UK retail sales dropped -0.2% mom, -1.3% yoy in September, below expectation of 0.7% mom, -0.4% yoy. Ex-fuel sales dropped -0.6% mom, -2.6% yoy, below expectation of 0.2% mom, -1.7% yoy.
ONS also noted: “Despite relaxation of COVID-19 restrictions in summer 2021, in-store retail sales remain subdued; the proportion of retail sales online rose to 28.1% in September 2021 from 27.9% in August, substantially higher than the 19.7% in February 2020 before the pandemic.”
Japan PMI Manufacturing rose to 53.0 in October, up from September’s 51.5, above expectation of 51.6. PMI Services rose to 50.7, up from 47.8. PMI Composite rose to 50.7, up from 47.9.
Usamah Bhatti, Economist at IHS Markit, said: “Activity at Japanese private sector businesses returned to expansion territory at the start of the fourth quarter of 2021… Panel members commonly associated the slight recovery to a reduction in COVID-19 cases and looser pandemic restrictions.
“Private sector businesses also noted an increase in aggregate new business for the first time since April, assisted by a quicker rise in export orders. That said, firms continued to highlight sustained supply chain pressures and material shortages. As a result, input prices rose at the fastest rate in over 13 years. This contributed to the sharpest rise in output charges since July 2018.”
Australia PMI Manufacturing rose to 57.3 in October, up from September’s 56.8. PMI Services jumped sharply to 52.0, up from 45.5. PMI Composite rose to 52.2, up from 46.0. All are four-month highs.
Jingyi Pan, Economics Associate Director at IHS Markit, said: “Composite PMI indicated that the Australian economy is back in expansion in October as the easing of COVID-19 restrictions and plans for further opening up of the Australian economy restored confidence and rejuvenated economic activity…
“Higher demand however translated to greater strains on the supply chain… Meanwhile employment levels rose at a slower rate with reports of constraints when trying to hire staff. These are issues that may persist in the short- to medium- term for firms as they take their time to clear.”
RBA Governor Philip Lowe at Universidad de Chile’s Conference that he didn’t expect the current rise in inflation to sustain, unless it led to higher wages growth.
“Is it going to reset expectations about what type of wage growth people should get, or will the spike dissipate and we will go back to the type of labour market outcomes we’ve seen before the pandemic?” Lowe said. “So there is quite a lot of uncertainty around that issue, but we are watching very carefully.”
BoE’s new Chief Economist Huw Pill said UK inflation is likely to rise “close to or even slightly above 5 per cent” early next year. And, “that’s a very uncomfortable place for a central bank with an inflation target of 2 per cent to be.”
As for market expectation of a November rate hike, Pill declined to disclose his stance, and just said it’s “finely balanced”, “November is live”. And he added, “maybe there’s a bit too much excitement in the focus on rates right now”.
“The big picture is, I think, there are reasons that we don’t need the emergency settings of policy that we saw after the intensification of the pandemic,” said Pill. “The settings that we now have are supportive settings. The need for support has diminished, as this bridge has been built and largely traversed.”
Atlanta Fed Raphael Bostic told CNBC he has “penciled in” a rate increase in “late third, maybe early fourth” quarter of 2022. “Our experience from the pandemic has really frankly surprised to the upside,” he added “I’ve really adjusted my expectations moving forward.”
Bostic expected the supply chain disruptions to “last longer than we expected”. He said, “the labor markets are not going to get to equilibrium as quick as we hoped, but demand was also going to stay high and that combination was going to mean we’re going to have inflationary pressures.” It’s becoming “clearer and clearer” inflation pressure “is going to last into 2022.”
In the October Philadelphia Fed Manufacturing Business Outlook Survey, the diffusion index for current general activity dropped to 23.8, down from 30.7, below expectation of 26.0.
Looking at some details, current shipments index was essentially unchanged at 30.0. New orders rose 15 pts to 30.8. Employment index rose from 26.3 to 30.7. The index for prices paid rose 3 pts to 70.3. Current prices received index dropped -2 to 51.1. Price indicators remained elevated.
US initial jobless claims dropped -6k to 290k in the week ending October 16, better than expectation of 298k. It’s also the lowest level since March 14, 2020. Four-week moving average of initial claims dropped -15k to 320k, lowest since March 14, 2020 too.
