Weekly Market Recap (30-03 November)

<p>Monday</p><p>ECB’s Vujcic (neutral – voter) confirmed that the
tightening cycle has ended, and the ECB will now hold rates steady for as long
as necessary to get back to their 2% inflation target:</p><ul><li>We have finished
with the process of raising interest rates for now.</li><li>At this moment we
see that inflation is falling, we have a disinflation process. And after
we conducted a series of measures to dampen lending, it has fallen. </li><li>Confident inflation
will hit the ECB target by 2025.</li></ul><p>The Australian Retail Sales beat expectations:</p><ul><li>Retail Sales M/M
0.9% vs. 0.3% expected and 0.2% prior.</li><li>Retail Sales YoY
2.0% vs. 1.6% prior.</li></ul><p>ECB’s Kazimir (hawk – voter) confirms the ECB’s
current “wait and see” stance specifying that the central bank might wait for a
“few quarters” before deciding on the next policy move:</p><ul><li>Additional
tightening could come if incoming data forces us to.</li><li>We will have to stay
at the peak for the next few quarters.</li><li>Bets on rate cuts
happening in 1H 2024 are entirely misplaced.</li><li>Eagerly awaits
December update of inflation forecast to get a clearer picture.</li><li>Upside risks to
inflation have yet to dissipate entirely, must stay vigilant.</li></ul><p>ECB’s Simkus (hawk – non voter) remains wary of risks
but confirms that “unless the data surprises, the current level of restriction
is sufficient”.</p><p>BoC Governor Macklem repeats that the current monetary
policy is doing the job to cool the economy but if inflationary pressures were
to persist, the BoC is ready to raise rates further:</p><ul><li>Further easing in
inflation is likely to be slow and risks are high.</li><li>We held policy
steady because monetary policy is working to cool the economy and relieve
price pressures.</li><li>We continue to
assess whether monetary policy is sufficiently restrictive.</li><li>If inflationary
pressures persist, we are prepared to raise our policy rate further to
restore price stability.</li></ul><p>Tuesday</p><p>The Japanese Unemployment Rate came in line with
expectations at 2.6% vs. 2.6% expected and 2.7% prior.</p><p>The Japanese Industrial Production missed expectations
by a big margin:</p><ul><li>Industrial
Production M/M 0.2% vs. 2.5% expected and -0.7% prior.</li><li>Industrial
Production Y/Y -4.6% vs. -2.3% expected and -4.4% prior. </li><li>Forecast 1 month
ahead is 3.9% vs. 5.8% prior.</li><li>Forecast 2 months
ahead is -2.8% vs. 3.8% prior.</li></ul><p>Japanese Retail
Sales missed expectations:</p><ul><li>Retail Sales M/M
-0.1% vs. 0.2% expected and 0.1% prior.</li><li>Retail Sales Y/Y
5.8% vs. 5.9% expected and 7.0% prior. </li></ul><p>The Chinese PMIs missed
expectations with the Manufacturing sector falling back into contraction:</p><ul><li>Manufacturing PMI 49.5
vs. 50.2 expected and 50.2 prior.</li><li>Services PMI 50.6 vs.
