Weekly Market Recap (30-03 November)

ECB’s Vujcic (neutral – voter) confirmed that the
tightening cycle has ended, and the ECB will now hold rates steady for as long
as necessary to get back to their 2% inflation target:

• We have finished
  with the process of raising interest rates for now.
• At this moment we
  see that inflation is falling, we have a disinflation process. And after
  we conducted a series of measures to dampen lending, it has fallen.
• Confident inflation
  will hit the ECB target by 2025.

The Australian Retail Sales beat expectations:

• Retail Sales M/M
  0.9% vs. 0.3% expected and 0.2% prior.
• Retail Sales YoY
  2.0% vs. 1.6% prior.

ECB’s Kazimir (hawk – voter) confirms the ECB’s
current “wait and see” stance specifying that the central bank might wait for a
“few quarters” before deciding on the next policy move:

• Additional
  tightening could come if incoming data forces us to.
• We will have to stay
  at the peak for the next few quarters.
• Bets on rate cuts
  happening in 1H 2024 are entirely misplaced.
• Eagerly awaits
  December update of inflation forecast to get a clearer picture.
• Upside risks to
  inflation have yet to dissipate entirely, must stay vigilant.

ECB’s Simkus (hawk – non voter) remains wary of risks
but confirms that “unless the data surprises, the current level of restriction
is sufficient”.

BoC Governor Macklem repeats that the current monetary
policy is doing the job to cool the economy but if inflationary pressures were
to persist, the BoC is ready to raise rates further:

• Further easing in
  inflation is likely to be slow and risks are high.
• We held policy
  steady because monetary policy is working to cool the economy and relieve
  price pressures.
• We continue to
  assess whether monetary policy is sufficiently restrictive.
• If inflationary
  pressures persist, we are prepared to raise our policy rate further to
  restore price stability.

The Japanese Unemployment Rate came in line with
expectations at 2.6% vs. 2.6% expected and 2.7% prior.

The Japanese Industrial Production missed expectations
by a big margin:

• Industrial
  Production M/M 0.2% vs. 2.5% expected and -0.7% prior.
• Industrial
  Production Y/Y -4.6% vs. -2.3% expected and -4.4% prior.
• Forecast 1 month
  ahead is 3.9% vs. 5.8% prior.
• Forecast 2 months
  ahead is -2.8% vs. 3.8% prior.

Japanese Retail
Sales missed expectations:

• Retail Sales M/M
  -0.1% vs. 0.2% expected and 0.1% prior.
• Retail Sales Y/Y
  5.8% vs. 5.9% expected and 7.0% prior.

The Chinese PMIs missed
expectations with the Manufacturing sector falling back into contraction:

• Manufacturing PMI 49.5
  vs. 50.2 expected and 50.2 prior.
• Services PMI 50.6 vs.
  51.8 expected and 51.7 prior.

The BoJ left interest
rates unchanged at -0.10% and kept the YCC but changed the language with the 1%
now just being a reference cap:

• Keeps short-term
  interest rate target at -0.1%.
• Keeps 10-year JGB
  yield target around 0%.
• Widens reference
  range to 1.0% point up and down each around its 10-year JGB yield target
  vs previous 0.5% point.
• Flexibly increase
  JGB buying, fixed-rate operations and collateral fund-supply operations.

• Changes language
  around 1.0% 10-year JGB yield cap.
• Decides to keep
  yield target but make 1% a reference cap.
• Will guide market
  operations nimbly.
• Will regard upper
  bound of 1% for 10-year JGB yield as reference in its market operations.
• Will determine offer
  rate for fixed-rate JGB buying operations each time, taking account market
  rates and other factors.
• Decides to make YCC
  more flexible.
• Japan’s inflation
  outlook overshooting but due largely to prolonged rises in import costs.

