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BoC’s Macklem signals more rate cuts as Canada returns to low inflation

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    ActionForex.com
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    Addressing the House of Commons Standing Committee on Finance, BoC Governor Tiff Macklem explained the rationale behind last week’s 50bps rate cut, highlighting that “inflation is now back to the 2% target”. He emphasized that Canada is now in a period of “low inflation,” and the bank’s priority is to “maintain low, stable inflation” and successfully “stick the landing.”

    Macklem noted that the rate cut is also intended to “contribute to a pickup in demand” in an economy that remains “soft.” Looking forward, BoC anticipates a “gradual” strengthening of the Canadian economy in 2025 and 2026, supported by lower interest rates.

    If economic conditions align with the bank’s outlook, Macklem anticipates “cutting our policy rate further” to sustain demand and stabilize inflation around target.

    However, he clarified that decisions on timing and scale will be data-driven, with BoC will take monetary policy decisions “one at a time”.

    Full remarks of BoC’s Macklem here.

    US Consumer Confidence surges to 108.7 in Oct, strong labor market and income optimism

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      ActionForex.com
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      US Conference Board Consumer Confidence Index rose sharply from 99.2 to 108.7 in October, significantly surpassing the expected 98.9 and marking the highest monthly gain since March 2021. Although this increase keeps the index within its two-year range, it reflects a notable boost in consumer sentiment driven by improving views on the economy and labor market.

      Present Situation Index, a gauge of consumers’ perceptions of current economic conditions, climbed 14.2 points to 138.0, highlighting a strong rebound in how Americans view the job market and business environment.

      Additionally, Expectations Index rose 6.3 points to 89.1, moving well above the recession-warning threshold of 80, indicating that consumers are increasingly positive about future economic conditions.

      Dana M. Peterson, Chief Economist at The Conference Board, noted that October’s data saw improvements across all five components of the index. Consumers reported a more positive assessment of business conditions, reflecting recent labor market strength. Views on current job availability also improved, suggesting renewed optimism in employment prospects. Notably, consumers expressed greater optimism about future business conditions and income expectations, and for the first time since July 2023, showed cautious optimism regarding future job availability.

      Full US consumer confidence release here.

      US goods trade deficit widens to USD -108.2B vs exp USD -96.1B

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        ActionForex.com
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        US goods exports fell USD -3.6B or -0.2% mom to USD 174.2B in September. Goods imports rose USD 10.4B or 3.8% mom to USD 282.4B. Trade deficit widened from USD -94.2B to USD -108.2B, larger than expectation of USD -96.1B.

        Wholesale inventories fell -0.1% mom to USD 905.0B. Retail inventories rose 0.8% mom to USD 824.3B.

        Full US trade balance release here.

        Germany’s Gfk consumer sentiment rises to -18.3, remains fragile

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          ActionForex.com
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          Germany’s GfK Consumer Climate index for November improved from -21.0 to -18.3, exceeding forecast of -20.5 and marking its highest level since April 2022. However, the underlying sentiment remains subdued, as economic expectations continued to trend downward for the third consecutive month, dropping -0.5 to -0.2, the lowest level since March.

          Rolf Bürkl, consumer expert at the NIM, cautioned that while consumer sentiment has improved, it remains historically low due to persistent uncertainties driven by “crises, wars and rising prices”.

          He noted that rising company insolvencies, job cut plans, and discussions around shifting production abroad are “preventing a more significant recovery in consumer sentiment.”

          Full German Gfk consumer climate release here.

          Japan’s unemployment rate falls to 2.4%, job availability remains strong

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            ActionForex.com
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            Japan’s unemployment rate fell from 2.5% to 2.4% in September, below expectations of 2.5%.

            While the total number of employed individuals declined slightly by -0.1% to seasonally adjusted 67.82m, the number of unemployed fell -2.3% to 1.68m, marking the second consecutive monthly decrease.

            Additionally, job availability ratio rose 0.01 to 1.24, meaning there were 124 job openings for every 100 job seekers, reflecting strong demand for labor.

            ECB’s Guindos warns of risks despite progress in disinflation

              By
              ActionForex.com
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              ECB Vice President Luis de Guindos highlighted overnight that recent data confirms the disinflationary process is “well on track.” However, he cautioned that the outlook is clouded by “substantial risks.”