51.8 expected and 51.7 prior. </li></ul><p>The BoJ left interest
rates unchanged at -0.10% and kept the YCC but changed the language with the 1%
now just being a reference cap:</p><ul><li>Keeps short-term
interest rate target at -0.1%.</li><li>Keeps 10-year JGB
yield target around 0%.</li><li>Widens reference
range to 1.0% point up and down each around its 10-year JGB yield target
vs previous 0.5% point.</li><li>Flexibly increase
JGB buying, fixed-rate operations and collateral fund-supply operations.</li></ul><ul><li>Changes language
around 1.0% 10-year JGB yield cap.</li><li>Decides to keep
yield target but make 1% a reference cap.</li><li>Will guide market
operations nimbly.</li><li>Will regard upper
bound of 1% for 10-year JGB yield as reference in its market operations.</li><li>Will determine offer
rate for fixed-rate JGB buying operations each time, taking account market
rates and other factors.</li><li>Decides to make YCC
more flexible.</li><li>Japan's inflation
outlook overshooting but due largely to prolonged rises in import costs.</li></ul><ul><li>Wages, prices must
strengthen in virtuous cycle.</li><li>BOJ will patiently
continue monetary easing under YCC to support economic activity, create
environment where wages rise more.</li><li>Appropriate to make
YCC more flexible given very high uncertainty over economy, markets.</li><li>Strictly capping
long-term rate with fixed-rate purchase operation at 1% will have strong
positive effects but could also entail large side effects.</li><li>As such, BoJ decided
to conduct YCC mainly through large-scale JGB buying and nimble market
operations.</li><li>BoJ makes no change
to its forward guidance.</li></ul><p>Inflation forecasts boosted:</p><ul><li>Board's core CPI
fiscal 2023 median forecast at 2.8% vs. 2.5% in July.</li><li>Board's core CPI
fiscal 2024 median forecast at 2.8% vs. 1.9% in July.</li><li>Board's core CPI
fiscal 2025 median forecast at 1.7% vs. 1.6% in July.</li></ul><ul><li>Board's real GDP
fiscal 2023 median forecast at 2.0% vs. 1.3% in July.</li><li>Board's real GDP
fiscal 2024 median forecast at 1.0% vs. 1.2% in July.</li><li>Board's real GDP
fiscal 2025 median forecast at 1.0% vs. 1.0% in July.</li></ul><p>BoJ quarterly report:</p><ul><li>Japan's economy
likely to continue recovering moderately.</li><li>Inflation likely to
slow, then re-accelerate as wages rise, inflation expectations heighten.</li><li>Uncertainty over
Japan's economic, price outlook very high.</li><li>Must be vigilant to
financial, FX market moves and their impact on Japan's economy, prices.</li></ul><p>BoJ
quarterly report on risks: </p><ul><li>Uncertainty over
Japan's economy, prices is extremely high.</li><li>Need to closely
watch financial, currency market moves, their impact on Japan's economy,
prices.</li><li>Risks to price
outlook skewed to upside in FY2023.</li><li>Must closely watch
whether favourable cycle of wage growth, prices will strengthen.</li><li>Risks to economic
outlook generally balanced in FY2023 and FY2024, but skewed to downside
for FY2025.</li><li>There is possibility
wage growth may not strengthen as expected next year onward, causing
prices to deviate downward.</li></ul><p>Moving on to the Press Conference,
BoJ Governor Ueda repeated once again that the central bank will keep at it
with its easing measures as they don’t see a sustainable and stable increase in
prices:</p><ul><li>Will patiently
continue monetary easing with decided new measures.</li><li>Will closely
scrutinise economy, price situation by examining wages and prices.</li><li>Main reasons for
inflation outlook overshoot compared to July are longer-than-expected
effects of price pass-through and rising oil prices.</li><li>But we are not in a
situation to foresee sustainable and stable price increases.</li><li>Will not hesitate to
take easing measures if necessary.</li><li>Don't think
long-term rates will come under pressure to exceed 1%.</li><li>Today's steps came
partly as a result of rising US long-term rates.</li><li>Strength of
inflation, wages still not sufficient.</li><li>Inflation outlook is
slightly improved but can't say with full confidence that it can be
sustained.</li><li>But we are getting
gradually closer to achieving the price target.</li><li>Next spring's wage
negotiations will be an important factor.</li><li>Believes that can
anticipate a certain level of wage hike next year.</li><li>But difficult to say
if can achieve continuous cycle of wage hikes and price increases.</li><li>Until achievement of
inflation target is in sight, both YCC and NIRP will be in place.</li><li>The order of end of
either policy would depend on economic, financial trends at the time.</li></ul><p>The Eurozone October Preliminary
CPI missed expectations on the headline measure and came in line with forecasts
on the core figure:</p><ul><li>CPI Y/Y 2.9% vs.
3.1% expected and 4.3% prior.</li><li>CPI M/M 0.1% vs.
