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UK PMI services finalized at 49.5, shallow downturn persists

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    ActionForex.com
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    UK PMI Services index was finalized at to 49.5 in October up fractionally from 49.3 in September, lingering in contraction territory for the third consecutive month. PMI Composite showed a minor improvement to 48.7 from an 8-month nadir of 48.5

    Economics Director at S&P Global Market Intelligence, Tim Moore, highlighted, “A shallow downturn in UK service sector activity persisted in October as businesses struggled to make headway against a backdrop of worsening domestic economic conditions and stretched household budgets.”

    The outlook remains cautious at best. “Forward-looking survey indicators suggested that service providers will continue to skirt with recession,” said Moore, noting that business optimism has dipped to its lowest point of the year.

    On the brighter side, there was a silver lining with a slight uptick in new export sales. Furthermore, input cost inflation showed signs of easing, reaching its softest point in over two years due to reduced raw material prices and supplier discounting.

    Nevertheless, this hasn’t stopped businesses from hiking prices. “Higher wages and fuel bills were still passed on to clients, which resulted in the strongest increase in average prices charged inflation for three months,” Moore explained.

    Full UK PMI services release here.

    NFP to test stock market optimism

      By
      ActionForex.com
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      The upcoming US non-farm payroll report is set to capture the market’s full attention today, with investors seeking signs that could affirm Fed’s interest rate has already peaked. In light of Fed Chair Jerome Powell’s comments this week emphasizing the need for “some slower growth and some softening in the labor market” to stabilize prices, the details of the job data, particularly wage growth, will be under intense scrutiny.

      The market consensus pegs the headline growth of employment at 172k for October, a significant decrease from September’s robust 336,000 figure. Unemployment rate is projected to hold steady at 3.8%, with average hourly earnings expected to notch up by 0.3% mom.

      Preceding indicators present a mixed picture: ISM Manufacturing employment showed a notable decline 51.2 to 46.8, ADP reported a modest private employment increase of 113k that fell short of expectations, and initial unemployment claims hovered around the 210k mark on a four-week moving average, indicating stability.

      Wage growth emerges as the unpredictable factor in the equation, with the potential to sway Fed’s monetary policy direction. This data point has been particularly scrutinized for inflationary signals and the possibility of triggering another rate hike.

      Equity markets have reflected a sense of optimism this week, with strong rebound in DOW and other major indexes. DOW’s correction from August high at 35679.13 could have already concluded at 32327.20. To further strengthen the case, DOW will need to break through 34147.63 resistance decisively. However, rejection by 34147.63 will retain near term bearishness for another decline through 32327.20.

      The impending non-farm payroll report could be a critical determinant of the market’s direction in the closing months of the year.

       

      China Caixin PMI services ticks to 50.4, composite fell to 50

        By
        ActionForex.com
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        China’s service sector showed a glimmer of resilience in October, with Caixin PMI Services edging up marginally from 50.2 to 50.4, meeting expectations. However, this slight uptick could not buoy the overall PMI Composite, which leveled at the neutral 50.0 threshold, down from 50.9 in the previous month.

        The slight uptick in the services sector was overshadowed by a dip in manufacturing (which fell from 50.6 to 49.5). The details reveal a mixed scenario: composite new business inched forward at its weakest pace in ten months. Service providers and goods producers alike witnessed decelerated growth in sales.

        Employment trends also painted a picture of caution. There was a small overall decline in jobs, with manufacturing bearing the brunt through more pronounced job losses, while employment in the service sector hit a plateau.

        On the pricing front, inflationary pressures were somewhat contained. Input costs across the combined sectors rose modestly, maintaining a muted pattern of cost escalation. Despite this, firms nudged their selling prices upwards, continuing a trend that could suggest confidence in passing on costs, albeit the rate of charge inflation was just marginally lower than the 18-month peak seen in September.

        Full China Caixin PMI services release here.

