US initial jobless claims dropped -55k to 787k in the week ending October 17, better than expectation of 860k. Four-week moving average of initial claims dropped -21.5k to 811.3k.
Continuing claims dropped -1024k to 8373k in the week ending October 10. Four-week moving average of continuing claims dropped -1094k to 10086k.
BoE Chief Economist Andy Haldane said while the central bank is doing the work to ensure a tool is in the tool box, “that is not remotely the same as saying that we are about to deploy that tool.” He added, “that will depend on the balance of costs and benefits”. The comments suggested that BoE is not near to using negative interest rates for the moment.
On the economy, Haldane said household spending has been “remarkably resilient” through the coronavirus pandemic. Also, spending had suffered relatively little from a second wave over the summer.
Germany Gfk Consumer Climate for November dropped to -3.1, down form -1.7, missed expectation of -2.5. Economic expectations dropped from 24.1 to 7.1. Income expectations dropped from 16.1 to 9.8. Propensity to buy edged slightly lower from 38.4 to 37.0.
“The rapid increase in infection rates is leading to a tightening of restrictions brought on by the pandemic. Fear of a second lockdown, should infections get out of control in the coming winter months, is also increasing,” explains Rolf Bürkl, GfK Consumer Expert.
“As a result, the in parts significant recovery we saw in consumer sentiment at the start of the summer has come to a standstill and is causing the consumer climate to plummet once more. An increase in propensity to save in October has also contributed to this.”
RBNZ Assistant Governor Simone Robbers said in a speech that the central bank recognized the “possible need for further monetary stimulus”. Thus, they’re “progressing” the work to deploy additional instruments, including Funding for Lending Programme (FLP), a negative OCR, and purchases of foreign assets.
She also noted there is still a “high degree of uncertainty around the economic outlook”. It is ” possible that bank resilience will be tested in the coming months as loan losses rise materially from current low levels”. She also urged financial institutions to play a role here and they should be “reassessing how they are supporting the recovery and best serving their customers”
Fed’s Beige Book noted that “economic activity continued to increase across all districts, with the pace of growth characterized as slight to modest in most districts.” However, “changes in activity varied greatly by sector.” Employment increased in “almost all Districts” but growth “remained slow”.
Prices rose “modestly” across Districts with “input costs generally increased faster than consumer prices”. Overall, consumer prices across Districts “rose modestly”.
St. Louis Fed President James Bullard said Fed’s policy is “so far so good”. Negative rates are not a good option for the US and he even questioned they aren’t effect where they have been adopted. Fed would instead need to think about the way to play with QE going forward.
Bullard is also comfortable with the current amount of fiscal stimulus, as “in terms of the aggregate resources it seems like we should have enough” to bolster growth until Q1. He’s not expecting a surge in fatality rate of coronavirus, which the US has brought down to accidental injury level. He expected business can cope with the situation and operate safely yet succeed economically.
After a 48-minute phone call, US Treasury Steven Mnuchin and House Speaker Nancy Pelosi appeared to move closer to an agreement on fresh fiscal stimulus. Yet, time is running out for passing any deal before election. Pelosi spokesman Drew Hammill said the negotiators moved “closer to being able to put pen to paper to write legislation” and left “better prepared to reach compromise on several priorities.” “Differences continue to be narrowed on health priorities, including language providing a national strategic testing and contract tracing plan” Hammill added. “But more work needs to be done to ensure that schools are the safest places in America for children to learn”.
US stocks were sluggish overnight with DOW ended down -0.35%. Risk of a deep pull back remains low for now and there could be another attempt on 29199.35/29568.57 key resistance zone. But a sustained break of 55 day EMA would extend the pattern from 29199.35 with another leg back to 26537.01 support.
10-year yield, on the other hand, staged a strong rally and closed up 0.019 at 0.816. Solid support was give by 55 day EMA again, which solidify near term bullishness. We’d likely see the rise from 0.504 extends further towards 0.957 structural resistance. Though, no decisive break is expected there any time soon, not at until the pandemic risks are all cleared, or something drastic happens.
US commercial crude oil inventories dropped -1.0m barrels in the week ending October 16, versus expectation of 0.5m barrels rise. At 488.1m barrels, oil inventories are about 10% above the five year average for this time of the year. Gasoline inventories rose 1.9m barrels. Distillate dropped -3.8m barrels. Propane/propylene dropped -1.6m barrels. Commercial petroleum dropped -7.2m barrels.
WTI edged higher to 41.62 earlier in the week but failed to extend gain. Focus is back on 40 handle and sustained break will open up the way lower. But after all, it’s seen as stuck in medium term range pattern between 34.36 and 43.50. We’re not expecting a breakout soon and the path could be choppy, meaning that any move won’t be sustained.
Fed Governor Lael Brainard said in a speech that “strong support from monetary policy – if combined with additional targeted fiscal support – can turn a K-shaped recovery into a broad-based and inclusive recovery that delivers better outcomes overall.”
However, “premature withdrawal of fiscal support would risk allowing recessionary dynamics to become entrenched, holding back employment and spending, increasing scarring from extended unemployment spells, leading more businesses to shutter, and ultimately harming productive capacity,” she warned.
White House Chief of Staff Mark Meadows told Fox Business today, “the last 24 hours have moved the ball down the field” with House Speaker Nancy Pelosi on fresh fiscal stimulus. And the goal now is “some kind of deal in the next 48 hours or so.”
White House economic adviser Larry Kudlow also told CNBC that “there’s a relatively sunny, optimistic morning in terms of the negotiations”. “Things are moving in a favorable direction. I can’t promise anything, but things are getting better, looking better for this.”