              Key concerns include geopolitical conflicts that could raise energy and freight costs, extreme weather events, and persistent wage growth, all of which could prolong inflationary pressures.

              On the downside, Guindos noted that previous rate hikes might impact demand and inflation more than anticipated, while a slowing global economy presents further risks.

              He pointed out that economic performance has been weaker than expected, with risks skewed to the downside. “Lower confidence could prevent consumption and investment from recovering as fast as expected,” Guindos added, emphasizing that geopolitical tensions continue to threaten global trade and energy supplies.

              BoC’s Macklem open to larger cuts following substantial tightening cycle

                By
                ActionForex.com
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                BoC Governor Tiff Macklem indicated the central bank’s intent to continue cutting its policy rate if the economy aligns with central bank’s forecast. However, he acknowledged uncertainty regarding the precise pace and end-point of the easing cycle, remarking overnight, “We don’t know exactly the pace. We don’t exactly know where the landing is.”

                Macklem also addressed speculation around the size of future rate cuts, clarifying that larger-than-quarter-point reductions are not limited to emergencies or economic downturns.

                With the aggressive rate hikes in recent memory, he suggested that “it makes sense to take some bigger-than-normal steps”, signaling that larger steps on the way down could be reasonable as well.

                ECB’s Wunsch: Soft landing likely, no immediate need to accelerate rate cuts

                  By
                  ActionForex.com
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                  In an interview with Reuters, Belgian ECB Governing Council member Pierre Wunsch emphasized the importance of patience regarding monetary policy adjustments, pointing to strong employment figures and rising real wages as signals of economic resilience.

                  Wunsch remarked that with the economy likely headed for a “soft landing,” there is “no urgency in further accelerating the easing of monetary policy.”

                  Wunsch downplayed temporary inflation undershooting, and warned against “overdramatize such an event”. He added, “Being a bit below 2% is not a big event if the medium term continues to point to 2%,” especially if driven by a favorable terms of trade shock.

                  Wunsch further cautioned against making premature decisions ahead of December’s ECB meeting, noting that several high-stakes developments are expected in the coming weeks.

                  “We’ll have so much information until then, including two more inflation readings and new staff projections,” he said. “There will be a U.S. election, and we also need to see how the conflict in the Middle East develops, so discussing precise levels is premature.”

                  Yen depreciates sharply following inconclusive Japanese election

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                    ActionForex.com
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                    Yen fell significantly after this weekend’s snap election resulted in a fragmented parliament, leaving no single party with a clear mandate to govern. This political uncertainty introduces the prospect of days or even weeks of negotiations as parties attempt to form a coalition, raising concerns among traders about potential change in leadership and policy direction. Despite the political instability, Nikkei rebounded notably, primarily driven by the weaker yen rather than optimism about the electoral outcome.

                    Election results showed that Prime Minister Ishiba’s Liberal Democratic Party and its coalition partner Komeito secured only 215 seats in the lower house of parliament, a substantial decline from their previous 279 seats. The opposition Constitutional Democratic Party of Japan increased its seats to 148 from 98 but still fell short of the 233 required for a majority. Under Japan’s constitution, political parties now have 30 days to negotiate and form a governing coalition. The lack of a decisive outcome casts doubt on Ishiba’s tenure as premier, especially considering he assumed office less than a month ago.

                    USD/JPY’s rise from 139.57 resumed after brief consolidations by breaking through 153.18 temporary low. Further rally is expected as long as 151.44 support holds. The question is whether USD/JPY could sustain above 61.8% retracement of 161.94 to 139.57 at 153.39. If it can, the next target wil be a retest on 161.94 high.

                    ECB’s Knot cautions against overly enthusiastic rate cut expectations

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                      ActionForex.com
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                      Speaking on Saturday, Dutch ECB Governing Council member Klass Knot acknowledged the market’s heightened expectations for ECB rate cuts, noting that this shift occurred after disappointing PMIs and consumption data.

                      Knot described these expectations as having increased “quite dramatically” but cautioned that the market may have been “a little bit over-enthusiastic.” He highlighted that “We will only know once we do our own calculations again in December.”