        ECB’s Schnabel: We cannot close the door to further rate hikes

          By
          ActionForex.com
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          ECB Executive Board member Isabel Schnabel warned in a speech that the “last mile” in disinflation process is the hardest, more uncertain, slower and bumpier. Inflation expectations are fragile, and ECB cannot close the door for further rate hikes.

          In a candid analogy, Schnabel compared the disinflation process to a marathon, signifying the strenuous and prolonged effort required to bring inflation back to target levels.

          “Disinflation really does seem like a long-distance race,” Schnabel stated, “When the runner enters the last mile, the hardest work begins” which requires “perseverance and vigilance”. She added, “The same is true for our fight against inflation.”

          Schnabel’s words paint a picture of cautious optimism mixed with a stern warning against premature relaxation in monetary policy. “With our current monetary policy stance, we expect inflation to return to our target by 2025,” she affirmed.

          However, she was quick to temper optimism with a dose of reality about the road ahead. “The disinflation process during the last mile will be more uncertain, slower and bumpier”.

          “Continued vigilance is therefore needed,” Schnabel cautioned. “After a long period of high inflation, inflation expectations are fragile and renewed supply-side shocks can destabilise them, threatening medium-term price stability.”

          “This also means that we cannot close the door to further rate hikes,” she added.

          Full speech of ECB Schnabel here.

          US initial jobless claims rose to 217k, above exp 210k

            By
            ActionForex.com
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            US initial jobless claims rose 5k to 217k in the week ending October 28, above expectation of 210k. Four-week moving average of initial claims rose 2k to 210k.

            Continuing claims rose 35k to 1818k in the week ending October 21. Four-week moving average of continuing claims rose 37k to 1758k.

            Full US jobless claims release here.

            BoE stands pat, adopts lower rate path for economic forecasts

              By
              ActionForex.com
              -

              BoE held its Bank Rate steady at 5.25%, aligning with broad market anticipations. The decision came with a 6-3 split, with Megan Greene, Jonathan Haskel, and Catherine Mann opting for a 25 basis points increase. The bank emphasized the necessity of maintaining a restrictive monetary stance for an extended period to steer inflation back to its target. They also signaled that should more enduring inflation signs surface, the option for further rate hikes is still on the table.

              Four-quarter GDP growth:

              • Lowered from 0.9% to 0.6% in Q4 2023.
              • Lowered from 0.1% to 0.0% in Q4 2024.
              • Lowered from 0.5% to 0.4% in Q4 2025.
              • At 1.1% in Q4 2026 (new).

              Modal CPI inflation:

              • Lowered from 4.9% to 4.6% in Q4 2023.
              • Raised from 2.5% to 3.1% in Q4 2024.
              • Raised from 1.6% to 1.9% in Q4 2025.
              • Slow to 1.5% in Q4 2026. (new).

              These projections are based on a market-implied path for the Bank Rate that hovers around 5.25% until Q3 2024, and then gradually decreases to 4.25% by the end of 2026.

              This represents a lower trajectory compared to the projections in August, which anticipated a Bank Rate of 5.8% by the end of 2023, 5.9% by the end of 2024, and 5% by the end of 2025.

              Full BoE statement here.

              Full Monetary Policy Report here.

              Eurozone PMI manufacturing finalized at 43.1, woes deepen

                By
                ActionForex.com
                -

                Eurozone’s PMI Manufacturing reading for October was finalized at 43.1, a slight decline from September’s 43.4.

                A closer look at individual countries, notably, Germany, Europe’s largest economy, posted a five-month high, though it still lurks in the downturn territory with a reading of 40.8. France hits a 41-month low at 42.8.

                Amidst the broader decline, Greece displayed resilience with a two-month high of 50.8. In contrast, countries such as Ireland, Spain, and Italy presented figures pointing towards continued economic pressure with readings of 48.2, 45.1, and 44.9, respectively.

                Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, likened the ongoing trend in Eurozone manufacturing to a “bumpy sleigh ride.” While the slight stability in recent PMI figures might hint at approaching the low point of this downturn, the critical indicators like the new orders index remain in the red.

