan Unemployment
Rate missed expectations but still hovering around the cycle lows:</p><ul><li>Unemployment
Rate 2.7% vs. 2.5% expected and 2.5% prior.</li></ul><p>CryptoQuant, which
is a provider of on-chain and market data analytics for cryptocurrency
investors, reported that Bitcoin’s trading volume hit its lowest level since
2018. </p><p>The Chinese State
Media said that the PBoC may cut banks' RRR earlier than expected. The report
cited rising rates in China despite recent official rate cuts. Says the
People's Bank of China would cut the RRR to better maintain reasonable and
ample liquidity.</p><p>RBA’s Bullock said
that inflation will be her priority as the new RBA’s Governor:</p><ul type="disc"><li>Inflation is still
too high, that will be my first priority as governor.</li><li>May have to raise
rates again but watching data carefully.</li><li>All central banks
are grappling with how much further to hike.</li><li>Climate change
likely to lead to more volatile inflation outcomes.</li></ul><p>China is looking
to cut borrowing costs on existing mortgages which will affect only loans on
first homes. Once officially announced, it will be the first time that China
has reduced the rates on outstanding home mortgages for the first time since
the global financial crisis.</p><p>The US Job
Openings for July missed expectations by a big margin and the prior release was
revised downward.</p><p>Job Openings:</p><ul type="disc"><li>Job openings 8.827M vs.
9.465M expected and 9.165 prior (revised from 9.582).</li><li>Professional and
business services -198K.</li><li>Healthcare and
social assistance -130K.</li><li>State and local
government excluding education -67K.</li><li>State and local government
education -62K.</li><li>Federal government -27K.</li><li>Information +101K.</li><li>Transportation,
warehousing, and utilities +70.5K.</li></ul><p>Hires:</p><ul type="disc"><li>Hires 5.773M vs.
5.940M last month.</li></ul><p>Separations including
quits, layoffs, and discharges, and other separations:</p><ul type="disc"><li>Total separations
5.483M vs. 5.691M last month.</li><li>Quits decreased to
3.549 million (-253K) versus 3.802M last month.</li></ul><p>The US Consumer Confidence for August missed
expectations by a big margin as consumers are preoccupied with rising prices in
general, particularly groceries and gasoline:</p><ul type="disc"><li>Consumer Confidence
106.1 vs. 116.0 expected and 114.0 prior (revised from 117.0).</li><li>Present situation
index 144.8 vs. 160.0 prior. </li><li>Expectations index 80.2 vs. 88.3 prior.</li><li>1-year inflation
expectations 5.8% vs. 5.7% prior.</li><li>Jobs hard-to-get
14.1 vs 9.7 prior.</li></ul><p>Grayscale, an American
digital currency asset management company, won the lawsuit against the SEC as
the D.C. court ruled that the SEC improperly rejected the Bitcoin spot ETF. The
court ordered the petition for review be granted and the commission's order be
vacated. This means the SEC was wrong to reject the application for a spot
bitcoin ETF and that it must be reviewed again. The court called the denial of
the spot ETF proposal "arbitrary and capricious" because the SEC
failed to explain the different treatment of similar products.</p><p>Wednesday:</p><p>New Zealand July Building
Permits missed expectations by a huge margin:</p><ul type="disc"><li>Building Permits M/M
-5.2% vs. 0.2% expected and 3.4% prior (revised from 3.5%).</li><li>Building Permits Y/Y
-14%. </li></ul><p>Australia July Building
Permits missed expectations by a huge margin as well:</p><ul type="disc"><li>Building Permits M/M
-8.1% vs. -0.8% and -7.7% prior. </li><li>Building Permits Y/Y
-10.6% vs. -18.0% prior.</li></ul><p>Australia monthly CPI Y/Y
for July surprised to the downside and likely sealed an “on hold” decision at
the next monetary policy meeting:</p><ul><li>Australia CPI Y/Y 4.9% vs. 5.2% expected