0.3% expected and 0.3% prior.</li><li>Core CPI Y/Y 4.2%
vs. 4.2% expected and 4.5% prior.</li><li>Core CPI M/M 0.2% vs. 0.2% prior. </li></ul><p>The Eurozone Q3
Preliminary GDP missed expectations:</p><ul><li>GDP Q3 -0.10% vs. 0.0%
expected and 0.1% prior. </li></ul><p>ECB’s Visco (dove – non
voter) acknowledged the positive developments around inflation:</p><ul><li>Inflation falling as
expected.</li><li>Need to be cautious
in coming months after the many rate hikes.</li><li>Demand seen further
contained due to delayed impact of rate hikes.</li><li>Need to avoid
excessive tightening of monetary, credit conditions.</li><li>Fears of a
wage-price spiral have sharply diminished.</li></ul><p>The Canadian August GDP
came in flat at 0.0% vs. 0.1% expected and 0.0% prior:</p><ul><li>September advance GDP 0.0%.</li><li>Services 0.1%.</li><li>Goods -0.2%.</li><li>Wholesale trade 2.3%.</li><li>The mining,
quarrying, and oil and gas extraction sector rose 1.2%.</li><li>Manufacturing -0.6%.</li><li>Accommodation and
food services declined 1.8%.</li><li>The transportation
and warehousing sector increased 0.8%.</li><li>Retail trade contracted 0.7%.</li></ul><p>The US Employment Cost
Index for Q3 beat expectations:</p><ul><li>Employment Cost
Index 1.1% vs. 1.0% expected and 1.0% prior.</li><li>Wages 1.2% vs. 1.0% prior.</li><li>Employment benefits
0.9% vs. 0.9% prior.</li></ul><p>ECB’s Stournaras (dove –
voter) talked about his requirement for a rate cut:</p><ul><li>Personally, I would
consider cutting interest rates if inflation falls permanently and
sustainably below the 3% threshold in mid-2024.</li><li>Says he hasn't
discussed cutting rates next year with colleagues.</li><li>We are now deep in
restrictive territory, no matter which perspective you look at it from.</li><li>The economy is much
weaker than we thought in September.</li><li>Financing conditions
are also somewhat tighter than expected.</li></ul><p>ECB’s Kazaks (hawk – non
voter) is refraining from rate cuts discussion as he remains wary of inflation
risks:</p><ul><li>No need to discuss
rate cuts now.</li><li>The risk of
inflation persists.</li><li>Door should always
be open to hike if needed.</li><li>Dramatic turnaround
in economy needed for rate cuts.</li></ul><p>ECB’s Villeroy (neutral –
voter) reaffirms the ECB’s “wait and see” stance:</p><ul><li>The latest data shows
France has clearly passed inflation peak.</li><li>Economy fully justifies
end of rate hikes and future must be guided towards patience.</li></ul><p>The US Consumer
Confidence for October beat expectations: </p><ul><li>Consumer Confidence
102.6 vs. 100.0 expected and 104.3 prior (revised from 103.0).</li><li>Present situation
index 143.1 vs. 147.1 prior.</li><li>Expectations index 75.6 vs. 73.7 prior.</li><li>1-year inflation
expectations 5.9% vs. 5.8% prior.</li><li>Jobs hard-to-get
13.1 vs. 13.6 prior.</li></ul><p>ECB’s Nagel (hawk
– voter) acknowledges the positive developments on the inflation front but
stresses the need to keep rates higher for longer:</p><ul><li>Rates must be
sufficiently high for sufficiently long.</li><li>Inflation has now
fallen significantly but it is still too high.</li><li>We must not let up
too soon, rates must be sufficiently high for long time.</li><li>It is not yet
possible to say if rates have reached their peak.</li><li>There are several
upside risks to inflation.</li><li>Inflation has proven stubborn.</li></ul><p>Wednesday</p><p>The New Zealand
labour market report for Q3 missed expectations:</p><ul><li>Employment change
-0.2% vs. 0.4% expected and 1.0% prior.</li><li>Unemployment rate
3.9% vs. 3.9% expected and 3.6% prior.</li><li>Participation rate
72.0% vs. 72.5% expected and 72.5% prior (revised from 72.4%).</li><li>Labour cost index
Y/Y 4.1% vs. 4.2% expected and 4.3% prior.</li><li>Labour cost index
Q/Q 0.8% vs. 1.0% expected and 1.1% prior.</li></ul><p>ECB’s Muller (neutral
– voter) is acknowledging the progress on the inflation front:</p><ul><li>Inflation in the
euro area is clearly coming down.</li><li>Inflation will
continue to fall over the coming two years.</li><li>Geopolitical
tensions are causing energy prices to rise again, and the conflict in the
Middle East and the danger of it spreading are one of the main risks
facing the decline of euro area inflation.</li><li>Inflation is still
too high. One of the main causes the relatively fast growth in wages.</li></ul><p>The Chinese Caixin
Manufacturing PMI for October returns in contraction coming in at 49.5 vs. 50.8
expected and 50.6 prior. </p><p>The Switzerland
Manufacturing PMI for October fell again further in contraction:</p><ul><li>Manufacturing PMI
