RBA hikes by only 25bps, maintain tightening bias

    RBA raises the cash rate target by only 25bps to 2.60%, smaller than expectation of a 50bps hike. Tightening bias is maintained as the board “expects to increase interest rates further over the period ahead”. The size and timing of future hikes will continued to be determined by incoming data and the board’s assessment of inflation and labor market outlook.

    In the accompanying statement, RBA said inflation is expected to “further increase” over the coming months. CPI would be around 7.75% over 2022, a little above 4% over 2023, and around 3% over 2024. The economy is “continuing to grow solidly” with national income boosted by a “record level of the terms of trade”. Labor markets is “very tight”. Wages growth is “continuing to pick up” but “remains lower than in other advanced economies” with high inflation.

    Full statement here.

    AUD/USD dips slightly after the smaller than expected rate hike, but there is no follow through selling. Consolidation pattern from 0.6362 is still in progress with bearish bias for downside breakout at a later stage.

    Gold and Silver jump after poor US ISM

      Gold and silver rise notably as Dollar weakens after poorer than expected ISM manufacturing PMI. The disappointing data prompts some talks that Fed officials could start to turn more cautious about the pace of tightening.

      Gold’s break of 1687.82 resistance indicates short term bottoming at 1614.60. Further rise is now in favor as long as 1659.51 minor support holds, to 55 day EMA (now at 1718.30), which is close to medium term falling channel resistance.

      For now, it’s still early to call for bullish trend reversal, despite bullish convergence condition in daily MACD. But sustained break of 55 day EMA should at least bring stronger rise towards 38.2% retracement of 2070.06 to 1614.60 at 1788.58.

      Silver is making slightly more progress than gold with strong break of 55 day EMA. Further rally is now expected as long as 19.20 minor support holds. Break of 20.86 resistance will target 38.2% retracement of 30.07 to 17.54 at 22.32. Reaction from there will reveal the chance of bullish trend reversal.

      US ISM manufacturing dropped to 50.9, lowest in more than 2 years

        US ISM Manufacturing PMI dropped from 52.8 to 50.9 in September, below expectation of 52.3. That’s the lowest level since May 2020. Looking at some details, new orers dropped from 51.3 to 47.1. Production rose slightly from 50.4 to 50.6. Employment dropped notably from 54.2 to 48.7. Prices dropped from 52.5 to 51.7.

        ISM said: “The past relationship between the Manufacturing PMI and the overall economy indicates that the Manufacturing PMI for September (50.9 percent) corresponds to a 0.8-percent increase in real gross domestic product (GDP) on an annualized basis.”

        Full release here.

        UK PMI manufacturing finalized at 48.4, goods producing sector a drag on GDP

          UK PMI Manufacturing was finalized at 48.4 in September, up from August’s 47.3. S&P Global said output and new orders fell further. New export business declined. Input costs and output price inflation accelerated.

          Rob Dobson, Director at S&P Global Market Intelligence, said: “The downturn in UK manufacturing continued at the end of the third quarter, meaning the goods producing sector looks set to have acted as a drag on GDP. Manufacturers have once again cut back production as new order intakes declined for the fourth successive month.

          “Factories are reporting tough market conditions both at home and abroad. Disappointingly, exports continue to fall despite the more competitive exchange rate.

          “There was also less positive news on the price front, with rates of inflation in input costs and selling prices both picking up in September, linked in part to import costs rising due to the weaker pound.

          Full release here.

          Eurozone PMI manufacturing finalized at 48.4, ugly combination of recession and inflation

            Eurozone PMI Manufacturing was finalized at 48.4 in September, down from August’s 49.6. That’s also a 27-month low. Looking at some member states, France PMI Manufacturing was finalized at 47.7, a 28-month low. Germany was finalized at 47.8, a 27-month low. Greece (49.7), the Netherlands (49.0), Spain (49.0), Austria (48.8) and Italy (48.3) were all in contraction, while Ireland (51.5) was in expansion.

            Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said: “The ugly combination of a manufacturing sector in recession and rising inflationary pressures will add further to concerns about the outlook for the eurozone economy… Excluding the initial pandemic lockdowns, eurozone manufacturers have not seen a collapse of demand and production on this scale since the height of the global financial crisis in early-2009.

            Full release here.

             

            Swiss CPI unexpectedly slowed to 3.3% yoy, EUR/CHF extends rebound

              Swiss CPI dropped -0.2% mom in September, below expectation of 0.1% mom. The decrease of 0.2% compared with the previous month can be explained by several factors including falling prices for fuels, heating oil, hotels and supplementary accommodation. In contrast, prices for clothing and footwear increased.

              Comparing with the same month a year ago, CPI slowed to 3.3% yoy, down from 3.5% yoy, below expectation of 3.5% yoy. Core CPI (excluding fresh and seasonal products, energy and fuel) was flat mom, up 2.0% yoy (unchanged from August). Domestic product prices rose 1.8% yoy (unchanged from August). Imported product prices rose 7.8% yoy (down from 8.6% yoy in August).

              Full release here.