and 5.4% prior.</li></ul><p>BoJ’s Tamura said that a sustained, stable achievement
of the bank's 2% inflation target was now "clearly in sight" as
companies shed their aversion to price and wage hikes:</p><ul type="disc"><li>Personally feel
sustained, stable achievement of 2% inflation target is clearly in sight.</li><li>Appropriate to keep
easy policy now given uncertainty over prospects for hitting price goal.</li><li>We are in a phase
where we need to humbly look at wage, price developments.</li><li>Hoping we will have
further clarity around January-March next year on prospects for hitting
price goal.</li><li>Don't expect 10-year
yield to rise to 1.0%, new cap is set as protective measure.</li><li>Uncertainty over
Japan's economic, price outlook very high.</li><li>BOJ's step in July
aimed at making operation of YCC more flexible.</li><li>Corporate
price-setting behaviour has changed from period of deflation.</li><li>Positive cycle
between wages, inflation being seen as wage rises improve consumer
sentiment.</li><li>Japan's exports,
output moving sideways, capex rising moderately.</li><li>Japan's economy
likely to keep recovering driven by domestic demand.</li></ul><ul type="disc"><li>Japan's inflation
likely to slow for time being, then accelerate moderately again.</li><li>Can't rule out
chance inflation may overshoot expectations.</li><li>I believe we can
expect high wage growth in next year's spring wage negotiations.</li><li>Whether that happens
next year will depend on various data at the time.</li><li>Ending negative
rates, yield curve control are options in case BOJ were to exit easy
policy.</li><li>Even if BOJ abandons
negative rates, that is not the same as monetary policy tightening.</li><li>Monetary conditions
will remain loose regardless.</li><li>It will take more
time to judge whether will meet price target in a sustainable manner.</li></ul><p>ECB’s Centeno (dove – voter) acknowledged that
downside risks to growth have materialised:</p><ul type="disc"><li>Growth indicators
have been surprising to the downside recently.</li><li>The downside risks
to growth outlined in June projections are materialising.</li><li>Need to be very
cautious about policy decisions.</li><li>A lot has already
been done.</li><li>Even if we pause,
saying we are done would be the wrong message.</li></ul><p>The US ADP missed expectations coming at 177K vs. 195K
expected and 371K prior (revised from 324K):</p><ul type="disc"><li>Small (less than 50
employees) +18K vs +237K prior.</li><li>Medium firms (500 –
499) +79K vs +138K prior.</li><li>Large (greater than
499 employees) +83K vs -67K prior.</li><li>Job stayers 5.9% vs 6.2%.</li><li>Job changers 9.5% vs 10.2%.</li></ul><p>The second reading on the US Q2 GDP missed
expectations coming at 2.1% vs. 2.4% expected:</p><ul type="disc"><li>Consumer spending +1.7% vs. +1.6% advance.</li><li>Consumer spending on
durables -0.3% vs. +16.3% advance.</li><li>GDP final sales
+2.2% vs. +2.3% advance.</li><li>GDP deflator +2.0% vs. +2.2% advance.</li><li>Core PCE +3.7% vs. +3.8% advance.</li><li>Exports -10.6 vs. -10.8% advance.</li><li>Imports -7.0% vs. -7.8% advance .</li><li>Business investment +3.9% vs. +4.9% advance.</li><li>Corporate profits -10.6% vs. -5.9% advance.</li></ul><p>Thursday:</p><p>Oil analysts expect Saudi Arabia to announce next week
that it’s extending its crude oil output cut for at least one more month.
Bloomberg added that several delegates from the OPEC and its allies privately
predicted the same outcome.</p><p>Japan Retail Sales for July beat expectations by a big
margin:</p><ul><li>Retail Sales Y/Y
6.8% vs. 5.4% expected and 5.6% prior (revised from 5.9%).</li><li>Retail Sales M/M 2.1%
vs -0.4% prior.</li></ul><p>Chinese PMIs beat expectations on the Manufacturing
side and missed on the Services part:</p><ul type="disc"><li>Manufacturing 49.7
vs. 49.2 expected and 49.3 prior.</li><li>Services 51.0 vs.