40.6 vs. 45.0 expected and 44.9 prior.</li></ul><p>The Canadian
Manufacturing PMI for October improved but remained in contraction:</p><ul><li>Manufacturing PMI
48.6 vs. 47.5 prior.</li></ul><p>The US Job
Openings beat expectations:</p><ul><li>Job openings 9.553M
vs. 9.250M expected and 9.497M prior (revised from 9.610M).</li><li>Hires 3.7%% vs. 3.7%
prior.</li><li>Separations rate 3.7% vs. 3.6% prior.</li><li>Quits 2.3% vs. 2.3% prior.</li></ul><p>The US ADP missed
expectations coming in at 113K vs. 150K expected and 89K prior:</p><ul><li>Small (less than 50
employees) 19K vs. 95K prior.</li><li>Medium firms (500 –
499) 78K vs. 72K prior.</li><li>Large (greater than
499 employees) 18K vs. -83K prior.</li></ul><p>Changes in pay:</p><ul><li>Job stayers 5.7% vs. 5.9% prior.</li><li>Job changers 8.4% vs. 9.0% prior.</li></ul><p>The US ISM
Manufacturing PMI missed expectations by a big margin:</p><ul><li>Manufacturing PMI
46.7 vs. 49.0 expected and 49.0 prior.</li><li>Prices paid 45.1 vs.
45.0 expected and 43.8 prior.</li><li>Employment 46.8 vs.
50.3 expected and 51.2 prior.</li><li>New orders 45.5 vs. 49.2 prior.</li><li>Inventories 45.8 vs. 45.8 prior.</li><li>Production 52.5 vs. 52.5 prior.</li></ul><p>The Federal Reserve left
interest rates unchanged at 5.25-5.50% with no material change to the
statement:</p><ul><li>Recent indicators
suggest that economic activity expanded at a strong pace in the
third quarter vs. prior statement that said economy was “solid”.</li><li>Repeats that inflation
remains elevated.</li><li>Repeats "The
Committee remains highly attentive to inflation risks".</li></ul><p>Moving on to the press conference, Fed Chair Powell in
his opening remarks basically repeated that the central bank is proceeding
carefully due to the monetary policy lags but they are also attentive to the
recent strength in data:</p><ul><li>The Committee is
proceeding carefully.</li><li>We remain strongly
committed to bringing inflation back to goal.</li><li>The full effects of
policy tightening have yet to be felt.</li><li>Economy has expanded
well above expectations.</li><li>The labour market
remains tight.</li><li>Supply and demand
conditions for labour continue to come into better balance.</li><li>Nominal wage growth
has shown some signs of easing.</li><li>The process of
getting inflation back to 2% still has a long way to go.</li><li>We are highly
attentive to the risks that inflation poses to our mandate.</li><li>A few months of good
inflation data 'only the beginning of what it will take'.</li><li>We are attentive to
recent data showing resilience in growth and labour.</li><li>Data could warrant
further tightening of monetary policy.</li><li>We will continue to
make our decisions meeting-by-meeting.</li><li>Reducing inflation
is likely to require a period of below-potential growth and labour market
conditions softening.</li></ul><p>Moving
on to the Q&amp;A session:</p><ul><li>We are attentive to
the increase in longer-term yields.</li><li>Higher rates can
have implications for monetary policy but would need to be persistent.</li><li>Higher yields are
being reflected in the market and having an effect on borrowing.</li><li>It does not appear
that policy expectations are driving rates.</li><li>We have not made any
decisions on future meetings.</li><li>Going into the
December meeting, we'll get 2 more jobs and inflation reports.</li><li>Will look at all
things into December but the idea that it's difficult to re-start hikes
after stopping, it's just not true.</li><li>Decision for today
was this meeting only.</li><li>The staff did not
put a recession back into the forecast.</li><li>We're not thinking
about rate cuts or talking about rate cuts.</li><li>The question we are
asking is: Should we hike more?</li><li>We are proceeding carefully.</li><li>It feels like the
risks are more two-sided now around inflation.</li><li>Labor demand is
clearly very strong, but we've seen supply of workers come online.</li><li>It's not clear that
the conflict in the Middle East is on track to have an economic impact on
the USA.</li></ul><p>Thursday</p><p>ECB’s Knot (hawk – voter)
is comfortable with the current level of rates:</p><ul><li>Policy rates now are
at a good 'cruising altitude'.</li><li>Current level of
rates can remain for some time.</li><li>Should be a little
patient and not raise rates too much to prevent choking off the economy.</li></ul><p>The Switzerland CPI came
in line with expectations with the Core measure rising a bit but remaining
comfortably in the SNB’s target range:</p><ul><li>CPI Y/Y 1.7% vs. 1.7%
expected and 1.7% prior.</li><li>Core CPI Y/Y 1.5% vs.