              EUR/CHF rises further as Swiss CPI unexpectedly slowed. Immediate focus is now on 0.9712 resistance. Firm break there will raise the chance of larger bullish reversal, and target 0.9864 structural resistance for confirmation.

              Japan PMI manufacturing finalized at 50.8, weakness even turned worse

                Japan PMI Manufacturing was finalized at 50.8 in September, down from August’s 51.5. S&P Global said high inflation and subdued global market conditions weight on order books. Output fell at sharpest pace in a year, while input buying reduced. Weak yen drove inflationary pressures higher.

                Joe Hayes, Senior Economist at S&P Global Market Intelligence, said: “Weakness in Japan’s manufacturing sector persisted in September and even turned worse. New orders fell at their sharpest rate in two years – high inflation is eroding client purchasing power, while slowing global economic growth is hurting exports. Weakness in the yen is doing little to bolster export demand either and instead is pushing imported inflation up drastically and drove domestic price pressures up even further.”

                Full release here.

                Japan business outlook deteriorated in Q3

                  Japan Tankan large manufacturing index dropped from 9 to 8, below expectation of 11. That’s the third straight quarter of deterioration. Non-manufacturing index improve slightly from 13 to 14, above expectation of 13, and rise for the second straight quarter.

                  Large manufacturing outlook dropped from 10 to 9, below expectation of 11. Non-manufacturing outlook also deteriorated from 13 to 11, below expectation of 15.

                  Nevertheless, large companies are expected to increase capital expenditure by 21.5% in the current fiscal year ending March 2023, above expectation of 18.8%.

                  Meanwhile, companies expect inflation to hit 2.6% a year from now, and 2.1% three years ahead. Five years ahead inflation is also projected at 2.0%, highest since data became available in 2014.

                  BoJ: Upside risks of inflation to be examined humbly and without any preconceptions

                    In the summary of opinions of BoJ’s September 21-22 meeting, it’s noted that risks of “consumer prices deviating significantly upward from the baseline scenario, including the impact of foreign exchange rates, needs to be examined humbly and without any preconceptions.”

                    But while a “certain degree of upside risk to prices” exists, there is a “long way to go” to achieve 2% inflation target in a “sustainable and stable manner”. Output gap has been “negative”, unemployment rate and active active job openings-to-applicants ratio “have not returned to pre-pandemic levels”. Surge in energy and raw material prices has brought about an “outflow of income” from Japan. It is “appropriate” to continue with the current monetary easing.

                    Regarding exchange rate, one opinion noted that ” further depreciation of the yen is partly due to differences in the direction of monetary policy between Japan and other economies.. the Bank needs to carefully explain the significance of continuing with the current monetary easing.”

                    Full summary of opinions here.

                    US PCE price slowed to 6.2% yoy, core PCE rose to 4.9% yoy

                      US personal income rose 0.3% mom or USD 71.6B in August, matched expectations. Personal spending rose 0.4% mom or USD 67.6B, above expectation of 0.2% mom.

                      PCE price index rose 0.3% mom, matched expectations. PCE core price index, ex-food and energy, rose 0.6% mom, above expectation of 0.5% mom. Prices for goods dropped -0.3% mom while prices for services rose 0.6% mom. Food prices rose 0.8% mom. Energy prices dropped -5.5% mom.

                      From the same month a year ago, PCE price index slowed from 6.4% yoy to 6.2% yoy, below expectation of 6.6% yoy. PCE core price index, ex-food and energy, accelerated from 4.7% yoy to 4.9% yoy, above expectation of 4.7% yoy. Goods prices rose 8.6% yoy while services prices rose 5.0% yoy. Food prices jumped 12.4% yoy and energy prices jumped 24.7% yoy.

                      Full release here.

                      Eurozone CPI rose to 10% yoy in Sep, energy up 40.8% yoy, food up 11.8% yoy

                        Eurozone CPI accelerated further from 9.1% yoy to 10.0% yoy in September, above expectation of 9.1% yoy. CPI core (ex-energy, food, alcohol & tobacco) also rose from 4.3% yoy to 4.8% yoy, above expectation of 4.7% yoy.

                        Looking at the main components , energy is expected to have the highest annual rate in September (40.8%, compared with 38.6% in August), followed by food, alcohol & tobacco (11.8%, compared with 10.6% in August), non-energy industrial goods (5.6%, compared with 5.1% in August) and services (4.3%, compared with 3.8% in August).

                        Full release here.

                        Swiss KOF edged up to 93.8, still augurs a cooling of economy

                          Swiss KOF Economic Barometer rose slightly from 93.5 to 93.8 in September, better than expectation of of 86.2. yet, the reading remains below its long-term average, “augurs a cooling of the Swiss economy for the end of 2022.”

                          The slight increase is “primarily attributable to bundles of indicators from the manufacturing and other services sectors”. On the other hand, “indicators from the finance and insurance sector and for foreign demand are sending negative signals.”

                          Full release here.

