Japanese GDP growth approves BOJ’s policies
Oil Traders await inventory data
UK wage number needs to keep up with inflation
US inflation data may have only one outcome
The Japanese economy has continued to show its sign of strength for the consecutive seven quarters. The GDP data released overnight has strengthened the Bank of Japan’s position and affirmed that its monetary policies are sailing the ship in the right directions. The GDP number for the third quarter came at 1.4% which was ahead of the forecast of 1.3%. The robust Japanese export numbers are the primary driver for today’s GDP number. Investors have discounted the feeble consumer spending as the economy is approaching its full employment level but this number is expected to improve in the future. The bank of Japan’s biggest challenge has been fighting the sluggish inflation in the country, however, the improving export number and the higher capital expenditure should move the inflation in the bank’s desired situation.
Commodities
Crude and Brent are both getting battered as the API data indicated that the US stockpiles have surged unexpectedly by 6.51 million barrels and the if the upcoming US crude inventory number also confirms the same message, we could see the US crude moving further lower. Adding to the trader’s malaise, the IEA lowered its oil demand growth by 100K b/d for the next two years and Russia reasons it may be too soon to talk about output cuts. These negative developments have taken the wind out of the oil rally.
The price for the precious metal seems to be steady after hitting this week’s low. The upcoming US consumer inflation data would have the potential to impact the gold price further. The dollar index looks firm ahead of this number and if the US consumer inflation number moves ahead of the forecast, it would move the dollar index further higher. The higher dollar would have the potential to push the gold price lower. A number of Fed members back the idea of another rate hike and improving consumer inflation and producer prices would strengthen their view for another rate hike in December. Under those circumstances, the dollar index may move more in the upwards direction which would take some more shine off the yellow metal.
Currencies
Back in the UK, Carney was able to save its ink and doesn’t need to write a letter to the Chancellor of the Exchequer after the inflation data came a little shy of the forecast. Now, the focus would be on the labour data and investors are going to see how much evidence exists in terms of a squeeze on the UK households. A modest pay rise would not solve the problem because the wage growth of 2.2% is not going to keep up with the inflation. In today’s number, we do expect the unemployment number to show further enhancement and may print the number of 4.3%. It would be fascinating the hear the views of the BOE Deputy governor’s view today who firmly voted for a 25 basis point hike at November meeting.
As for the US, it would be mostly about the U.S inflation number which matters the most. The game has transformed now and investors cannot say that they have their backs covered by the Fed. The Fed is on the monetary policy tightening path. Previously, a bad set of data was also considered as good news because the Fed would have pumped more liquidity in the market. But now, a bad set of economic data would be believed as a very negative progress because it would say that the Fed has made a mistake. Furthermore, a good set of economic number may not lift all the boats either because it would simply tell us that the Fed would remain firm about increasing the interest rate three more times next year.