1.3% prior.</li></ul><p>The US Challenger Job
Cuts came in at 36.84K vs. 47.46K prior, the least in three months.</p><p>The BoE left interest
rates unchanged at 5.25% as expected:</p><ul><li>Bank rate vote 3-6 vs. 3-6 expected (Greene, Haskel, Mann voted to raise by
25 bps).</li><li>Policy likely needs to be restrictive for extended period of time.</li><li>Will continue to monitor closely inflation persistence and resilience in
the economy as a whole.</li><li>Further tightening in monetary policy would be required if there were
evidence of more persistent inflationary pressures.</li><li>Estimates UK GDP flat for Q3 2023 (previously 0.1%).</li><li>Estimates UK GDP to be 0.1% in Q4 2023.</li><li>Inflation well above target of 2% but expected to continue to fall sharply.</li><li>Market participants had reported an increasing conviction that UK policy
rates would remain ‘higher-for-longer’.</li><li>Some business surveys are pointing to a fall in GDP in Q4 2023.</li><li>But more forward-looking indicators were less pessimistic about growth
prospects.</li></ul><p>Moving on to the press
conference, BoE Governor Bailey just reaffirmed that the central bank will now
keep rates high for long enough to return inflation to their 2% target:</p><ul><li>Inflation is still
too high.</li><li>We will keep rates
high enough for long enough to return inflation to target.</li><li>OFGEM price cap
means we can be confident about energy bills lowering inflation.</li><li>It's important that services
inflation falls steadily over next year.</li><li>There is a
considerable way to go on quashing inflation.</li><li>Whether GDP growth
is slightly negative or slightly positive won't impact monetary policy.</li><li>How long restrictive
stance will be needed depends on incoming data.</li><li>We have to be
mindful of balance of risks between doing too little and too much.</li><li>Events in Middle
East create risk of higher energy prices.</li><li>We are making good
progress on bringing inflation down.</li><li>Now some signs that
the economy has started to grow more slowly, that's to be expected.</li></ul><p>The US Jobless Claims
missed expectations across the board once again:</p><ul><li>Initial Claims 217K
vs. 210K expected and 210 K prior.</li><li>Continuing claims
1818K vs. 1.800K expected and 1790K prior.</li></ul><p>ECB’s de Cos (dove – voter)
just stated that it’s too early to be speaking about rate cuts as the ECB is now
committed to keep interest rates high for a sufficiently long time. </p><p>ECB’s Schnabel (hawk –
voter) moves to the sidelines as the ECB is now in a “wait and see” mode:</p><ul><li>With our current
monetary policy stance, we expect inflation to return to our target by
2025.</li><li>The disinflation
process during the last mile will be more uncertain, slower and bumpier.</li><li>We cannot close the
door to further rate hikes.</li><li>If Middle East conflict
remains contained, energy price impact limited.</li></ul><p>Friday</p><p>The Chinese Caixin
Services PMI missed expectations:</p><ul><li>Services PMI 50.4 vs.