51.2 expected and 51.5 prior. </li></ul><p>BoJ Nakamura said that Japan is no longer in deflation
although that mindset is yet to be eradicated:</p><ul type="disc"><li>BOJ must patiently
maintain easy policy for time being.</li><li>Japan's economy no
longer in deflation but deflationary mindset is yet to be eradicated.</li><li>Current rise in
deflation driven by pass-through of import costs, yet to be driven by
wage gains.</li></ul><ul type="disc"><li>Must scrutinise
whether small, midsize firms are making progress in earning enough profits
to sustain wage rises.</li><li>Tightening monetary
policy before rise in sales prices lead to wage gains would curb demand,
weigh on companies' ability to earn profits.</li><li>Tweak to monetary
policy needs scrutiny of economic conditions, cautious approach.</li><li>Need more time to
shift to monetary tightening.</li><li>Sustainable, stable
achievement of price target yet to be foreseen.</li><li>Japan's economy recovering moderately.</li><li>FX moves have big
impact on prices.</li><li>BOJ closely watching
impact on yen moves on the economy, prices.</li><li>Weak yen benefits
exports, tourism but is negative for domestic-driven firms and households.</li><li>Decision on when to
end negative rates depends on economic developments.</li><li>If Japan achieves
sustained economic recovery, we won't need YCC.</li><li>Now is not the time
to get rid of YCC.</li></ul><p>Germany July Retail Sales missed expectations by a big
margin:</p><ul type="disc"><li>Retail Sales Y/Y
-2.2% vs -1.0% expected and -1.6% prior.</li><li>Retal Sales M/M
-0.8% vs. 0.3% expected and -0.8% prior.</li></ul><p>ECB’s Schnabel (hawk –
voter) just acknowledged the uncertainty around the economy and monetary
policy:</p><ul><li>We cannot predict where
the peak rate is going to be.</li><li>Also, cannot predict for
how long rates will have to stay at restrictive levels.</li></ul><p>Fed’s Bostic (dove – non
voter) is leaning towards a pause as he sees inflation getting back to the 2%
target with the policy setting:</p><ul type="disc"><li>Monetary policy is appropriately
restrictive.</li><li>Inflation is still
too high.</li><li>We should be
cautious, patient, resolute.</li><li>Policy is
restrictive enough to bring inflation to 2% in a reasonable timeframe.</li><li>I am not for easing
policy any time soon.</li><li>Should inflation
unexpectedly climb, I would support more tightening.</li></ul><p>BoE’s Pill (hawk – voter) remains resolute on bringing
inflation down to target but acknowledged the chance of doing too much:</p><ul type="disc"><li>No room for
complacency on inflation.</li><li>We need to see the
job through on inflation.</li><li>We need to ensure we
do enough on policy.</li><li>But there is the
possibility of doing too much in the fight against inflation.</li><li>Policy needs to be
sufficiently restrictive for long enough.</li></ul><p>The Eurozone August Preliminary CPI beat forecasts on
the headline reading mainly due to higher energy prices, but the Core CPI came
out in line with expectations:</p><ul type="disc"><li>CPI Y/Y 5.3% vs. 5.1%
expected and 5.3% prior. </li><li>CPI M/M 0.6% vs.
0.4% expected and -0.1% prior.</li><li>Core CPI Y/Y 5.3% vs.
+5.3% expected and 5.5% prior.</li><li>Core CPI M/M 0.3%
vs. 0.3% expected and -0.1% prior.</li></ul><p>The Eurozone Unemployment Rate remained steady at
6.4%. </p><p>ECB’s Holzmann (hawk – voter) calls for more rate
hikes as the data showed that inflation is still persistent:</p><ul type="disc"><li>August inflation
data a conundrum for the ECB.</li><li>Data shows that
inflation is still persistent.</li><li>We are not yet at
the highest level for rates.</li><li>Another one or two
rate hikes is still possible.</li></ul><p>The ECB released the monetary policy accounts of its
July meeting:</p><ul><li> Members concurred that there was ample
evidence that policy tightening was being transmitted strongly to broader
financing conditions, including bank lending rates and money and credit flows.</li><li> It was felt, however, that, on the one hand,
the decline in economic activity was less significant than could have been
expected in reaction to the substantial monetary policy tightening over the
past few months.</li><li> Members agreed that tightening the monetary
policy stance by further increasing interest rates was warranted.</li><li> Members generally concurred that inflation
developments had been broadly in line with the June projections.</li><li> Members concurred that the outlook for
economic growth remained highly uncertain.</li><li> A question was raised about the extent to
which the deterioration in the short-term growth outlook was related to the
ECB’s monetary policy tightening.</li><li> It was argued that the
deterioration in the outlook showed that monetary transmission was working and
that the interest rate increases were doing their intended job.</li></ul><p>The US August Challenger Layoffs reaccelerated and
although 30K of job cuts were due to trucking giant Yellow Corp’s filing for
bankruptcy, the results point to more softening in the labour market:</p><ul><li>75.15K vs. 23.70K
prior.</li></ul><p>The US July PCE report was in line with expectations:</p><ul type="disc"><li>PCE Y/Y 3.3% vs.
3.3% expected and 3.0% prior.</li><li>PCE M/M 0.2% vs.
