US personal income rose 0.5% mom to USD 93.4B in October, above expectation of 0.3% mom. Personal spending rose 1.3% mom to USD 214.3B, above expectation of 1.0% mom.
Headline PCE accelerated 5.0% yoy, up from 4.4% yoy, above expectation of 4.6% yoy. That’s the highest level since December 1990. Core PCE rose to 4.1% yoy, up from 3.7% yoy, matched expectations, also the highest since December 1990.
US durable goods orders dropped -0.5%to USD 260.1B in October, below expectation of 0.2%. Ex-transport orders rose 0.5%, matched expectations. Ex-defense orders rose 0.8%. Transportation equipment dropped -2.6% to USD 75.3B.
Goods trade deficit narrowed to USD -82.9B in October, versus expectation of USD -94.7B.
According to the second estimate, US real GDP grew at annualized rate of 2.1% in Q3, comparing to Q2’s 6.7%. The upward revision from advance estimate of 2.0% primarily reflects upward revisions to personal consumption expenditures (PCE) and private inventory investment.
US initial jobless claims dropped -71k to 199k in the week ending November 20, well below expectation of 260k. That’s the lowest level since November 15, 1969. Four-week moving average of initial claims dropped -21k to 252k, lowest since March 14, 2020.
Continuing claims dropped -60k to 2049k in the week ending November 13, lowest since March 2020. Four-week moving average of continuing claims dropped -48k to 2117k, lowest since march 21, 2020.
ECB Executive Board member Fabio Panetta said, “the data suggest the current picture is dominated by a bout of ‘bad’ inflation generated outside the euro area, whereas we are far from seeing abnormally large domestic demand.” “Monetary policy should remain patient. A premature tightening would restrain spending before demand has returned to trend,” he added.
“We should not exacerbate the risk of supply shocks morphing into a demand shock and threatening the recovery by prematurely tightening monetary policy – or by passively tolerating an undesirable tightening in financing conditions,” Panetta warned.
Panetta also urged to continue with asset purchases. “First, the surge in the number of (COVID-19) infections and the renewed introduction of pandemic-related restrictions in some euro area countries mean that the pandemic is not over yet,” he said. “Second, an inappropriate, sharp reduction of purchases would be tantamount to a tightening of the policy stance.”
Separately, Governing Council member Robert Holzmann said, “the statements until now including of my colleagues on the Governing Council all suggest that net PEPP purchases will probably expire in March but that PEPP as such will not be done away with but perhaps be put in a waiting room.”
This will be in order to “save the advantages of flexibility in case they become necessary in the event of economic shocks, which are definitely possible, but we do not expect,” Holzmann said.
Germany Ifo Business Climate dropped to 96.5 in November, down form 97.7, missed expectation of 96.7. Current Assessment index dropped to 99.0, down from 100.2, missed expectation of 100.3. Expectations index dropped to 94.2, down from 95.4, missed expectation of 96.3.
By sector, manufacturing dropped from 17.5 to 16.5. Service dropped sharply again from 16.6 to 11.5. Trade dropped from 3.7 to 2.6. Construction dropped from 12.8 to 12.0.
Ifo said: “Companies were less satisfied with their current business situation, and expectations became more pessimistic. Supply bottlenecks and the fourth wave of the coronavirus are challenging German companies.”
Japan PMI Manufacturing rose to 54.2 in November, up from 53.2, but missed expectation of 54.5. PMI Services rose to 52.1, up from 50.7. PMI Composite rose to 52.5, up from 50.7.
Usamah Bhatti, Economist at IHS Markit, said:
“Flash PMI data indicated that activity at Japanese private sector businesses rose for the second month running in November. Growth in output quickened from October and was the quickest recorded since October 2018. By sector, service providers noted the sharpest rise in activity since September 2019, while manufacturers indicated the fastest rate of growth for six months.
“Firms across the Japanese private sector reported intensifying price pressures. Input prices across the private sector rose at the fastest pace for over 13 years with businesses attributing the rise to higher raw material, freight and staff costs amid shortages and deteriorating supplier performance.
“As vaccination rates rose and economic restrictions eased, Japanese private sector companies were strongly optimistic that business activity would rise in the year ahead. Positive sentiment was the strongest on record and stemmed from hopes that the end of the pandemic and lifting of international restrictions would provide a broad-based boost to activity.”
NZD/USD softens slightly after RBNZ rate hike and near term outlook stays mildly bearish with 0.7051 resistance intact. Deeper fall should be seen to 0.6858 support first. Break there will affirm the case that larger down trend from 0.7463 is resuming. Further decline should then be seen through 0.6804 support to 38.2% retracement of 0.5467 to 0.7463 at 0.6731 next.
RBNZ raised the Official Cash Rate to by 25bps to 0.75% as expected. It also maintained a hawkish bias, noting that ” further removal of monetary policy stimulus is expected over time given the medium term outlook for inflation and employment.”