                The stagnation of these vital indices, as history suggests, could potentially set the stage for a recovery. However, de la Rubia anticipates this turnaround to materialize in the first half of the upcoming year.

                Furthermore, he pointed out the synchronized decline among the eurozone nations. With key players like France, Italy, Spain, and Germany showcasing dipping PMIs, it’s evident that a sectoral contraction might be imminent for these nations in the current quarter.

                Full Eurozone PMI Manufacturing release here.

                Swiss CPI unchanged at 1.7% yoy in Oct, core CPI rises to 1.5% yoy

                  By
                  ActionForex.com
                  -

                  Swiss CPI rose 0.1% mom in October, matched expectations. Core CPI (excluding fresh and seasonal products, energy and fuel) rose 0.1% mom. Domestic products prices was flat at 0.0% mom. Imported products prices rose 0.3% mom.

                  Annually CPI was unchanged at 1.7% yoy, matched expectations. Core CPI accelerated from 1.3% yoy to 1.5% yoy. Domestic products price growth quickened from 2.1% yoy to 2.2% yoy. Imported products price growth slowed from 0.5% yoy to 0.4% yoy.

                  Full Swiss CPI release here.

                  BoE likely to hold to for the second straight meeting

                    By
                    ActionForex.com
                    -

                    BoE stands at a critical juncture as it is expected to maintain its policy interest rate at 5.25% today, marking the second consecutive pause in tightening. This decision comes in the wake of September’s UK CPI remaining steady at 6.7%, defying market expectations and signaling a halt in the disinflation process. Conversely, the prevailing weak growth data underscore increasing risks of recession, placing the BoE in a challenging policy dilemma.

                    Today’s meeting is set to highlight the existing divides within the nine-member MPC. September’s decision, which resulted in no change, saw a tight vote, with 5 members in favour and 4 against. Given the nuanced economic picture, a shift in this balance, although unexpected, is still within the realm of possibility.

                    The central bank will also unveil its new economic forecasts. Given the recent string of subdued data, BoE is anticipated to downgrade its short-term projections for growth. Yet, looking further out, the bank might elevate its growth expectations for the two- and three-year marks, influenced by factors such as lower interest rates and a depreciated sterling.

                    One of the prevailing discussions in financial circles revolves around which major central bank will be the first to reduce interest rates. As it stands, market consensus suggests that BoE may trail its counterparts, ECB and Fed. Current projections don’t anticipate a rate cut by BoE with over a 50% likelihood until August 2024. However, should BoE’s upcoming forecasts reflect a significant downward adjustment in inflation outlook, this timeline and market sentiment could be poised for a change.

                    Some suggested readings on BoE:

                    While GBP/CHF’s rebound in the last two week has been strong, it’s capped by 1.1053 support turned resistance, as well as 55 D EMA. Risk stays on the downside for larger decline from 1.1502 to continue. Break of 1.0937 minor support will retain near term bearishness, and bring retest of 1.0779 first. However, sustained break of 1.1058 will raise the chance of bullish reversal, and target 1.1212 structural resistance for confirmation.

                    Australia’s trade surplus narrows sharply to AUD 6.79B in Sep

                      By
                      ActionForex.com
                      -

                      Australia’s economic outlook has taken a concerning turn as the trade surplus for September contracted significantly, recording its lowest monthly surplus since March 2021. The data released indicates a shrinkage from prior month’s AUD 10.16B to AUD 6.79B, falling short of the anticipated AUD 9.58B surplus. This sharp decline in trade surplus is fueling concerns that the Australian economy may have slipped into recession in the third quarter.

                      The primary factor contributing to the reduced surplus is a noticeable -1.4% yoy drop in goods exports, which totaled AUD 45.62B. This decline was primarily driven by a substantial -39.2% reduction in the shipment of metals and non-monetary gold, a critical export commodity for the Australian economy.