Continuing claims dropped -122k to 2481k in the week ending October 9, lowest since march 14, 2020. Four-week moving average of continuing claims dropped -85k to 2656k, lowest since March 21, 2020.
Australia NAB business confidence dropped from Q2’s 18 to -1 in Q3. Current business conditions dropped from 30 to 13. Conditions for the next 3 months dropped from 35 to 8. Conditions for the next 12 months also dropped from 33 to 19. Capex plans for the next 12 months dropped from 37 to 26. Trading conditions dropped from 36 to 16. Profitability dropped from 30 to 11. Employment dropped from 23 to 11.
Alan Oster, NAB Group Chief Economist, “With lockdowns in place for most of Q3, it’s unsurprising to see both business conditions and confidence take a fairly large hit for the quarter… While conditions deteriorated sharply, they didn’t fall to the depths seen during the first lockdowns in 2020.”
“While these survey results confirm the large hit to activity that took place in Q3, we are optimistic for a strong rebound in activity in Q4 and into 2022 and reopening progresses.”
Cleveland Fed President Loretta Mester told CNBC “the thought about raising interest rates is not a near-term consideration at all.” Instead, “we’re going to think about the decision coming up, which is about the asset purchases, and then as those wind down we’ll have time to assess where the economy is.”
“I don’t think that interest rate hikes are coming any time soon because I don’t think we’ll reach our goals which are maximum employment and inflation at and above 2% for some time,” Mester said.
“So far the medium-run inflation expectations and longer-run inflation expectations are still at levels consistent with our 2% inflation goal,” she said. “We don’t want to get into a situation where they continue to move up because that would be a signal that we may have to do an adjustment.”
Fed Governor Randal Quarles said in a speech, “we have met the test of substantial further progress toward both our employment and our inflation mandates”. He would “support a decision at our November meeting to start reducing these purchases and complete that process by the middle of next year”.
He said Fed is not behind the curve on inflation, for three reasons: “Most of the biggest drivers of the very high current inflation rates will ease in coming quarters, some measures of underlying inflation pressures are less worrisome, and longer-term inflation expectations are anchored, at least for now”.
But, “forecast for growth and uncertainty about the resolution of supply constraints mean that there are upside risks to inflation next year.. Hence, his focus is “beginning to turn more fully from the rapidly improving labor market to whether inflation begins its descent toward levels that are more consistent with our price-stability mandate.”
“I would also be quite wary of further increases in inflation expectations in this environment,” Quarles said, “if inflation does remain more than moderately above 2 percent, be assured that the FOMC has the framework and the tools to address it.
Canada CPI accelerated to 4.4% yoy in September, up from August’s 4.1% yoy, above expectation of 4.3% yoy. That’s the fastest pace since 2003. Excluding gasoline CPI rose 0.3% yoy.
CPI common was unchanged at 1.8% yoy, below expectation of 1.9% yoy. CPI median rose to 2.8% yoy, up from 2.6% yoy, above expectation of 2.6% yoy. CPI trimmed rose to 3.4% yoy, up from 3.3% yoy, above expectation of 3.3% yoy.
Bundesbank President Jens Weidmann warned, “it will be crucial not to look one-sidedly at deflationary risks, but not to lose sight of prospective inflationary dangers either.” The comment came as Weidmann announced he’s stepping down from the post on December 31, as “more than 10 years is a good measure of time to turn over a new leaf – for the Bundesbank, but also for me personally.”
ECB President Christine Lagarde said in statement, “I respect Jens Weidmann`s decision to step down from his position as President of Deutsche Bundesbank at the end of this year after more than 10 years of service, but I also immensely regret it.”
Eurozone CPI was finalized at 3.4% yoy in September, up from August’s 3.0% yoy. The highest contribution to the annual euro area inflation rate came from energy (+1.63 percentage points, pp), followed by services (+0.72 pp), non-energy industrial goods (+0.57 pp) and food, alcohol & tobacco (+0.44 pp).
EU CPI was finalized at 3.6% yoy, up from August’s 3.2% yoy. The lowest annual rates were registered in Malta (0.7%), Portugal (1.3%) and Greece (1.9%). The highest annual rates were recorded in Estonia, Lithuania (both 6.4%) and Poland (5.6%). Compared with August, annual inflation fell in one Member State, remained stable in one and rose in twenty-five.