0.2% expected and 0.2% prior.</li><li>Core PCE Y/Y 4.2%
vs. 4.2% expected and 4.1% prior.</li><li>Core PCE M/M 0.2%
vs. 0.2% expected and 0.2% prior.</li><li>Core PCE Services
ex-Housing M/M 0.47% vs. 0.3% prior.</li><li>Core PCE Services ex-Housing
Y/Y 4.7% vs. 4.1% prior.</li></ul><p>The surge in core
services ex-housing was due to portfolio management services and it’s seen as
temporary. Excluding that it would have been up 0.2%. This argues that if the
Fed wants to sustainably achieve the 2% target it might need lower asset
prices.</p><p>Consumer spending and
income for July:</p><ul type="disc"><li>Personal income 0.2%
vs. 0.3% expected and 0.3% prior.</li><li>Personal spending
0.8% vs. 0.7% expected and 0.5% prior.</li><li>Real personal
spending 0.6% vs. 0.4% prior.</li></ul><p>The US Jobless Claims
beat expectations for Initial Claims and missed on Continuing Claims:</p><ul type="disc"><li>Initial Claims 228K
vs. 235K expected and 323K prior (revised from 230K).</li><li>Continuing Claims
1725K vs. 1703K expected and 1697K prior (revised from 1702K).</li></ul><p>The PBoC said officially
that existing mortgage rates will be lowered from September 25. The new rules
say down-payments for first homes should be no less than 20% and down-payments
for second homes no less than 30%. For second home purchases, the rate floor is
now no lower than LPR +20bps while on first homes it's LPR -20bps. The PBOC
said lowering existing mortgages rates is beneficial for expanding consumption
and investment.</p><p>ECB’s de Guindos (dove – voter) just repeated what
other members have already said as the sentiment within the Governing Council
leans towards a pause:</p><ul type="disc"><li>Latest data from
July and Aug point towards economic deceleration in Q3 and probably in Q4.</li><li>We need to keep
working to get inflation back to the 2% target.</li><li>September decision
is still up for debate.</li><li>Data in the next
days is key to the ECB decision.</li><li>We are at the
finishing stretch of rate hiking process.</li></ul><p>The SEC delayed the decision on spot ETFs from
WisdomTree, Invesco and Valkyrie. Although the delay was largely expected,
Bitcoin sold off erasing all the prior gains. </p><p>Friday:</p><p>Chinese state media, Xinhua, had the news that the
State Council issued a statement that China will further reduce individual
income tax for those who have children to raise or elderly to support. The
Ministry of Finance and the State Taxation Administration added that the
deductions will "ease financial burdens for families to raise children and
care for the elderly, improve livelihoods and raise residents' consumption
capacity".</p><p>The PBoC said it will cut
the amount of foreign exchange reserves that financial institutions must hold,
a move seen as aimed at slowing the yuan's recent depreciation:</p><ul type="disc"><li>PBoC to lower its FX
Reserve Requirement Ratio by 200 bps from 6% to 4% from September 15th.</li></ul><p>This will free up some
dollar liquidity and support the yuan. The PBoC previously cut the FX reserve
requirement ratio for financial institutions by 200 basis points in September
2022 in a bid to rein in a weakening yuan and make it less expensive for banks
to hold dollars.</p><p>China Caixin Manufacturing PMI beat expectations by a
big margin:</p><ul><li>51.0 vs. 49.3
expected and 49.2 prior.</li></ul><p>China has two primary
Purchasing Managers' Index (PMI) surveys – the official PMI released by the
National Bureau of Statistics (NBS) and the Caixin China PMI published by the
media company Caixin and research firm Markit / S&amp;P Global.</p><ul type="disc"><li>While the NBS' PMIs
cover large and state-owned companies, the Caixin PMI survey covers more
small and medium-sized enterprises. As a result, the Caixin PMI is
considered to be a more reliable indicator of the performance of China's
private sector.</li><li>Another difference
between the two surveys is their methodology. The Caixin PMI survey uses a
broader sample of companies than the official survey. Despite these
differences, the two surveys often provide similar readings on China's
manufacturing sector.</li></ul><p>The Switzerland CPI for August ticked higher, but the
Core measure fell further:</p><ul><li>CPI Y/Y 1.6% vs.