                      On the import side, there was a 7.5% yoy increase to AUD 38.84B. This surge in imports is attributed to a 23.3% jump in import of capital goods. Additionally, there was a noticeable spike in the demand for recreational items.

                      Full Australia goods trade balance release here.

                      DOW soars and yields tumble in wake of FOMC

                        By
                        ActionForex.com
                        -

                        US stock market experienced a robust rebound overnight, with DOW recording its most substantial three-day gain since April, following Fed’s decision to maintain the interest rate at the widely anticipated range of 5.25-5.50%. This marks the second consecutive month of rate pause, but Fed has not ruled out the possibility of further tightening in the future.

                        Treasury yields witnessed a notable decline across the spectrum, a trend initially sparked by Treasury’s refunding plan. 2-year yield ended the day staying below 5% mark, settling at 4.96%, while 10-year yield broke through 4.8% level. closing at 4.789%.

                        During the post-meeting press conference, Fed Chair Jerome Powell underscored the flexibility of the FOMC. He emphasized, “The idea that it would be difficult to raise [rates] again after stopping for a meeting or two is just not right. The Committee will always do what it thinks is appropriate at the time.”

                        Further emphasizing the uncertainty of future meetings, Powell stated, “We have yet to finalize our decisions concerning the upcoming meetings.” He elaborated on the Committee’s objective to assess the need and degree of potential policy tightening, aiming to stabilize inflation at around 2% over a period.

                        Dismissing any speculations of rate cuts, Powell asserted that such discussions are currently off the table. The primary focus remains on evaluating if the present monetary policy is “sufficiently restrictive” to sustainably bring down inflation to 2% target.

                        Regarding the balance sheet runoff, Powell mentioned that there is no current consideration to alter its pace. The committee is not discussing or considering any changes in this aspect.

                        In response to these developments, Fed fund futures indicated a reduced probability of another rate hike in December, now standing at a 20% likelihood, down from the previous day’s 29%.

                        DOW’s strong rebound this week suggests that a short-term bottom was established at 32327.20 already. Risk is now mildly on the upside for the near term, with possibility of further rally to 55 D EMA (now at 33764.41). If 33764.41 resistance level continues to hold its ground, it could indicate that DOW is merely in a short term consolidation phase, and the decline from 35679.12 might resume at a later stage.

                        Shifting focus to 10-year yield, corrective pattern from 4.997 extended with yesterday’s fall. Bearish divergence condition in D MACD argues that the consolidation would extend further for a while. . But there is no clear indication of bearish reversal with TNX holding well above 4.532 support as well as 55 D EMA (now at 4.551). Nevertheless, upside potential should be limited for the near term.

                        Fed chair Powell press conference live stream

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                          ActionForex.com
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                          Fed keeps interest rate unchanged at 5.25-5.50%, full statement

                            By
                            ActionForex.com
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                            Fed keeps interest rates unchanged at 5.25-5.50% as widely expected, by unanimous vote.

                            Full statement below:

                            Recent indicators suggest that economic activity expanded at a strong pace in the third quarter. Job gains have moderated since earlier in the year but remain strong, and the unemployment rate has remained low. Inflation remains elevated.

                            The U.S. banking system is sound and resilient. Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.

                            The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. The Committee will continue to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.

                            In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

                            Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lisa D. Cook; Austan D. Goolsbee; Patrick Harker; Philip N. Jefferson; Neel Kashkari; Adriana D. Kugler; Lorie K. Logan; and Christopher J. Waller.

                            US ISM manufacturing plummets to 46.7, longest contraction streak since Great Recession

                              By
                              ActionForex.com
                              -

                              In an alarming development for the US economy, ISM Manufacturing PMI for October has nosedived to 46.7, a stark contrast from last month’s 49.0 and shattering expectations which had anticipated it to remain steady. This marks the twelfth month in a row where the PMI has stayed below the critical 50-point mark, signaling a contraction in manufacturing activity. This persistent downturn is reminiscent of the distressing times during the 2007-2009 Great Recession.