UK CPI slowed to 3.1% yoy in September, down from 3.2% yoy, below expectation of 3.2% yoy. Core CPI also dropped to 2.9% yoy, down from 3.1% yoy, below expectation of 2.9% yoy. RPI, on the other hand rose to 4.9% yoy, up from 4.8% yoy, above expectation of 4.7% yoy.
Also released, PPI input came in at 0.4% mom, 11.4% yoy, versus expectation of 0.8% mom, 11.6% yoy. PPI output was at 0.5% mom, 6.7% yoy, versus expectation of 0.9% mom, 6.8% yoy. PPI output core was at 0.5% mom, 5.9% yoy, versus expectation of 0.9% mom, 5.8% yoy.
AUD/JPY rises further today, following the strong close in US stocks overnight, as well as rally in treasury yields. It’s now pressing 85.78 high and decisive break there will resume whole up trend from 59.85 (2020 low). Such development would align the outlook with CAD/JPY and NSD/JPY, which complete the upside breakout last week already.
The up trend would then extend to 61.8% projection of 59.85 to 85.78 from 77.88 at 93.90 in the medium term. This bullish case will now be favored as long as 84.25 minor support holds.
Japan’s exports rose 13.0% yoy to JPY 6481B in September, above expectation of 11.0% yoy. Imports rose 38.6% yoy to JPY 7464B, above expectation of 34.4% yoy. Trade balance reported JPY -623B deficit, versus expectation of JPY -519B.
The weakening in exports could be partly attributed to the -40.3% yoy decline in car shipments, first in seven months. But the situation is expected to improve as supply bottlenecks are solved. Shipment to China grew 10.3% yoy, led by semiconductors and plastic materials. Shipment to the US dropped -3.3% yoy, on cars and airplanes.
In seasonally adjusted terms, exports dropped -3.9% mom to JPY 6750B. Imports rose 0.2% mom to JPY 7375B. Trade deficit came in at JPY -625B.
Australia Westpac-MI Leading Index dropped from 0.5% to -0.5% in September. That’s the first negative reading since September 2020, which was the followed by strong surge after the economy moved out of lockdown. Westpac expects another strong rebound in the economy ahead as both Sydney and Melbourne are reopening this time too. It also expects the Australia economy to growth by 1.6% in Q4, building towards a 5.6% growth in H2 of 2022.
Westpac expects RBA to maintain current policy setting at the November 2 meeting, followed by tapering in February. The most important aspect of the November meeting will be whether RBA has lifted its inflation forecasts.
Fed Governor Governor Christopher Waller warned in a speech that “the next several months are critical for assessing whether the high inflation numbers we have seen are transitory.” And, “if monthly prints of inflation continue to run high through the remainder of this year, a more aggressive policy response than just tapering may well be warranted in 2022.
He noted, “substantial further progress” towards employment and inflation was already made. He supports ” the FOMC beginning to reduce asset purchases following our meeting in November.” He emphasized that “this action should not tighten financial conditions” since a later 2021 tapering has already been priced in by most market participants. Also, he favored the tapering pace “that would result in the end of asset purchases by the middle of 2022”.
Waller didn’t expect rate hike to occur soon after completing tapering, as “the two policy actions are distinct”. But, if inflation staying “considerably above 2 percent well into 2022”, then he’d “favor liftoff sooner than I now anticipate.”
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France PMI composite dropped to 54.7, growth profile akin to a K
France PMI Manufacturing dropped to 53.3 in October, down from September’s 55.0, below expectation of 54.3. That’s also a 9-month low. PMI Services rose to 56.6, up from 56.2, above expectation of 55.3. PMI Composite dropped slightly to 54.7, down from 55.3, a 6-month low.
Joe Hayes, Senior Economist at IHS Markit said: “Responsibility for France’s economic recovery was placed firmly on the shoulders of the service sector in October, as latest PMI data showed manufacturing output falling for the first time since January. The overall rate of expansion slowed to a six-month low as the supply-side issues hurting manufacturers the most offset a faster expansion in services activity. Of the medley of letters that an economic recovery can look like, France’s growth profile is currently akin to a “K”.
Full release here.