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New Zealand treasury downgrade neutral interest rate assumption to 3%

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    ActionForex.com
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    New Zealand Treasury said in its monthly report that economic growth was “weaker than forecast” in the June quarter. Business activity “remained weak” in the September quarter and is expected to have weighed on domestic growth. Inflation was “stronger than expected” but a “slowing economy poses downside risk to forecasts”.

    Treasury also said the nominal neutral interest rate (NIR) has been falling over time in many developed nations, including New Zealand. It revised down the terminal nominal NIR assumption from 3.75% to 3.0%. And, “a lower NIR assumption implies low interest rates have less stimulatory power than previously assumed”.

    Full report here.

    Australia retail sales rose 0.2%, mixed results at industry level

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      ActionForex.com
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      Australia retail sales rose 0.2% mom in September, below expectation of 0.4% mom. Ben James, Director of Quarterly Economy Wide Surveys, said there was “mix of results at the industry level”.

      Rises were seen in other retailing (0.8%), cafes, restaurants and takeaway services (0.6%), and food retailing (0.1%). These rises were slightly offset by a fall in clothing, footwear and personal accessory retailing (-0.5%) and department stores (-0.2%). Household goods (0.0%) was relatively unchanged.

      Overall the report suggested weak consumer spending through Q3 and there was little lift from tax refunds. Some greater fiscal stimulus would be needed to boost wage growth and spending. And without that, another RBA cut early next year would be likely and necessary.

      Full release here.

      US Ross: China trade deal particularly complicated

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        ActionForex.com
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        US Commerce Secretary Wilbur Ross said on Sunday that the trade agreement with China was “particularly complicated” and the US was “making sure that each side has a very correct and clear, detailed understanding of what each side has agreed to.” Though, he added that “we’re in good shape, we’re making good progress, and there’s no natural reason why it couldn’t be.”

        Also, Ross said the licenses for American companies to export certain technology products to China’s Huawei “will be forthcoming very shortly”. The government received 260 requests and “it’s frankly more than we would’ve thought”. But he added, “remember too with entity lists there’s a presumption of denial. So the safe thing for these companies would be to assume denial, even though we will obviously approve quite a few of them.”

        On auto tariffs, Ross said “we have had very good conversations with our European friends, with our Japanese friends, with our Korean friends, and those are the major auto producing sectors”. “Our hope is that the negotiations we have been having with individual companies about their capital investment plans will bear enough fruit that it may not be necessary to put the 232 (tariffs) fully into effect, may not even be necessary to put it partly in effect.”

        US ISM manufacturing rose to 48.3, new export orders jumped sharply

          By
          ActionForex.com
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          US ISM Manufacturing index rose to 48.3 in October, up from 47.8, but missed expectation of 48.4 slightly. All major components, except new export orders, stayed in contraction below 50. New export orders jumped sharply from 41.0 to 50.4. New orders rose from 47.3 to 49.1. Employment rose from 46.3 to 47.7. However, production dropped from 47.3 to 46.2. Prices dropped from 49.7 to 45.5.

          ISM noted “global trade remains the most significant cross-industry issue. Food, Beverage & Tobacco Products remains the strongest industry sector and Transportation Equipment the weakest sector. Overall, sentiment this month remains cautious regarding near-term growth”.

          Full release here.

          US NFP grew 128k, unemployment rate edged higher to 3.6%

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            ActionForex.com
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            US non-farm payroll report showed 128k growth in October, above expectation of 105k. Prior month’s figure was revised sharply higher from 136k to 180k. Job growth has averaged 167k per month thus far in 2019, compared with an average monthly gain of 223k in 2018. Unemployment edged higher to 3.6%, from 3.5%, matched expectations. Participation rate was little changed at 63.3%. Average hourly earnings rose 0.2% mom in October, below expectation of 0.3% mom.

            Full release here.