1.5% expected and 1.6% prior.</li><li>Core CPI Y/Y 1.5%
vs. 1.7% prior. </li></ul><p>The SNB should be done as the inflation rate is within
the SNB’s 0-2% target band on both the measures.</p><p>ECB’s Villeroy (hawk – voter) maintains all the
options on the table for the next and upcoming meetings, although the
underlying message seems to be the propensity for a “higher for longer” stance
rather than more rate hikes:</p><ul type="disc"><li>Underlying inflation
has peaked since April and appears to have begun its decline.</li><li>But this encouraging
sign is still far from sufficient.</li><li>Our options are open
at the next and upcoming rate meetings.</li><li>We are very close to
a peak in interest rates.</li><li>But far from a point
where we could consider rate cuts.</li><li>Keeping rates high
long enough matters more than the level.</li></ul><p>The Switzerland August Manufacturing PMI missed
expectations and remains deeply in contraction:</p><ul><li>Manufacturing PMI
39.9 vs. 40.0 expected and 38.5 prior.</li></ul><p>ECB’s Vujcic (hawk – voter) highlighted the big uncertainty
the policymakers are facing: </p><ul type="disc"><li>We won't know in
Sept, October or even November where the terminal rate is.</li><li>Economic activity is
slowing faster than we forecast.</li><li>Softening of economy
may help bring down inflation faster.</li><li>But labour market
resilience still an upside risk to inflation.</li></ul><p>The US NFP beat expectations, but the jump in the
unemployment rate and softer wages have stolen the show:</p><ul><li> NFP 187K vs. 170K expected and 157K prior (revised
from 187K).</li><li> Unemployment Rate 3.8% vs. 3.5% expected and
3.5% prior.</li><li> Participation Rate 62.8% vs. 62.6% prior.</li><li> U6 Underemployment Rate 7.1% vs. 6.7% prior.</li><li> Average Hourly Earnings M/M 0.2% vs. 0.3%
expected and 0.4% prior</li><li> Average Hourly Earnings Y/Y 4.3% vs. 4.4%
expected and 4.4% prior.</li><li> Average Weekly Hours 34.4 vs. 34.3 expected
and 34.3 prior.</li><li> Change in private payrolls 179K vs. 150K
expected.</li><li> Change in manufacturing payrolls 16K vs 0K
expected.</li><li> Household survey 222K vs 268K prior.</li></ul><p>The Canadian Q2 GDP missed expectations by a big
margin:</p><ul type="disc"><li>GDP Annualised -0.2% vs. 1.2% expected.</li><li>Q/Q not annualized
0.0% vs. 0.6% prior (revised from 0.8%).</li><li>Implicit price Q/Q 0.7%
vs. 0.2% prior.</li><li>Exports 0.1% vs. 2.4% prior.</li><li>Imports 0.5% vs. 0.2% prior.</li><li>Household spending
on goods 0.1% vs. 1.5% prior.</li><li>On services 0.0% vs.
1.1% prior (revised from 1.3%).</li><li>June monthly GDP
-0.2% vs -0.2% expected.</li><li>July advance GDP 0.0%.</li></ul><p>Fed's Mester (hawk – non voter) acknowledged the progress on inflation and the labour market but maintains her hawkish views:</p><ul><li>Inflation is still too high, but there's progress.</li><li>Job market still strong amid signs of rebalancing.</li><li>3.8% jobless rate is still low.</li><li>Main Fed debate is how restrictive policy needs to become and for how long.</li><li>Future policy decisions will be based on incoming data.</li><li>Fed must balance risks when setting rate policy.</li></ul><p>The US ISM Manufacturing PMI beat expectations coming in at 47.6 vs. 47.0 expected and 46.4 prior:</p><ul><li>Prices paid 48.4 vs. 43.9 expected and 42.6 prior.</li><li>Employment 48.5 vs. 44.2 expected and 44.4 prior.</li><li>New orders 46.8 vs. 47.3 prior</li></ul><p>The jump in prices paid component shouldn't be a surprise given higher energy prices.</p><p>The highlights for next week
will be:</p><ul><li>Monday: US and Canada Holiday.</li><li>Tuesday: China Caixin Services PMI, RBA Policy
Decision.</li><li>Wednesday: Eurozone Retail Sales, US ISM Services PMI,
BoC Policy Decision.</li><li>Thursday: China Imports/Exports data, Switzerland
Unemployment Rate, US Jobless Claims.</li><li>Friday: Japan Wage data, Canada Jobs Report.</li></ul><p>That’s all folks, have a great weekend!</p>

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