                      Knot outlined two contrasting scenarios regarding the ECB’s rate path. On one hand, if incoming data reveal a rapid pace of disinflation or signal a notable shortfall in economic recovery, ECB could accelerate policy easing. On the other, if inflation risks shift upwards or data show resilience in growth and inflation, a more gradual reduction of restrictive measures might be warranted.

                      Knot underscored the importance of retaining “full optionality,” a strategy designed to act as a hedge against unpredictable shifts in the economic outlook. He stressed that ECB’s meeting-by-meeting and data-dependent approach has been effective.

                      US durable goods orders down -0.8% mom in Sep, ex-transport orders up 0.4% mom

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                        ActionForex.com
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                        US durable goods orders fell -0.8% mom to USD 284.8B in September, better than expectation of -0.9% mom. Transportation equipment, drove the decrease, -3.1% mom to USD 95.4B Both were down three of the last four months.

                        Ex-transport orders rose 0.4% mom to USD 189.3B, much better than expectation of -0.1% mom decline. Ex-defense orders fell -1.1% mom to USD 264.9B.

                        Full US durable goods orders release here.

                        Canada’s retail sales rises 0.4% mom in Aug, vs exp 0.6% mom

                          By
                          ActionForex.com
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                          Canada’s retail sales grew 0.4% mom to CAD 66.6B in August, worse than expectation of 0.6% mom. Sales were up in four of nine subsectors and were led by increases at motor vehicle and parts dealers. Core retail sales—which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers—were down -0.4% mom.

                          Advance estimate suggests that sales increased 0.4% mom in September.

                          Full Canada retail sales release here.

                          German Ifo rises to 86.5, stops declining for the time being

                            By
                            ActionForex.com
                            -

                            Germany’s Ifo Business Climate index improved in October, rising from 85.4 to 86.5 and exceeding expectations of 85.4. Current Assessment index also showed an uptick from 84.4 to 85.7, surpassing the forecasted 84.1, while Expectations index rose from 86.4 to 87.3, above the anticipated 86.6.

                            Sectoral data further underscores this cautious optimism, with manufacturing inching up from -21.4 to -20.6, services edging into positive territory from -3.5 to 0.1, and trade posting an improvement from -29.8 to -29.3. Construction sector, however, slipped from -25.3 to -25.7.

                            This data signals a stabilization in Germany’s economic outlook, with Ifo commenting, “The German economy stopped the decline for the time being.”

                            Full German Ifo release here.

                            Tokyo CPI core dips to 1.8% in Oct on lower energy prices

                              By
                              ActionForex.com
                              -

                              Japan’s Tokyo CPI core (excluding food) dropped from 2.0% yoy to 1.8% yoy in October, slightly above market expectations of 1.7%. This marks the first time in five months that inflation has dipped below BoJ’s 2% target. Headline CPI also slowed from 2.1% yoy to 1.8% yoy.

                              The deceleration was largely driven by a slowdown in energy prices, with government subsidies for energy costs contributing to a 0.51 percentage point reduction in the overall index.

                              Despite this, underlying inflationary momentum ticked up, as core-core CPI (excluding food and energy) rose from 1.6% yoy to 1.8% yoy. Services prices also saw an uptick, increasing by 0.8% yoy compared to 0.6% yoy in the prior month.

                               

                              BoJ’s Ueda signals no immediate rate hike

                                By
                                ActionForex.com
                                -

                                BoJ Governor Kazuo Ueda indicated that the central bank is not in a hurry to adjust its monetary policy, stating after the G20 meeting in Washington, “I believe we have enough time” to make a decision. This suggests that BoJ will refrain from hiking interest rates in its upcoming meeting next week.

                                Ueda emphasized the importance of considering the broader economic context, including the effects of the weak Yen and uncertainties surrounding the US economy, which may be influenced by the upcoming US presidential election.

                                During the same press conference, Japan’s Finance Minister Katsunobu Kato reiterated concerns over Yen’s high volatility. He highlighted the need for close attention to fluctuations in the foreign exchange market.