            UK PMI manufacturing rose to 49.6, underlying picture darker than headline suggests

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              ActionForex.com
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              UK PMI Manufacturing rose to 49.6 in October, up from 48.3, and beat expectation of 48.0. While that’s below 50 neutral level, it’s still a 6-month high.

              Rob Dobson, Director at IHS Markit, which compiles the survey:

              “The manufacturing downturn continued at the start of the final quarter as uncertainties surrounding Brexit, the economic outlook and domestic politics all took their toll. However, the underlying picture looks even darker than even these disappointing headline numbers suggest, as output and new orders fell despite short term boosts from stock-building activity in advance of the October 31st Brexit deadline, which included a rise in exports as clients in the EU sought to mitigate supply risk.

              “The high degree of uncertainty is hitting two areas of the manufacturing economy especially hard. The first is the trend in employment, as job losses resulting from disappointing sales are exacerbated by manufacturers implementing hiring freezes until the outlook clears. The second is the investment goods industry, where output and new orders are falling sharply as clients postpone capital spending plans.

              “With a further Brexit extension confirmed and the prospect of a December general election, it looks as if the spectre of uncertainty will cast its shadow over manufacturing for the remainder of 2019.”

              Full release here.

              A look at 10-year yield and USD/JPY ahead of NFP

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                ActionForex.com
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                US non-farm payrolls will be a major focus today. Markets are expecting US economy to have added 105k jobs in October. Unemployment rate is also expected to edge higher from 3.5% to 3.6%. Average hourly earnings are expected to grew 0.3% mom. Looking some other related data, ADP employment grew 125k, largely in-line with expectations. Four-week moving average of initial jobless claims rose slightly from 212.5k to 214.75k. Conference Board consumer confidence dropped from 126.3 to 125.9, but remained high.

                US 10-year yields and USD/JPY will be the two to watch for NFP reactions. Both have been under much pressure after FOMC’s rate cut this week, as Jerome Powell didn’t sound firm on ending the so called “mid-cycle adjustment”. 10-year yield has apparently topped out at 1.860, below prior resistance at 1.903. Any downside surprises in the headline figure or wage growth could send TNX further lower towards 1.429 low. That could pave the way for a break through 1.429 later in Q4.

                USD/JPY was rejected by 109.31 resistance earlier this week. The development argues that rebound from 104.45 was a three wave corrective move that has completed at 109.28. NFP disappointment or weakness in TNX could prompt further selling in USD/JPY to 106.48 support. Break will reaffirm medium term bearishness for a new low below 104.45.

                Japan PMI manufacturing finalized at 48.4, downside risks clearly excessive

                  By
                  ActionForex.com
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                  Japan PMI Manufacturing was finalized at 48.4 in October, down from 48.9 in September. That’s also the lowest level in nearly three-and-a-half year. Markit noted that manufacturers were under pressure amid weaker demand. Production fell for the tenth month in a row. Also, firms reduced output charges in bid to stimulate sales.

                  Commenting on the latest survey results, Joe Hayes, Economist at IHS Markit, said:

                  “Worrying signs for Japanese manufacturers appeared at the start of the fourth quarter, with PMI data showing conditions deteriorating at the sharpest rate for almost three-and-a-half years.

                  “Even more concerning was the fact that new orders, a key forward-looking component of the survey, was the primary reason underpinning this marked decline.

                  “Japanese goods producers reported the sharpest fall in demand since May 2016, with sector data showing the accelerated drop was broad-based across consumer, intermediate and investment goods.

                  “Although the impact of the typhoon will have temporarily interrupted factory operations in October, panellists reported unfavourable underlying conditions across both domestic and external markets. As such, downside risks to Japan’s manufacturing economy are clearly excessive. With weak regional growth across Asia and signs of fragility within the domestic economy, it is difficult to see any respite coming in the near-term.”

                  Full release here.

                  Also from Japan, unemployment rate rose to 2.4% in September, up from 2.2%, higher than expectation of 2.2%.

