US initial jobless claims dropped -14k to 269k in the week ending October 30, better than expectation of 277k. That’s the lowest level since March 14, 2020. Four-week moving average of initial claims dropped -15k to 285k, lowest since March 14, 2020 too.
Continuing claims dropped -134k to 2105k in the week ending October 23, lowest since March 14, 2020. Four-week moving average of continuing claims dropped -156k to 2357k, lowest since March 21, 2020.
BoE kept Bank Rate unchanged at 0.10% by 7-2 vote today. Known hawks Dave Rasmden and Michael Saunders voted for a hike to 0.25%. The MPC also voted by 6-3 to continue with government bond purchase with GBP 875B. Catherine Mann, Dave Rasmden and Michael Saunders voted to cut bond purchases by GBP 20B.
In the forward guidance, BoE said if incoming data, particularly on the labor market, are inline withe central projections in the Monetary Policy Report, it will be “necessary over coming months to increase Bank Rate in order to return CPI inflation sustainably to the 2% target.”
Eurozone PPI rose 2.7% mom, 16.0 yoy in September, above expectation of 1.9% mom, 15.2% yoy. For the month, Industrial producer prices, increased by 7.7% in the energy sector, by 1.0% for intermediate goods, by 0.5% for capital goods, by 0.4% for durable consumer goods and by 0.3% for non-durable consumer goods. Prices in total industry excluding energy increased by 0.6%.
EU PPI rose 2.7% mom, 16.2% yoy. The industrial producer prices increased in all Member States, with the highest monthly increases being registered in Ireland (+23.2%), Denmark (+8.4%) and Greece (+5.8%).
UK PMI Construction rose to 54.6 in October, up from 52.6, slightly above expectation of 54.0. Construction recovery accelerated from September’s eight-month low. House building regained its place as the best-performing category. But severe shortages of staff and materials continued.
Tim Moore, Director at IHS Markit said:
“UK construction companies achieved a faster expansion of output volumes in October, despite headwinds from severe supply constraints and escalating costs…. “However, the volatile price and supply environment added to business uncertainty and continued to impede contract negotiations… There were widespread reports that shortages of materials and staff had disrupted work on site, while rising fuel and energy prices added to pressure on costs.
“Nonetheless, the worst phase of the supply crunch may have passed, as the number of construction firms citing supplier delays fell to 54% in October, down from 63% in September. Similarly, reports of rising purchasing costs continued to recede from the record highs seen this summer.”
Eurozone PMI Services was finalized at 54.6 in October, down from September’s 56.4. PMI Composite was finalized at 54.2, down from September’s 56.2. Looking at some member states, Ireland PMI composite rose to 2-month high at 62.5. Spain dropped to 6-month low at 56.2. France dropped to 6-month low at 54.7. Italy dropped to 6-month low at 54.2. Germany dropped to 8-month low at 52.0.
Chris Williamson, Chief Business Economist at IHS Markit said:
“Eurozone growth has slowed sharply at the start of the fourth quarter, with manufacturing hamstrung by supply constraints and services losing momentum as the rebound from lockdowns fades.
“Despite the slowdown, the rate of expansion remains consistent with quarterly GDP growth of 0.5%, but there’s a worrying lack of clarity on the direction of travel in coming months.
“With supply shortages getting worse rather than better in October, manufacturing growth is likely to remain subdued for some time to come. That would leave the economy reliant on the service sector to drive growth, and there are already signs that rising virus case numbers are dampening activity in many service sector businesses, notably – but by no means exclusively – in Germany.
“Ongoing supply shortages meanwhile suggest that high price pressures will persist into next year, but as yet there are no signs of persistent strong wage growth, which would be the bigger concern for the longer-term inflation outlook.”
Today’s BoE meeting is, as new BoE Chief Economist Huw Pill described, “live” and “finely balanced”. There is a thin majority of economists expecting no change. But market pricing suggests that a hike is not really a surprise. But in either case, the new economic projections, as well as voting would more likely be the things that move markets.
Here are some previews:
Sterling is generally soft ahead of BoE’ rate decision. GBP/CHF broke through 1.2467 support this week and resumed the whole decline from 1.3070. For now the structure of the fall suggests that it’s corrective in nature. Hence, even in case of deeper decline, we’d expect strong support from 1.2259 to contain downside and bring rebound.