Dollar is staying under heavy selling pressure today while 10-year yield also surges through 0.81 handle. DOW is slightly up by around 100 pts for now, but that’s hardly impressive.
Canada CPI picked up to 0.5% yoy in September, up from 0.1% yoy, beat expectation of 0.4% yoy. CPI common was unchanged at 1.5% yoy. CPI median was also unchanged at 1.9% yoy. CPI trimmed ticked up slightly by 0.1% to 1.8% yoy.
Retail sales rose 0.4% mom to CAD 53.2B in August, missed expectation of 1.0% mom. That’s non the less the fourth consecutive monthly increase since the record decline in April. Ex-auto sales rose 0.4% mom, missed expectation of 0.9% mom.
In a speech, BoE Deputy Governor Dave Ramsden talked about “the Monetary Policy Toolbox in the UK“. QE is an “effective tool” for stimulating demand for 11 years of its use in the UK. There is “headroom” remaining and it’s a “tried and tested tool” as “marginal policy tool at present”. Forward guidance is another tool that currently “reflects the ongoing uncertainties” and it means the “burden of proof for any future tightening is high”.
He also reiterated that negative policy rates at this time could be “less effective a tool to stimulate the economy”. But they’re “certainly in the toolbox for potential use in future”. In his own areas of responsibility, Ramsden is working to “ensure all our systems would be able to handle negative rates if needed”.
In these uncertain times, and with an array of risks to contend with, from Covid, from Brexit and from wider geopolitical developments, the MPC is clear that the range of actions that could be taken remains under review,” he added”. “I head into our upcoming meetings in the belief that we are equipped with an effective set of tools in out tool box”.
European Commission Vice President Maros Sefcovic told the European Parliament, “deal or no deal, the (Brexit) Withdrawal Agreement must be respected.” He reiterated, “our objective is still to reach an agreement that will pave the way for a new fruitful relationship between the EU and UK. We will continue to work for such an agreement, but not at any price”.
European Council President Charles Michel also said, “time is very short and we stand ready to negotiate 24/7, on all subjects, on legal texts.” The UK has a bit of a decision to make and it’s their free and sovereign choice,” he added. “Their sovereign answer will determine the level of access to our internal market, this is just common sense.”
“The UK wants access to the single market while at the same time being able to diverge from our standards and regulations when it suits them. You can’t have your cake and eat it too,” Michel told EU lawmakers.
UK CPI accelerated to 0.5% yoy in September, up from 0.2% yoy, matched expectations. Core CPI also jumped to 1.3% yoy, up from 0.9% yoy, matched expectations. RPI rose to 1.1% yoy, up from 0.5% yoy, matched expectations.
PPI input came in at 1.1% mom, -3.7% yoy versus expectation of -0.5% mom, -5.4% yoy. PPI output was at -0.1% mom, -0.9% yoy versus expectation of -0.1% mom, -0.9% yoy. PPI output core was at 0.2% mom, 0.3% yoy, versus expectation of 0.0% mom, -0.4% yoy.
According to preliminary estimate, Australia retail sales dropped -1.5% mom , or -AUD 448.6m, in September. Sales were down in all state and territories except for Northern Territory. Victoria, which was in severe lockdown, recorded a small monthly decline in sales, but remains the only state to be trading below the level the same month last year.
Australia Westpac Leading Index rose to -0.48% in September, up from -2.28%. While still negative, the index is now well above the low seen in H1, when it tumbled to well below -5% due to coronavirus shock. The index is now in line with the average recorded over the 12 months prior to the pandemic.
On RBA rate decision on November 3, Westpac continues to expect cut in both cash rate and three year yield target from 0.25% to 0.10%. RBA is expected to introduce an open ended commitment to buy government and semi-government bonds out along the maturity spectrum to 10 years.
BoJ board member Makoto Sakurai noted that prices in Japan were coming “under strong pressure” and inflation “may not accelerate much” even after prices growth turned positive. Though, it’s not something “unique to Japan”, but a “common problem” for major advanced economies.
Sakurai reiterated that BoJ’s pledge to maintain an accommodative monetary policy stance was playing a critical role in support the economy. The central bank “must underpin inflation expectations”, and “ensure they are in positive territory.
“At present, financial institutions have sufficient capital so there is no big concern over Japan’s banking system. But we need to be prepared to take swift action, with a close eye both on the economy and the banking system,” he also noted.
Chicago Fed President Charles Evans expected recovery momentum to continue into next year. He’s “reasonably optimistic that unemployment rate will fall to 5.5% by the end of next year. Also, he put “less weight on the adverse economic consequences of a second or third wave” of coronavirus infections. The US seemed to be “powering through this no matter how adverse and horrific those consequences are”.
But he also emphasized the need for fiscal support even though that’s “kind of counter cultural” for monetary policy makers to say so. “This is a public health safety shock. This is a lot about confidence of consumers, households and businesses being able to go out and do commerce. We really need fiscal and public health authorities to be supporting and improving the economic environment,” he added.
US building permits rose 5.2% mom to 1.55m annualized rate in September, above expectation of 1.52m. Housing starts rose 1.9% mom to 1.42m, below expectation of 1.45m.
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UK signs trade deal with Japan, opens a pathway to TPP
In Tokyo today, UK International Trade Secretary Liz Truss and Japan Foreign Minister Toshimitsu Motegi formally signed a trade agreement, putting in pen the deal they agreed in principle back in September. That’s the first major trade deal UK came to since Brexit. The deal is seen as largely preserving the terms which UK traded with Japan as part of the EU. UK expected it to boost GDP by 0.07% over the next 15 years.
The deal “has a much wider strategic significance”, Truss hailed . “It opens a clear pathway to membership of the Comprehensive Trans-Pacific Partnership — which will open new opportunities for British business and boost our economic security.”