The central bank also said that despite recent nationwide lockdown, “underlying economic strength remains supported by aggregate household and business balance sheet strength, fiscal policy support, and strong export returns.” Capacity pressured have “continued to tighten” with employment “above its sustainable level”. A broad range of economic indicators highlight the economy “continues to perform above its current level”.
Headline CPI is expected to be “above 5 percent in the near term” before returning towards 2% midpoint “over the next two years.
BoE MPC member Jonathan Haskel said in a speech that “much of the variation in inflation is due to global factors such as imported goods and energy prices.” He expected much of that variation to be “transitory”.
“The latest data continues to indicate a tight labour market, putting upward pressure on wages,” he said. “From a living standards point of view, this is of course excellent news, but from an inflation point of view this has to be matched by increased productivity and so we have to be vigilant.”
The prospective rise in Bank Rate from its emergency level – when that comes – is not a bug, but a feature,” he added. “It reflects the success of the policies, mostly fiscal, health and science that have supported the economy over the pandemic.”
ECB Governing Council member Klaas Knot said, “today’s inflation outlook is clearly more favorable than it was pre-corona, in the sense that it’s closer to out target.”
“That’s something to take into account and that should also be a measure for the recalibration of asset purchases that we need to undertake in December,” he added.
Knot also predicts that the PEPP asset purchase would end in March, in spite of new pandemic restrictions being rolled out. He expects rate hike to happen some time after 2022. But, “if market is right on inflation, then it is also right on rates pricing.”
UK PMI Manufacturing rose to 58.2 in November, up from 57.8, above expectation of 56.7. PMI Services dropped to 58.6, down from 59.1, below expectation of 58.5. PMI Composite ticked down to 57.7, down from 57.8.
Chris Williamson, Chief Business Economist at IHS Markit, said: “A combination of sustained buoyant business growth, further job market gains and record inflationary pressures gives a green light for interest rates to rise in December… For policymakers concerned about the health of the labour market after the end of the furlough scheme, the buoyant jobs growth signalled should bring some reassuring comfort.
“A record increase in firms’ costs will meanwhile further stoke fears that inflation will soon breach 5%, with lingering near-record supply delays adding to indications that price pressures may show few signs of abating in the near-term. The relatively poor performance of manufacturing is likely to remain a concern for some time, however, as is the potential to see tighter growth-inhibiting COVID-19 restrictions applied amid high COVID-19 case numbers both at home and now also in continental Europe.
Eurozone PMI Manufacturing rose slightly to 58.6 in November, up from 58.3, above expectation of 57.2. PMI Services rose to 56.6, up from 54.6, above expectation of 53.6.
Chris Williamson, Chief Business Economist at IHS Markit said:
“A stronger expansion of business activity in November defied economists’ expectations of a slowdown, but is unlikely to prevent the eurozone from suffering slower growth in the fourth quarter, especially as rising virus cases look set to cause renewed disruptions to the economy in December.
“The manufacturing sector remains hamstrung by supply delays, restricting production growth to one of the lowest rates seen since the first lockdowns of 2020. The service sector’s improved performance may meanwhile prove frustratingly short-lived if new virus fighting restrictions need to be imposed. The travel and recreation sector has already seen growth deteriorate sharply since the summer.
“With supply delays remaining close to record highs and energy prices spiking higher, upward pressure on prices has meanwhile intensified far above anything previously witnessed by the surveys.
“Not surprisingly, given the mix of supply delays, soaring costs and renewed COVID-19 worries, business optimism has sunk to the lowest since January, adding to near-term downside risks for the eurozone economy.”
Germany PMI Manufacturing ticked down to 57.6 in November, from 57.8, but beat expectation of 56.7. That’s nonetheless the lowest level in 10 months. PMI services rose slightly to 53.4, up from 52.4, above expectation of 51.5. PMI Composite rose to 52.8, up from 52.0.
Lewis Cooper, Economist at IHS Markit said:
“The flash PMI data for November point to a general levelling off the economic growth slowdown seen across the German private sector over the previous three months. Business activity continued to rise, with the rate of increase gaining some well needed momentum as manufacturers and services firms alike saw faster uplifts in output.
“Supply delays continued to weigh heavily on the performance of the German economy, however, with inflows of new work rising at a slower pace as clients held off on ordering due to delays. Export orders showed a more resilient trend, but nonetheless, overall new work increased at the weakest rate since February.
“Material shortages, combined with greater energy and wage bills, price hikes at suppliers and logistical issues led to an unprecedented rate of cost inflation in November, with German companies subsequently raising their own charges to a record degree. This subsequently knocked on to business confidence in November, with sentiment the lowest for over a year as many firms cited concerns around the pandemic, supply problems and price pressures.