                  China Caixin PMI manufacturing rose to 51.7, both domestic and foreign demand improved substantially

                    By
                    ActionForex.com
                    -

                    China Caixin PMI Manufacturing rose to 51.7 in October, up from 51.4 and beat expectation of 51.0. Looking at some details, new orders expanded at the quickest rate since January 2013. Output growth accelerated to solid pace. Outstanding work rose further. But employment declined again.

                    Commenting on the China General Manufacturing PMI™ data, Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said:

                    “The Caixin China General Manufacturing PMI stood at 51.7 in October, up from 51.4 in the previous month and marking the fastest pace of expansion since February 2017. This pointed to a continued improvement in the manufacturing industry.

                    “Both domestic and foreign demand improved substantially. The subindex for new orders stayed in positive territory and rose to the highest level since January 2013. The gauge for new export orders returned to expansionary territory and reached the highest point since February 2018, due likely to the U.S.’ move to exempt more than 400 types of Chinese products from additional tariffs.

                    “Production growth accelerated further. The output subindex stayed in positive territory and rose for the fourth straight month, hitting the highest level since December 2016. As new orders grew at a faster pace in October, the measure for stocks of finished goods dipped into contractionary territory.

                    “The labor market contracted further. The employment subindex dropped to the lowest level in 13 months. As China’s demographic dividend is fading, there has been pressure on growth of the labor force.

                    “The subindex for suppliers’ delivery times fell further into negative territory. Delivery delays to some extent implied bottlenecks in production capacity and stocks of finished goods, and also reflected manufacturers’ subdued confidence. The subindex for stocks of purchased items edged slightly lower, indicating a cautious attitude towards replenishing inventories. Both the measures for input costs and output charges dipped slightly, suggesting that prices of industrial products were stable in general.

                    “China’s manufacturing economy continued to recover at a relatively quick pace in October. New orders placed with companies improved substantially, and new export orders rose at the fastest pace since the Sino-U.S. trade war broke out. However, business confidence has been weak. Deliveries of inputs were further delayed. Inventory activities were subdued. The employment sector continued to contract. If the improvement in demand, including that generated by infrastructure projects and exports, is able to continue, the manufacturing sector can gradually build a foundation for stability.”

                    Full release here.

                    Australia AiG PMI dropped to 51.6, three of six sectors contact

                      By
                      ActionForex.com
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                      Australia AiG Performance of Manufacturing Index dropped -3.1 pts to 51.6 in October (seasonally adjusted), down from 54.7. The result suggests much slower growth in the sector. In trend terms, three of the six sectors are in contraction, metal products; TCF, paper & printing; building materials, woods, furniture & other. Employment index dropped -4.8 to 52.8, indicating slower expansion, but stays above long-run average of 48.9. Average wages index dropped -4.5 pts to 59.3, just above long-run average of 59.2.

                      Also from Australia, PPI rose 0.4% qoq, 1.6% yoy in Q3, versus expectation of 0.3% qoq, 1.8% yoy.

                      Canada GDP grew 0.1% mom in Aug, three month grow slowed to 0.5%

                        By
                        ActionForex.com
                        -

                        Canada GDP rose 0.1% mom in August, below expectations of 0.2% mom. Goods-producing industries were up 0.2% after two months of declines, led by a rebound in manufacturing, while services-producing industries edged up 0.1%. Overall, there were gains in 14 out of 20 industrial sectors. On a three-month rolling average basis, real gross domestic product rose 0.5% in August, compared with a 0.8% increase in July.

                        Full release here.

                        US PCE slowed to 1.4%, core PCE slowed to 1.7%

                          By
                          ActionForex.com
                          -

                          US personal income rose USD 50.2B or 0.3% mom in September, matched expectations. Personal spending rose 0.2% mom, or USD 24.3B, matched expectations too. Headline PCE price index slowed to 1.3% yoy, down from 1.4% yoy, below expectation of 1.4% yoy. Core PCE price index slowed to 1.7% yoy, down from 1.8% yoy, matched expectations.