51.2 expected and 50.2 prior.</li><li>Composite PMI 50.0 vs. 50.9 prior.</li></ul><p>The Eurozone Unemployment
Rate missed expectations coming in at 6.5% vs. 6.4% expected and 6.4% prior.</p><p>The Canadian Jobs data
missed expectations across the board:</p><ul><li>Employment change
17.5K vs. 22.5K expected and 63.8K prior.</li><li>Unemployment rate
5.7% vs. 5.6% expected and 5.5% prior.</li><li>Full-time employment
-3.3K vs. 15.8K prior.</li><li>Part-time employment
20.8K vs. 47.9k prior.</li><li>Participation rate
65.6% vs. 65.5% prior.</li><li>Average hourly wages
permanent employees 5.0% vs. 5.3% prior.</li></ul><p>The US Labour Market
report missed expectations across the board with negative revisions to the
prior figures and some upward pressure on wages although they are likely to
cool with a softening labour market:</p><ul><li>Non-farm Payrolls
150K vs. 180K expected and 297K prior (revised from 336K).</li><li>Two-month net
revision -101K vs 119K prior.</li><li>Unemployment rate
3.9% vs. 3.8% expected and 3.8% prior.</li><li>Participation rate 62.7% vs. 62.8% prior.</li><li>U6 underemployment
rate 7.2% vs. 7.0% prior.</li><li>Average hourly
earnings M/M 0.2% vs. 0.3% expected and 0.3% prior (revised from 0.2%).</li><li>Average hourly
earnings Y/Y 4.1% vs. 4.0% expected and 4.3% prior (revised from 4.2%).</li><li>Average weekly hours
34.3 vs. 34.4 expected and 34.4 prior.</li><li>Change in private
payrolls 99K vs. 158K expected.</li><li>Change in
manufacturing payrolls -35K vs. -10K expected.</li><li>Household survey
-348K vs. 86K prior.</li><li>Birth-death
adjustment 412K vs. -119K prior.</li></ul><p>BoE’s Pill just
reaffirmed the central bank’s “wait and see” approach:</p><ul><li>Hold decision
reflected view some restrain on economy needed to be maintained.</li><li>There is still a
need to bear down on inflation.</li><li>Balance of economic
drivers has switched to supply side.</li><li>We can be less
sanguine about idea of slowing demand will lead to inflation returning to target.</li><li>We have not really
entertained the idea of cutting rates.</li></ul><p>The Hezbollah leader Hassan
Nasrallah is distancing himself from the terrorist operation in Gaza saying
that “the operation was 100% planned in Gaza”. Crude Oil fell following the
headline as the market is starting to look past the conflict with the
recessionary fears now back in focus.</p><p>The Canadian Services PMI fell further into contraction:</p><ul><li>Services PMI 46.6
vs. 47.8 prior.</li></ul><p>The US ISM Services PMI
missed expectations:</p><ul><li>ISM Services PMI 51.8
vs. 53.0 expected and 53.6 prior.</li><li>Employment index 50.2 vs. 53.4 prior.</li><li>New orders index
55.5 vs. 51.8 prior.</li><li>Prices paid index
58.6 vs. 58.9 prior.</li><li>New export orders
48.8 vs. 63.7 prior.</li><li>Imports 60.0 vs. 50.6 prior.</li><li>Backlog of orders
50.9 vs. 48.6 prior.</li><li>Inventories 49.5 vs. 54.2 prior.</li><li>Supplier deliveries 47.5 vs. 50.4 prior.</li><li>Inventory sentiment 54.4 vs. 54.8 prior.</li></ul><p>The
highlights for next week will be:</p><ul><li>Monday: BoJ Meeting Minutes.</li><li>Tuesday: Japan Wage data, Chinese
Trade data, RBA Policy Decision, Switzerland Unemployment Rate, Eurozone PPI.</li><li>Wednesday: Eurozone Retail Sales,
BoC Summary of Deliberations.</li><li>Thursday: BoJ Summary of Opinions,
Chinese Inflation data, US Jobless Claims, New Zealand Manufacturing PMI.</li><li>Friday: UK GPD
Q3 Preliminary, University of Michigan Consumer Sentiment.</li></ul><p>That’s all folks. Have a
great weekend!</p>

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