“Overall, the flash PMI data point to a slightly improved trend for business activity, but supply delays and inflationary pressures remain a key cause for concern and are likely to weigh further on growth in the coming months, especially if these constraints further stifle demand.”
France PMI Manufacturing rose to 54.6 in November, up from 53.6, above expectation of 52.8. PMI Services rose to 58.2, up from 56.6, above expectation of 55.5. That’s also the highest level in 46 months. PMI Composite rose to 56.3, up from 54.7.
Joe Hayes, Senior Economist at IHS Markit said:
“Having embarked on a clear period of slowing growth in the months leading up to October, the flash PMI data for November showed a fresh acceleration in French economic expansion. As well as stronger growth in output, new orders rose at a faster pace, which firms suggest is down to businesses recovering, helping to lift client demand.
“However, the driving force behind improvements in the data is services. Manufacturers are still struggling with component shortages, long lead times and subdued demand conditions. These factors drove back-to-back drops in production.
“Unfortunately, this puts the wider economic recovery in a precarious position, especially with the raft of new COVID-19 containment measures being implemented across other parts of Europe. While French officials have talked down the prospect of imminent restrictions, the trajectory of the virus in the coming weeks will be a key determinant of near-term economic activity, as any new restrictions are likely to hit the service sector, which at present is giving the economic recovery its principal impetus.”
ECB Executive Board member Isabel Schnabel said in an interview, rising COVID-19 infections and containment measures is “likely to have a moderating effect on activity in the short run”, and it will not derail the overall recovery. Supply-side disruptions “do not diminish growth potential” but “merely shift activity over time”. Hence, her baseline is that “some growth deceleration in the short run, but then a continued strong recovery in the medium term.”
Schnabel expected ECB staff’s inflation projections to be “revised upwards for next year”. But inflation is “going to decline over the course of next year”. “It’s plausible to assume that inflation is going to drop below our target of 2% in the medium term,” she said. “however, the risks to inflation are skewed to the upside.”
She also noted the “time plan is still valid” for ending the PEPP purchases in March. “But we will have to see how this evolves until our December meeting.” She added, ” it has become clear that it’s very unlikely that a rate hike is going to happen next year. But it’s also clear that the uncertainty remains very high and this is reflected in markets.”
Selling in New Zealand Dollar is taking off today as traders could be starting to price out an aggressive 50bps hike by RBNZ later in the week. NZD/USD’s decline from 0.7217 is re-accelerating as seen in 4 hour MACD. And it’s on track to take on 0.6858 support.
Overall, the corrective pattern from 0.6804 should have completed with three waves up to 0.7217, after rejection by medium term falling channel. The development suggests that whole pattern from 0.7463 is still in progress. Break of 0.6858 will affirm this bearish case. Deeper decline should be seen through 0.6804 to 38.2% retracement of 0.5467 to 0.7463 at 0.6731 next. This will remain the favored case as long as 0.7051 resistance holds.
Some previews on RBNZ:
Australia PMI Manufacturing rose from 58.2 to 58.5 in November. PMI Services rose from 51.8 to 55.0. PMI Composite rose from 52.1 to 55.0. All three indexes hit 5-month highs.
Jingyi Pan, Economics Associate Director at IHS Markit, said: “Supply chain issues featured strongly in the Australian PMI survey as delivery times lengthened, widespread shortages were reported and price increases continued to be seen. While some of these can be attributed to the presence of pent-up demand that was reported, it will be worth watching if the constraints clear over time.
“Overall business confidence improved in the latest survey and this was a very positive sign. Private sector firms were also more willing to expand their workforce capacity, though instances of labour shortages had continued to surface.”
New Zealand retail sales dropped -8.1% qoq in Q3, better than expectation of -10.2% qoq. Ex-auto sales dropped -6.7% qoq, also better than expectation of -7.6% qoq.
Twelve of the 15 industries had lower sales volumes. By industry, the largest movements were: Food and beverage services – down -19%; Motor vehicle and parts retailing – down -12%; Department stores – down -24%; Hardware, building, and garden supplies – -down 15%.
The Auckland region dominated the national fall with a record decrease of -15% (1.5 billion), compared with the 6.2% ($618 million) rise in the June 2021 quarter.
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US oil inventories rose 1m barrels, more downside still expected in WTI
US commercial crude oil inventories rose 1m barrels in the week ending November 19, versus expectation of -1.7m fall. At 434.0m barrels, oil inventories are around -7% below the five year average for this time of year.
Gasoline inventories dropped -0.6m barrels. Distillate dropped -2.0m barrels. Propane/propylene dropped -1.0m barrels. Total commercial petroleum inventories dropped -6.0m barrels.
WTI crude oil is losing some downside momentum after hitting 75.53. But there is no clear sign of bottoming yet. As long as 80.32 resistance holds, it’s still more likely to extend the correct from 85.92 to 61.8% retracement of 61.90 to 85.92 at 71.07 before completion.