                          Full release here.

                          US initial jobless claims rose to 218k above expectation of 215k

                            By
                            ActionForex.com
                            -

                            US initial jobless claims rose 5k to 218k in the week ending October 26, above expectation of 215k. Four-week moving average of initial claims dropped -0.5k to 214.75k. Continuing claims rose 7k to 1.69m in the week ending October 19. Four-week moving average of continuing claims rose 8.75k to 1.686m.

                            Full release here.

                            Sentiments weighed down by talk of difficulties in US-China trade talks beyond phase one

                              By
                              ActionForex.com
                              -

                              Risk sentiments appear to be weighed down by a Bloomberg report that indicated uncertainties over a comprehensive US-China trade deal. Unnamed Chinese officials was said have warned that “they won’t budge on the thorniest issues” regarding trade negotiations. Some officials have “relayed low expectations” on future negotiations unless US would roll back more of the imposed tariffs.

                              For now, US and China are still on track to complete the phase one of the trade deal based on original time frame, even though the APEC summit in Chile is cancelled due to social unrest. The phase one would cover intellectual property protections, currency, financial services and agricultural purchases. But both sides are said to recognize the difficulties for negotiations beyond that.

                              To our understanding, the most difficult part would be on subsidies on state-owned enterprises. US would insist on China to reduce the subsidies. But it’s a fundamental principle of the state capitalism model of China that the Chinese Communist Party wouldn’t give up. It’s the key difference between China and Westerns countries which made them systematic rivals, as many described.

                              ECB de Guindos: Monetary policy not reached limits, but negative impact increasingly evident

                                By
                                ActionForex.com
                                -

                                ECB Vice President Luis de Guindos warned that the “collateral effects” of the ultra-loose monetary policy are “increasingly significant”. Hence, monetary policy “can’t be the only response to the economic slowdown” in the Eurozone. He added, “monetary policy can provide liquidity in the case of the risk of Brexit or trade wars, but it’s not the solution to these issues, which are the factors behind the slowdown”. He emphasized, “we can alleviate the situation but we can’t resolve it.”

                                De Guindos also added that “I wouldn’t say that monetary policy has in any way reached its limits, but I would say that the negative impact on financial stability is increasingly evident, which means it needs to be complemented with fiscal policy.” the advantage of negative rates is that “it has boosted investment, consumption and that’s behind the recovery”. But on the negative side, some real estate markets in Europe are of overly buoyant valuations of assets, and banks’ earnings have also taken a hit.

                                Separately, Governing Council member Ignazio Visco said “Eurozone inflation remains at an excessively low level and the risk of a de-anchoring of medium-long term expectations is appearing.” He added monetary policy will remain expansionary to sustain demand.

                                Eurozone GDP grew 0.2% in Q3, CPI slowed to 0.7% in Oct

                                  By
                                  ActionForex.com
                                  -

                                  Eurozone GDP grew 0.2% qoq in Q3, unchanged from Q2’s rate, beat expectation of 0.1% qoq. Over the year, GDP grew 1.1% yoy. EU28 GDP grew 0.3% qoq 1.4% yoy.

                                  Eurozone CPI slowed to 0.7% yoy in October, down from 0.8% yoy, matched expectation. However, CPI core accelerated to 1.1% yoy, up from 1.0% yoy and beat expectation of 1.1% yoy.

                                  Eurozone unemployment rate unchanged at 7.5%, lowest since 2008

                                    By
                                    ActionForex.com
                                    -

                                    Eurozone unemployment rate was unchanged at 7.5%, above expectation of 7.4%. That’s still the lowest level since July 2008. EU28 unemployment rate was unchanged at 6.3%, lowest since January 2000.

                                    Among the Member States, the lowest unemployment rates in September 2019 were recorded in Czechia (2.1%) and Germany (3.1%). The highest unemployment rates were observed in Greece (16.9% in July 2019) and Spain (14.2%).

                                    Full release here.

