Daily Report

Yen and Franc Stay Weak on Strong Risk Appetite, Euro Outperforms Dollar

Typography

Japanese Yen and Swiss Franc remain the weakest ones for the week on strong global risk appetite. German DAX closed at new record of 13043.03 yesterday. That was followed by 160.16 pts rise in DOW to 23157.60, and 1.9pts rise in S&P 500 to 2561.26. Both were record highs. US treasury yield followed and closed up 0.041 at 2.339. But that was not followed by Dollar as the greenback reversed earlier gains in late US session. Indeed, Euro is seen to be outperforming Dollar against Swiss Franc and Yen. In other markets, Gold is now back below 1280 after recent recovery hit 1308.4 and lost steam. WTI crude oil is firm at around 52 but struggle to get through 52.86 near term resistance.

Fed Kaplan and Dudley warned tax cut could be harmful

Dallas Fed President Robert Kaplan said that is if the US President Donald Trump's tax plan is just a "short-term stimulus, or basically a tax cut funded by growth in deficit", it could be "harmful". Kaplan added that "we are either at full employment or are nearing full employment, and my concern is that if we do a tax cut financed by increasing the debt, the deficit, we'll get the short-term up and then come right back down to trend growth, and when it's over, we'll be more highly leveraged than we were before." 

New York Fed President William Dudley said that "we are a long way from tax reform". But, "if we would be able to lower the corporate tax rate and broaden the base... that would be good for the United States". Nonetheless, he expressed his concerns that there is little discussion on government debt levels. And he warned that  "are going to start to ramp up as the Fed continues to raise short-term interest rates. Investors right now aren't focused on debt service burdens anywhere in the world...That could change quickly."

Fed's Beige Book economic report showed that US growth was "split between modest and moderate" among the regions. Labor markets were widely described as "tight". And, labor shortages in some sectors were actually "restraining business growth". However, "despite widespread labor tightness, the majority of districts reported only modest to moderate wage pressures." Employers opted for "sign-on bonuses, overtime, and other non-wage efforts to attract and retain workers" instead.

UK May assures EU citizens ahead of EU summit

UK Prime Minister Theresa May offered some more incentive for EU officials just ahead of the summit in Brussels. In her Facebook page, May pledged that "EU citizens who have made their lives in the UK have made a huge contribution to our country. And we want them and their families to stay. I couldn't be clearer: EU citizens living lawfully in the UK today will be able to stay." May has been trying to save Brexit negotiations after it was described as deadlocked by EU officials last week. There is practically no chance for EU to approve the "go" for trade agreement talks this week. But some officials are seeing 50/50 chance of having that "sufficient progress" by December.

Japan trade surplus narrowed, with temporary slow down in exports

Japan trade surplus narrowed to JPY 0.24T in September. Export grew 14.1% yoy, lower than expectation of 14.9% yoy, and the first slowdown in three months. Nonetheless, the 18.1% yoy growth of export back in August was the fastest in nearly four years. It's generally seen that the slowdown is temporary and recovery in global economy is still in place. Imports rose 12.0% yoy, also below expectation of 15.0% yoy.

Improving labor market could allow RBA to pare back stimulus

Australia NAB business condition index rose 2 pts to 15. But business confidence dropped 1 pt to 7 in Q3. NAB chief economists Alan Oster noted that overall results point to improvements in the economy. And, "a positive byproduct of that has been solid outcomes for hiring intentions and capex plans for the year ahead." Also, "there now seems to be sufficient evidence to suggest that the labour market will continue to improve enough to allow the RBA to pare back some of its emergency stimulus."

Separately released, employment grew 19.8K in September, above expectation of 15.0K. That's also the 12 straight month of growth. Full time jobs grew 6.1K while part-time jobs grew 13.7K. Participation rate was unchanged at 65.2%. Unemployment rate dropped to 5.5%, below expectation of 5.6%. That's also the lowest reading since May, which then was the lowest since early 2013.

Elsewhere

China GDP rose 6.8% yoy in Q3, slowed from 6.9% yoy but met expectation. Retail sales rose 10.3% yoy in September, above expectation of 10.2% yoy. Fixed asset investments rose 7.5% yoy, below expectation of 7.7% yoy. Industrial production rose 6.6% yoy, above expectation of 6.4% yoy.

Swiss trade balance and UK retail sales are featured in European session. From US, jobless claims, Philly Fed survey and leading indicators will be released.

EUR/CHF Daily Outlook

Daily Pivots: (S1) 1.1523; (P) 1.1551; (R1) 1.1595; More....

Break of 1.1565 suggests that recovery from 1.1387 has resumed. Intraday bias in EUR/CHF is turned back to the upside for retesting 1.1622 high. At this point, we'd still expect resistance from there to limit upside to bring another fall. Consolidation from 1.1622 would extend with another leg. On the downside, below 1.1483 minor support will turn bias to the downside for 1.1387 support and below.

In the bigger picture, long term rise from SNB spike low back in 2015 is still in progress. EUR/CHF should now be heading back to prior SNB imposed floor at 1.2000. For now, this will be the favored case as long as 1.1198 resistance turned support holds.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
23:50 JPY Trade Balance JPY Sep 0.24T 0.32T 0.37T 0.31T
0:30 AUD NAB Business Confidence Q3 7 7 8
0:30 AUD Employment Change Sep 19.8k 15.0k 54.2k 53.0k
0:30 AUD Unemployment Rate Sep 5.50% 5.60% 5.60%
2:00 CNY GDP Y/Y Q3 6.80% 6.80% 6.90%
2:00 CNY Retail Sales Y/Y Sep 10.30% 10.20% 10.10%
2:00 CNY Fixed Assets Ex Rural YTD Y/Y Sep 7.50% 7.70% 7.80%
2:00 CNY Industrial Production Y/Y Sep 6.60% 6.40% 6.00%
4:30 JPY All Industry Activity Index M/M Aug 0.20% -0.10%
6:00 CHF Trade Balance (CHF) Sep 2.47B 2.17B
8:30 GBP Retail Sales M/M Sep -0.10% 1.00%
12:30 USD Initial Jobless Claims (OCT 14) 240K 243K
12:30 USD Philadelphia Fed Business Outlook Oct 22 23.8
14:00 USD Leading Indicators Sep 0.10% 0.40%
14:30 USD Natural Gas Storage 87B