                              Digging deeper into the data, new orders saw a decrease, moving from 49.2 to 45.5. This now marks the 14th month where new orders have contracted. Production levels, too, experienced a decline, sliding from 52.5 to a borderline 50.4. Employment metrics were not immune either, plummeting from 51.2 to 46.8. However, there was a minor uptick in prices, which moved from 43.8 to 45.1.

                              The ISM’s statement offered some insight into the broader implications of this data. They pointed out, “The correlation between the Manufacturing PMI and the entirety of the US economy suggests that the October reading of 46.7 percent equates to a decrease of minus-0.7 percent in real GDP, when viewed on an annualized basis.”

                              Full US ISM manufacturing release here.

                              US ADP jobs grows 113k, slowing wage momentum

                                By
                                ActionForex.com
                                -

                                US ADP private sector employment gains in October fell short of expectations, with an addition of 113k jobs as opposed to the anticipated 135k. A breakdown by industry shows a modest increase of 6k in goods-producing jobs, while service sector added 107k. When considering the size of establishments, small firms contributed 19k jobs, medium-sized businesses accounted for 78k, and large enterprises added 18k.

                                A notable trend emerged in the wage segment. Employees who remained in their current positions reported a year-over-year pay growth of 5.7%, marking the slowest rate since October 2021. On the other hand, individuals who switched jobs experienced an 8.4% rise in wages, which is the least impressive figure since July 2021.

                                Nela Richardson, ADP’s Chief Economist stated, “October didn’t see a particular industry taking the lead in hiring. Moreover, the significant wage hikes we observed in the post-pandemic phase seem to be waning.”

                                She further added, “The data from October offers a comprehensive view of the employment sector. Although there’s a deceleration in the job market, it’s still adequately robust to sustain vigorous consumer expenditure.”

                                Full US ADP employment release here.

                                UK manufacturing downturn persists: PMI edges up but optimism plummets

                                  By
                                  ActionForex.com
                                  -

                                  UK PMI Manufacturing data was finalized at 44.8 in October, marking a modest improvement from September’s 44.3. However, the report by S&P Global underscores some concerning aspects: declining output, a drop in new orders, and shrinking employment. Furthermore, business optimism has plunged to a ten-month low.

                                  Rob Dobson, Director at S&P Global Market Intelligence, underscored the severity of the situation. “The UK manufacturing downturn persisted at the outset of the final quarter, exacerbating the economy’s flirtation with recession,” he said.

                                  “The ongoing contraction in production for eight straight months, the longest since the 2008-09 period, is primarily due to subdued domestic and international demand, resulting in a continued downturn in new order intakes.”

                                  Dobson highlighted the skewed risks towards a negative outlook, with businesses’ growing caution leading to employment cuts, reduced purchasing, and lower inventory levels.

                                  Although there’s a silver lining with a slight ease in input prices and output charges, Dobson warned that this faint inflation relief comes with an increased risk of recession, stemming from the prevailing weak demand.

                                  Full UK PMI manufacturing release here.

                                  Market eyes treasury refunding ahead of FOMC hold

                                    By
                                    ActionForex.com
                                    -

                                    Fed is widely anticipated to keep interest rates steady at 5.25-5.50%, marking a second consecutive pause. While the accompanying statement and Chair Jerome Powell’s press conference are expected to keep options open for future rate hikes, the focus will be on how firmly Powell adheres to his hawkish stance, hinting at the likelihood of an additional hike in December.

                                    Recent comments from Fed policymakers have pointed to the rise in longer-term borrowing costs and the subsequent tightening of financial conditions as factors reducing the urgency for further tightening. Powell’s insights on this matter will be of particular interest to market participants.

                                    However, substantial comments from Powell may be scarce at this juncture, given that the next set of economic projections, crucial for determining future policy, are set to be prepared and released in December. As a result, today’s FOMC decision might not deliver significant revelations.