                                    BoJ stands pat, new forward guidance indicates clear easing bias

                                      By
                                      ActionForex.com
                                      -

                                      BoJ left monetary policy unchanged today as widely expected, but stepped up its signal for more easing ahead. Under the yield curve control framework, short term policy interest rate was held at -0.1%. Also, the central back will continue to increase monetary base at JPY 80T a year, with purchases of JGB to keep 10-year yield at around 0%. The decision was made by 7-2 vote, with Y. Harada and G. Kataoka dissenting as usual.

                                      The forward guidance was changed to: “As for the policy rates, the Bank expects short- and long-term interest rates to remain at their present or lower levels as long as it is necessary to pay close attention to the possibility that the momentum toward achieving the price stability target will be lost.” Previously, BoJ said its  committed to keep “current ultra-low rates for an extended period of time, at least until the spring of 2020.” It’s a clear message that BoJ is ready to cut interest rates again any time if outlook deteriorates further.

                                      At the post meeting press conference, Governor Haruhiko Kuroda confirmed that the new forward guidance aimed at clarifying the stance that “policy bias is leaning towards additional monetary easing.” Regarding the tools, BoJ could “cut interest rates, increase asset buying or accelerate the pace of increase in base money”.

                                      Full statement here.

                                      China PMI manufacturing dropped to 49.3, sixth straight months in contraction

                                        By
                                        ActionForex.com
                                        -

                                        China NBS PMI Manufacturing dropped to 49.3 in October, down from 49.8 and missed expectation of 49.8. It’s the sixth straight month of contraction reading. Looking at some details, new export orders dropped for the 17th month to 47.0, down from 48.2. Employment improved slightly but remain deep in contraction at 47.3, up fro 47.0. NBS PMI Non-Manufacturing dropped to 52.8, down from 53.7 and missed expectation of 53.7. It’s also the lowest reading since February 2016.

                                        The overall set of data suggests that while China’s growth is already at lowest pace in 30 years, there is not sign of a turn around yet. The improvements seen back in the end of Q3 were just ripples in a down trend, rather than the start of sustained recovery. The official PMIs will likely remain sluggish in the coming months while a Phase 1 US-China trade deal is unlikely to provide any immediate lift.

                                        USD/CNH drops notably today, mainly thanks to weakness in Dollar. Rejection by 55 day EMA suggests more downside for the near term. But overall, USD/CNH is seen as in consolidation pattern from 7.1955. Hence, we’d expect strong support from 6.9909 cluster, 38.2% retracement of 6.6704 to 7.1955 at 6.9949, to contain downside to bring rebound.

                                        Aussie jumps after strong building permits and receding RBA cut bets

                                          By
                                          ActionForex.com
                                          -

                                          Australian Dollar surges broadly today firstly with the help from post FOMC selloff in Dollar. In the background, Aussie has been riding on optimism towards US-China trade negotiations recently. The strong housing data today also eased concerns of a renewed downturn in the housing markets. Building permits rose 7.6% mom in September, way above expectations of 0.1% mom. Other data, while missed, were not disastrous. Private sector credit rose 0.2% mom in September versus expectation of 0.3% mom. Import price index rose 0.4% qoq in Q3 versus expectation of 0.5% qoq.

                                          As Westpac noted in a report today, RBA should stand pat at its next meeting on November 5. Market pricing of a December cut also dropped from 80% back on October 4 to 25%. But most notably, market pricing of a February cut halved from 100% on October 4 to 50% today. While the pricing of February cut was not Westpac concurs with, that’s a factor in driving the Aussie higher today.

                                          AUD/JPY’s rebound from 69.95 extends higher today and for now, near term outlook stays bullish as long as 73.93 support holds. Next target is 76.16 cluster resistance, which is close to 100% projection of 69.96 to 74.49 from 71.73 at 76.27. Reaction to this level will decide whether AUD/JPY has reversed the larger down trend, or it’s just in corrective rise.

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