                                BoE’s Mann warns services inflation has long way to go

                                  By
                                  ActionForex.com
                                  -

                                  At an event today, BoE MPC member Catherine Mann highlighted the ongoing challenges with services inflation, stating that it still has “a long way to go” before it reaches the target-consistent level. Despite cooling to the lowest point in over two years, Mann emphasized that services inflation needs to fall to around 3% to align with BoE’s 2% inflation target.

                                  She cautioned that structural persistence in wage-price dynamics could delay rate cuts, noting, “If you have structural persistence in the relationship between wages and price formation, it’s premature to start cutting until you purge those behaviors.”

                                  Additionally, Mann warned that interest rates are likely to settle higher than pre-pandemic levels due to persistent inflationary pressures driven by supply shocks and labor market frictions. She added that there is likely to be “a lot more inflation” moving forward.

                                  US PMI composite ticks up to 54.3, indicating 2.5% annualized GDP growth

                                    By
                                    ActionForex.com
                                    -

                                    In October, US PMI data showed modest improvement across sectors. Manufacturing PMI rose slightly from 47.3 to 47.8, while Services PMI edged up from 55.2 to 55.3, leading to an increase in Composite PMI from 54.0 to 54.3. These numbers point to a continued expansion of business activity in the US.

                                    Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, noted that October saw business activity grow at an “encouragingly solid pace,” with PMI data indicating GDP growth at an annualized rate of about 2.5%.

                                    He added that businesses are increasingly optimistic about the year ahead, particularly in the manufacturing sector. Confidence is improving as companies expect a more stable post-election environment, which could help reverse the current slowdown in production and sales.

                                    Full US PMI release here.

                                    US initial jobless claims falls to 227k vs exp 245k

                                      By
                                      ActionForex.com
                                      -

                                      US initial jobless claims fell -15k to 227k in the week ending October 19, well below expectation of 245k. Four-week moving average of initial claims rose 2k to 238.5k.

                                      Continuing claims rose 28k to 1897k in the week ending October 12. Four-week moving average of continuing claims rose 18k to 1861k.

                                      Full US jobless claims release here.

                                      UK PMI composite hits 11-month low as business confidence wavers

                                        By
                                        ActionForex.com
                                        -

                                        UK business activity weakened in October, with both the manufacturing and services sectors showing signs of slowing momentum. PMI Manufacturing index dropped from 51.5 to 50.3, marking a 6-month low, while PMI Services index fell from 52.4 to 51.8, an 11-month low. Consequently, Composite PMI also declined to an 11-month low, slipping from 52.6 to 51.7.

                                        Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, attributed this slump to “gloomy government rhetoric” and rising uncertainty ahead of the Budget. He added that external risks, such as conflicts in the Middle East, the ongoing war in Ukraine, and the upcoming US elections, have further dampened economic confidence.

                                        The early PMI data suggests that the UK economy grew at a meagre 0.1% quarterly rate in October. However, Williamson noted that further cooling of input cost inflation, now at its lowest level in four years, could allow BoE to take a “more aggressive stance” toward rate cuts if the economic slowdown persists.

                                        Full UK PMI release here.

                                        Eurozone PMIs: Persistent price pressures lean ECB toward 25bps Dec cut, not 50bps

                                          By
                                          ActionForex.com
                                          -

                                          Eurozone’s economic activity showed mixed signals in October, with PMI Manufacturing rising slightly from 45.0 to 45.9, while PMI Services fell marginally from 51.4 to 51.2. As a result, Composite PMI ticked up slightly to 49.7 from 49.6, but remained below the 50-point mark, indicating ongoing economic contraction.

                                          Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, described the Eurozone as “stuck in a bit of a rut,” noting that the economy contracted for the second consecutive month. While the manufacturing sector continues to slump, its negative impact is being balanced out by minor gains in services. De la Rubia added, “For now, it is not clear whether we will see a further deterioration or an improvement in the near future.”

                                          According to de la Rubia, for ECB, the data present an “unwelcome surprise,” particularly in the services sector. Inflationary pressures appear to be lingering, driven by wage growth, which has been pushing up costs and selling prices for service providers.

                                          This persistent inflation suggests that the ECB may lean towards a 25bps rate cut in December, as opposed to the larger 50bps cut some had speculated.

                                          Full Eurozone PMI release here.

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