Nevertheless, while break of 1.2541 minor resistance will bring recovery, break of 1.2759 resistance is needed to signal a near term bullish reversal. Otherwise, outlook will be neutral at best.
BoJ Governor Haruhiko Kuroda said his met with new Japanese Prime Minister Fumio Kishida today, and discussed Japan, global economies and financial markets .
Kuroda said he explained BoJ’s monetary policy to Kishida, and reiterated the aim to achieve 2% inflation target. When asked about Fed’s tapering, he explained that BoJ is in different situation from western central banks.
Also, Kuroda said that yield curve control will continue even after the pandemic is contained.
Australia retail sales rose 1.3% mom, 1.7% yoy in September. For the quarter, sales dropped a record -4.4% qoq.
Ben James, Director of Quarterly Economy Wide Statistics said: “The Delta outbreak from late June led to protracted lockdowns in many mainland jurisdictions, with the restrictions causing many retailers to close their physical stores throughout the September quarter. This resulted in the largest quarterly fall in national sales volumes ever recorded.”
Also released, goods and services exports dropped -6% mom to AUD 44.97B in September. Goods and services imports dropped -2% mom to AUD 32.73B. Trade surplus came in at AUD 12.24B, versus expectation of AUD 12.22B.
US stocks surged to new record highs overnight despite Fed’s tapering announcement. NASDAQ’s break of 61.8% projection of 13002.52 to 15403.43 from 14181.69 at 15665.44 is a sign that it’s in another acceleration phase. For now near term outlook will stay bullish as long as this week’s low at 15470.74 holds. Next target will be 100% projection at 16582.59.
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FOMC decided to start reducing monthly net asset purchase by USD 10B for treasury securities and USD 5B for MBS. That is, Fed will increase holdings of treasury securities by only USD 70B and MBS by USD 35B per month. Additionally, Fed will further lower net purchases of treasury securities to USD 60B and MBS to USD 30B per month in December.
Fed expects “similar reductions in the pace of net asset purchases will likely be appropriate each month” depending on the economic outlook.
Also, Fed keeps federal funds rate target unchanged at 0-0.25% as widely expected.
The decisions were unanimous.
US commercial crude oil inventories rose 3.3m barrels in the week ending October 29, above expectation of 1.9m. At 434.1m barrels, oil inventories are about 6% below the five year average for this time of year. Gasoline inventories dropped -1.5m barrels. Distillate rose 2.2m barrels. Propane/propylene rose 0.4m barrels. Commercial petroleum inventories rose 0.6m barrels.
WTI crude oil is staying in consolidation from 85.92 for the moment. Such consolidation should be relatively brief as long as 81.04 support holds. Break of 85.92 will resume larger up trend to 61.8% projection of 33.50 to 77.16 from 61.90 at 88.88. However, break of 81.04 will bring deeper correction to 55 day EMA (now at 77.12) before up trend resumption.
US ISM Services PMI rose to 66.7 in October, up from 61.9, well above expectation of 62.0. Business activity/production rose from 62.3 to 69.8. New orders rose from 63.5 to 69.7. Employment dropped from 53.0 to 51.6. Supplier delivers rose from 68.8 to 75.5. Prices rose from 77.5 to 82.9.
ISM said: “The past relationship between the Services PMI and the overall economy indicates that the Services PMI for October (66.7 percent) corresponds to a 6.1-percent increase in real gross domestic product (GDP) on an annualized basis.”
US ADP private employment grew 571k in October, above expectation of 400k. By company size, small businesses added 115k, medium businesses added 114, large businesses added 342k. By sector, goods-producing jobs grew 113k, service-providing jobs grew 458k.
“The labor market showed renewed momentum last month, with a jump from the third quarter average of 385,000 monthly jobs added, marking nearly 5 million job gains this year,” said Nela Richardson, chief economist, ADP. “Service sector providers led the increase and the goods sector gains were broad based, reporting the strongest reading of the year. Large companies fueled the stronger recovery in October, marking the second straight month of impressive growth.”
In speech, ECB President Christine Lagarde said, “in our forward guidance on interest rates, we have clearly articulated the three conditions that need to be satisfied before rates will start to rise.”