                          China PMI manufacturing rose to 50.1, but Caixin PMI manufacturing dropped to 48.1

                            China’s official PMI Manufacturing rose from 49.4 to 50.1 in September, above expectation of 49.2. PMI Non-Manufacturing dropped from 52.6 to 50.6, below expectation of 52.0.

                            Senior NBS statistician Zhao Qinghe said, “In September, with a series of stimulus packages continuing to take effect, coupled with the impact of hot weather receding, the manufacturing boom has rebounded. The PMI returned to the expansionary range… [The non-manufacturing index] remained above the threshold, with the overall expansion of the non-manufacturing sector decelerating.”

                            On the other hand, Caixin PMI Manufacturing dropped from 49.5 to 48.1, below expectation of 49.9. Caixin said production fell for the first time in four months amid quicker dropped in sales. Firms cut back on purchasing activity and inventories. Selling prices fell at quickest rate since December 2015.

                            Japan industrial production rose 2.7% mom in Aug, to grow further in Sep and Oct

                              Japan industrial production rose 2.7% mom in August, much better than expectation of -0.2% decline. That’s also the third consecutive month of growth. The Ministry of Economy, Trade and Industry expects production to rise further by 2.9% mom in September and then 3.2% mom in October.

                              Retail sales rose 4.1% yoy in August, well above expectation of 2.8% yoy. Unemployment rate dropped from 2.6% to 2.5%, matched expectations.

                              Fed Daly: Going to take restrictive policy at least through next year

                                San Francisco Fed President Mary Daly said yesterday she’s “quite comfortable” with the economic projections that interest rate will rise to 4-4.5% by the end of this year, and 4.5-5% next.

                                “It’s going to take restrictive policy for a duration of time to get clear and convincing evidence that inflation is getting back to 2% — so from my mind, that’s at least through next year,” she added.

                                “If inflation continues to print very high and we get no easing of inflation and only modest easing of labor markets, then that’s basically an economy that’s still got a lot of momentum, and inflation is still too high — we’re going to have to keep moving up because we are going to understand that the terminal rate isn’t as close as it would be,” she said.

                                BoE Pill: A significant and necessary monetary policy response in November

                                  BoE Chief Economist Huw Pill said in a speech, “on the basis of the fiscal easing announced last week, the macroeconomic policy environment looks set to rebalance. Taken in conjunction with the macroeconomic impact of ensuing market developments, it is hard to avoid the conclusion that the fiscal easing announced last week will prompt a significant and necessary monetary policy response in November.”

                                  The MPC forecasts will be the “vehicle” for making ” necessarily comprehensive assessment” on recent developments. The assessments will “embody recent evidence of weakness in economic activity, as well as the impact of the Government’s Energy Price Guarantee on headline inflation and wage and price setting behaviour.” They will factor in “the evolution of international commodity prices, not least developments in wholesale natural gas markets” and “impact of the Government’s Growth Plan and other fiscal announcements in detail.”

                                  As for the gilt interventions announced by BoE this week, Pill emphasized it’s a “temporary and targeted financial stability operation”. It was “not a monetary policy operation”.

                                  Full speech here.

                                  Fed Mester: We’re still not even in restrictive territory

                                    Cleveland Fed President Loretta Mester told CNBC she didn’t see a case for slowing down tightening right now. She said, “We can have that conversation (about a pause) but we’re still not even in restrictive territory on the funds rate.”

                                    “I probably am a little bit above that median path because I see more persistence in the inflation process,” Mester added. Getting above a 4% fed funds rate is important to helping to lower inflation, she said.

                                    Separately, St. Louis Fed President James Bullard said, “If you look at the dots, it does look like the committee is expecting a fair amount of additional moves this year. I think that that was digested by markets and does seem to be the right interpretation.”

                                    US initial jobless claims dropped to 193k

                                      US initial jobless claims dropped -16k to 193k in the week ending September 24, smaller than expectation of 213k. Four-week moving average of initial claims dropped -9k to 207.

                                      Continuing claims dropped -29k to 1347k in the week ending September 17. Four-week moving average of continuing claims dropped -22.5k to 1381k.

                                      Full release here.

                                      Canada GDP grew 0.1% mom in Jul, flat in Aug

                                        Canada GDP grew 0.1% mom in July, better than expectation of -0.1% mom contraction. Goods-producing industries grew 0.5% mom while Services-producing industrial contracted -0.1% mom. 11 of 20 industrial sectors increased.

                                        Advance information indicates that real GDP was essentially unchanged in August. Increases in retail and wholesale trade, as well as in agriculture, forestry, fishing, and hunting were offset by decreases in manufacturing and oil and gas extraction.

                                        Full release here.

                                        BoE Ramsden: Gilt operation strictly time limited

                                          BoE Governor Deputy Governor Dave Ramdsen reiterated in a speech that the target gilt purchases announced this week, after severe repricing of assets, are “strictly time limited until 14 October”.

                                          “They are intended to tackle a specific problem in the long-dated government bond market,” he added. “The purchases will be unwound in a smooth and orderly fashion once risks to market functioning are judged to have subsided.

                                          Full speech here.