                                    In fact, a potentially more market-moving event could be the quarterly treasury refunding announcement preceding the FOMC decision. Investors already received a glimpse into the Treasury’s plans on Monday, with the announcement of a USD 776B debt auction for the last quarter of 2023. Key aspects that markets will scrutinize include the actual sizes of the auction and the mix of maturities.

                                    The treasury market is currently grappling with a supply-demand mismatch, a significant factor contributing to the sharp rise in bond yields this year. Understanding how the Treasury plans to address this imbalance will be critical for investors, potentially overshadowing the FOMC decision in terms of immediate market impact.

                                    China’s Caixin PMI manufacturing slips to 49.5, business optimism continues to wane

                                      By
                                      ActionForex.com
                                      -

                                      China’s Caixin PMI Manufacturing index slipped from 50.6 in September to 49.5 in October, falling below market expectations set at 50.8. This marks a renewed contraction in the nation’s manufacturing sector.

                                      Wang Zhe, Senior Economist at Caixin Insight Group, highlighted several challenges facing the manufacturing industry. “Overall, manufacturers were not in high spirits in October,” he said. The decline in the sector was multifaceted – supply, employment, and external demand all experienced reductions, while domestic demand saw a slower pace of expansion.

                                      The manufacturing environment was further complicated by rising costs and output prices. This was coupled with decrease in purchases and accumulation of inventories of finished goods. Reflecting the various pressures, “business optimism continued to wane”.

                                      Full China Caixin PMI manufacturing release here.

                                      Kanda announces Japan is on “standby” as Yen plunges past 151 to Dollar

                                        By
                                        ActionForex.com
                                        -

                                        Amid the resumed selloff of Yen, which broke 151 level against Dollar overnight, Japan’s top currency official, Masato Kanda, has issued a stern verbal warning. The Vice Finance Minister for International Affairs emphasized that Japan remains vigilant and “on standby” to mitigate the excessive volatility observed in the currency markets.

                                        However, Kanda refrained from divulging specific details on potential interventions. “But I can’t say what we’ll do, and when — we’ll make judgments overall, and we’re making judgments in a state of urgency,” he added.

                                        Kanda voiced significant concern over the rapid and one-sided shifts in currency values, stressing the importance of calibrated responses against overblown foreign exchange movements. He emphasized that fundamental economic indicators don’t justify such abrupt currency shifts, hinting at other factors at play. “Speculative trading seems to be the biggest factor behind recent currency moves,” Kanda observed.

                                        “The yen has weakened close to 25 yen against the dollar from the start of the year, and it’s also moved a few yen in a short amount of time,” he noted, highlighting the dramatic shift in the currency’s value.

                                        Japan PMI manufacturing: Slump continues, yet optimism shines for 2024

                                          By
                                          ActionForex.com
                                          -

                                          Japan’s PMI Manufacturing for October was finalized at 48.7, a slight uptick from 48.5 in September. Despite the improvement, the index languished below the critical 50 threshold for the fifth consecutive month.

                                          S&P Global’s analysis revealed that a significant decline in output occurred due to persisting sales reductions. This challenging environment also led to the first drop in employment figures since the beginning of 2021. On the brighter side, confidence remains robust regarding a potential return to growth in 2024.

                                          Usamah Bhatti, representing S&P Global Market Intelligence, commented on the situation, emphasizing the continued hardships faced by the manufacturing sector. He mentioned the strategic measures companies are adopting to counter these challenges, including curtailed purchasing, optimal inventory management, and not filling vacancies created by departing employees.

                                          However, the silver lining seems to be the positive outlook for the future. Bhatti noted that there’s optimism about finding a turning point soon, with many companies expecting a shift in the inventory cycle after extended destocking periods. Moreover, demand from Japan’s primary industrial sectors is projected to pick up in the coming year, potentially heralding better days for the nation’s manufacturing realm.

                                          Full Japan PMI Manufacturing release here.

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