“Despite the current inflation surge, the outlook for inflation over the medium term remains subdued, and thus these three conditions are very unlikely to be satisfied next year,” she added.
She also noted, “market interest rates have risen over the past weeks, mainly as a result of greater market uncertainty about the inflation outlook, spillovers from abroad to policy rate expectations in the euro area, and some questions about the calibration of asset purchases in a post-pandemic world.
Eurozone unemployment rate dropped to 7.4% in September, down from August’s 7.5, matched expectations. EU unemployment rate also dropped to 6.7%, down from 6.9%.
Eurostat estimates that 14.324 million men and women in the EU, of whom 12.079 million in the Eurozone, were unemployed in September. Compared with August, the number of unemployed decreased by 306 000 in the EU and by 255 000 in the euro area. Compared with September 2020, unemployment decreased by 2.054 million in the EU and by 1.919 million in the euro area.
UK PMI Services was finalized at 59.1 in October, up sharply from September’s 55.4. PMI Composite was finalized at 57.8, up from September’s 54.9. Markit said cost inflation accelerated to its strongest in over 25 years. Average prices charged also increased at survey-record pace.
Tim Moore, Economics Director at IHS Markit: “Looser international travel restrictions and greater domestic mobility helped to lift the UK service sector recovery out of its recent malaise in October. Business activity expanded at the fastest pace since July, driven by the first acceleration in new order growth for five months. The latest survey also pointed to the best month for export sales since June 2018.
“Tight labour market conditions persisted in October… Average prices charged increased at a survey-record pace, reflecting across the board pressures on operating expenses… Record rates of input price and output charge inflation appear to have dampened business optimism, which eased to its lowest since January.”
FOMC monetary policy decision is the major focus today, as Fed should finally make a formal announcement on QE tapering. As the September minutes indicates, the pace would be “monthly reductions in the pace of asset purchases, by US$10B in the case of Treasury securities and US$5B in the case of agency mortgage-backed securities (MBS)”. The would eventually lead to completion of entire asset purchases by mid -2022. But, a hawkish surprise – monthly reduction at a faster pace – cannot be ruled out given the inflationary pressure.
Also, September’s dot plot revealed that half of the members had anticipated a rate hike in 2022. Meanwhile, the market has priced in futures have priced in over 60% of a rate hike by June next year. But Fed Chair Jerome Powell would likely reiterate that decision on interest rate is complete separated from that of asset purchases. There wouldn’t be any new hint on the timing of rate hike until December’s dot plot.
Suggested readings on Fed
China Caixin PMI Services rose to 53.8 in October, up from 53.4, above expectation of 53.6. PMI Composite ticked up to 51.5, from 51.4.
Wang Zhe, Senior Economist at Caixin Insight Group said: “As the number of new Covid-19 cases dropped from late September to the middle of October, related disruption faded and market demand recovered while supply was relatively weak. Manufacturing was significantly weaker than services.
“Supply strains became the paramount factor affecting the economy. Shortages of raw materials and soaring commodity prices, combined with electricity supply problems, created strong constraints for manufacturers. Those factors also had a significant impact on services enterprises.
“Input costs for manufacturers have risen much faster than their output prices for several months. The growth rate of input costs for service providers was also higher than that for prices they charged, putting pressure on downstream enterprises.”
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Australia AiG services rose to 47.6 in Oct, third month in contraction
Australia AiG Performance of Services rose 1.9 pts to 47.6 in October, marking a third month in contraction. Sales rose 13.8 to 55.2. Employment rose 4.8 to 56.8. New orders dropped -1.0 to 38.8. supplier deliveries dropped -7.5 to 39.5. Finished stocks dropped -13.7 to 39.8. Capacity utilization dropped -1.7 to 74.5. Input prices rose 9.1 to 73.6. Selling prices rose 7.8 to 61.7. Average wages rose 9.1 to 68.3.
Ai Group Chief Executive, Innes Willox, said: “The Australian services sector reported mixed fortunes in October… Across the services sector, sales and employment were higher in October while new orders were discouragingly low. A more robust recovery was inhibited by lingering activity restrictions, barriers to interstate movement and the same disruptions to the supply of inputs that are being felt in other parts of the economy… Services companies reported further strong rises in input prices and wages with selling prices also rising although not by enough to prevent additional pressure on margins.”
Full release here.