• Wages, prices must
  strengthen in virtuous cycle.
• BOJ will patiently
  continue monetary easing under YCC to support economic activity, create
  environment where wages rise more.
• Appropriate to make
  YCC more flexible given very high uncertainty over economy, markets.
• Strictly capping
  long-term rate with fixed-rate purchase operation at 1% will have strong
  positive effects but could also entail large side effects.
• As such, BoJ decided
  to conduct YCC mainly through large-scale JGB buying and nimble market
  operations.
• BoJ makes no change
  to its forward guidance.

Inflation forecasts boosted:

• Board’s core CPI
  fiscal 2023 median forecast at 2.8% vs. 2.5% in July.
• Board’s core CPI
  fiscal 2024 median forecast at 2.8% vs. 1.9% in July.
• Board’s core CPI
  fiscal 2025 median forecast at 1.7% vs. 1.6% in July.

• Board’s real GDP
  fiscal 2023 median forecast at 2.0% vs. 1.3% in July.
• Board’s real GDP
  fiscal 2024 median forecast at 1.0% vs. 1.2% in July.
• Board’s real GDP
  fiscal 2025 median forecast at 1.0% vs. 1.0% in July.

BoJ quarterly report:

• Japan’s economy
  likely to continue recovering moderately.
• Inflation likely to
  slow, then re-accelerate as wages rise, inflation expectations heighten.
• Uncertainty over
  Japan’s economic, price outlook very high.
• Must be vigilant to
  financial, FX market moves and their impact on Japan’s economy, prices.

BoJ
quarterly report on risks:

• Uncertainty over
  Japan’s economy, prices is extremely high.
• Need to closely
  watch financial, currency market moves, their impact on Japan’s economy,
  prices.
• Risks to price
  outlook skewed to upside in FY2023.
• Must closely watch
  whether favourable cycle of wage growth, prices will strengthen.
• Risks to economic
  outlook generally balanced in FY2023 and FY2024, but skewed to downside
  for FY2025.
• There is possibility
  wage growth may not strengthen as expected next year onward, causing
  prices to deviate downward.

Moving on to the Press Conference,
BoJ Governor Ueda repeated once again that the central bank will keep at it
with its easing measures as they don’t see a sustainable and stable increase in
prices:

• Will patiently
  continue monetary easing with decided new measures.
• Will closely
  scrutinise economy, price situation by examining wages and prices.
• Main reasons for
  inflation outlook overshoot compared to July are longer-than-expected
  effects of price pass-through and rising oil prices.
• But we are not in a
  situation to foresee sustainable and stable price increases.
• Will not hesitate to
  take easing measures if necessary.
• Don’t think
  long-term rates will come under pressure to exceed 1%.
• Today’s steps came
  partly as a result of rising US long-term rates.
• Strength of
  inflation, wages still not sufficient.
• Inflation outlook is
  slightly improved but can’t say with full confidence that it can be
  sustained.
• But we are getting
  gradually closer to achieving the price target.
• Next spring’s wage
  negotiations will be an important factor.
• Believes that can
  anticipate a certain level of wage hike next year.
• But difficult to say
  if can achieve continuous cycle of wage hikes and price increases.
• Until achievement of
  inflation target is in sight, both YCC and NIRP will be in place.
• The order of end of
  either policy would depend on economic, financial trends at the time.

The Eurozone October Preliminary
CPI missed expectations on the headline measure and came in line with forecasts
on the core figure:

• CPI Y/Y 2.9% vs.
  3.1% expected and 4.3% prior.
• CPI M/M 0.1% vs.
  0.3% expected and 0.3% prior.
• Core CPI Y/Y 4.2%
  vs. 4.2% expected and 4.5% prior.
• Core CPI M/M 0.2% vs. 0.2% prior.

The Eurozone Q3
Preliminary GDP missed expectations:

• GDP Q3 -0.10% vs. 0.0%
  expected and 0.1% prior.

ECB’s Visco (dove – non
voter) acknowledged the positive developments around inflation:

• Inflation falling as
  expected.
• Need to be cautious
  in coming months after the many rate hikes.
• Demand seen further
  contained due to delayed impact of rate hikes.
• Need to avoid
  excessive tightening of monetary, credit conditions.
• Fears of a
  wage-price spiral have sharply diminished.

The Canadian August GDP
came in flat at 0.0% vs. 0.1% expected and 0.0% prior:

• September advance GDP 0.0%.
• Services 0.1%.
• Goods -0.2%.
• Wholesale trade 2.3%.
• The mining,
  quarrying, and oil and gas extraction sector rose 1.2%.
• Manufacturing -0.6%.
• Accommodation and
  food services declined 1.8%.
• The transportation
  and warehousing sector increased 0.8%.
• Retail trade contracted 0.7%.

The US Employment Cost
Index for Q3 beat expectations:

• Employment Cost
  Index 1.1% vs. 1.0% expected and 1.0% prior.
• Wages 1.2% vs. 1.0% prior.
• Employment benefits
  0.9% vs. 0.9% prior.

ECB’s Stournaras (dove –
voter) talked about his requirement for a rate cut:

• Personally, I would
  consider cutting interest rates if inflation falls permanently and
  sustainably below the 3% threshold in mid-2024.
• Says he hasn’t
  discussed cutting rates next year with colleagues.
• We are now deep in
  restrictive territory, no matter which perspective you look at it from.
• The economy is much
  weaker than we thought in September.
• Financing conditions
  are also somewhat tighter than expected.

ECB’s Kazaks (hawk – non
voter) is refraining from rate cuts discussion as he remains wary of inflation
risks:

• No need to discuss
  rate cuts now.
• The risk of
  inflation persists.
• Door should always
  be open to hike if needed.
• Dramatic turnaround
  in economy needed for rate cuts.

ECB’s Villeroy (neutral –
voter) reaffirms the ECB’s “wait and see” stance:

• The latest data shows
  France has clearly passed inflation peak.
• Economy fully justifies
  end of rate hikes and future must be guided towards patience.

The US Consumer
Confidence for October beat expectations:

• Consumer Confidence
  102.6 vs. 100.0 expected and 104.3 prior (revised from 103.0).
• Present situation
  index 143.1 vs. 147.1 prior.
• Expectations index 75.6 vs. 73.7 prior.
• 1-year inflation
  expectations 5.9% vs. 5.8% prior.
• Jobs hard-to-get
  13.1 vs. 13.6 prior.

ECB’s Nagel (hawk
– voter) acknowledges the positive developments on the inflation front but
stresses the need to keep rates higher for longer:

• Rates must be
  sufficiently high for sufficiently long.
• Inflation has now
  fallen significantly but it is still too high.
• We must not let up
  too soon, rates must be sufficiently high for long time.
• It is not yet
  possible to say if rates have reached their peak.
• There are several
  upside risks to inflation.
• Inflation has proven stubborn.

The New Zealand
labour market report for Q3 missed expectations:

• Employment change
  -0.2% vs. 0.4% expected and 1.0% prior.
• Unemployment rate
  3.9% vs. 3.9% expected and 3.6% prior.
• Participation rate
  72.0% vs. 72.5% expected and 72.5% prior (revised from 72.4%).
• Labour cost index
  Y/Y 4.1% vs. 4.2% expected and 4.3% prior.
• Labour cost index
  Q/Q 0.8% vs. 1.0% expected and 1.1% prior.

ECB’s Muller (neutral
– voter) is acknowledging the progress on the inflation front:

• Inflation in the
  euro area is clearly coming down.
• Inflation will
  continue to fall over the coming two years.
• Geopolitical
  tensions are causing energy prices to rise again, and the conflict in the
  Middle East and the danger of it spreading are one of the main risks
  facing the decline of euro area inflation.
• Inflation is still
  too high. One of the main causes the relatively fast growth in wages.

The Chinese Caixin
Manufacturing PMI for October returns in contraction coming in at 49.5 vs. 50.8
expected and 50.6 prior.

The Switzerland
Manufacturing PMI for October fell again further in contraction:

• Manufacturing PMI
  40.6 vs. 45.0 expected and 44.9 prior.

The Canadian
Manufacturing PMI for October improved but remained in contraction:

• Manufacturing PMI
  48.6 vs. 47.5 prior.

The US Job
Openings beat expectations:

• Job openings 9.553M
  vs. 9.250M expected and 9.497M prior (revised from 9.610M).
• Hires 3.7%% vs. 3.7%
  prior.
• Separations rate 3.7% vs. 3.6% prior.
• Quits 2.3% vs. 2.3% prior.

The US ADP missed
expectations coming in at 113K vs. 150K expected and 89K prior:

• Small (less than 50
  employees) 19K vs. 95K prior.
• Medium firms (500 –
  499) 78K vs. 72K prior.
• Large (greater than
  499 employees) 18K vs. -83K prior.

Changes in pay:

• Job stayers 5.7% vs. 5.9% prior.
• Job changers 8.4% vs. 9.0% prior.

The US ISM
Manufacturing PMI missed expectations by a big margin:

• Manufacturing PMI
  46.7 vs. 49.0 expected and 49.0 prior.
• Prices paid 45.1 vs.
  45.0 expected and 43.8 prior.
• Employment 46.8 vs.
  50.3 expected and 51.2 prior.
• New orders 45.5 vs. 49.2 prior.
• Inventories 45.8 vs. 45.8 prior.
• Production 52.5 vs. 52.5 prior.

The Federal Reserve left
interest rates unchanged at 5.25-5.50% with no material change to the
statement:

• Recent indicators
  suggest that economic activity expanded at a strong pace in the
  third quarter vs. prior statement that said economy was “solid”.
• Repeats that inflation
  remains elevated.
• Repeats “The
  Committee remains highly attentive to inflation risks”.

Moving on to the press conference, Fed Chair Powell in
his opening remarks basically repeated that the central bank is proceeding
carefully due to the monetary policy lags but they are also attentive to the
recent strength in data:

• The Committee is
  proceeding carefully.
• We remain strongly
  committed to bringing inflation back to goal.
• The full effects of
  policy tightening have yet to be felt.
• Economy has expanded
  well above expectations.
• The labour market
  remains tight.
• Supply and demand
  conditions for labour continue to come into better balance.
• Nominal wage growth
  has shown some signs of easing.
• The process of
  getting inflation back to 2% still has a long way to go.
• We are highly
  attentive to the risks that inflation poses to our mandate.
• A few months of good
  inflation data ‘only the beginning of what it will take’.
• We are attentive to
  recent data showing resilience in growth and labour.
• Data could warrant
  further tightening of monetary policy.
• We will continue to
  make our decisions meeting-by-meeting.
• Reducing inflation
  is likely to require a period of below-potential growth and labour market
  conditions softening.

Moving
on to the Q&A session:

• We are attentive to
  the increase in longer-term yields.
• Higher rates can
  have implications for monetary policy but would need to be persistent.
• Higher yields are
  being reflected in the market and having an effect on borrowing.
• It does not appear
  that policy expectations are driving rates.
• We have not made any
  decisions on future meetings.
• Going into the
  December meeting, we’ll get 2 more jobs and inflation reports.
• Will look at all
  things into December but the idea that it’s difficult to re-start hikes
  after stopping, it’s just not true.
• Decision for today
  was this meeting only.
• The staff did not
  put a recession back into the forecast.
• We’re not thinking
  about rate cuts or talking about rate cuts.
• The question we are
  asking is: Should we hike more?
• We are proceeding carefully.
• It feels like the
  risks are more two-sided now around inflation.
• Labor demand is
  clearly very strong, but we’ve seen supply of workers come online.
• It’s not clear that
  the conflict in the Middle East is on track to have an economic impact on
  the USA.

ECB’s Knot (hawk – voter)
is comfortable with the current level of rates:

• Policy rates now are
  at a good ‘cruising altitude’.
• Current level of
  rates can remain for some time.
• Should be a little
  patient and not raise rates too much to prevent choking off the economy.

The Switzerland CPI came
in line with expectations with the Core measure rising a bit but remaining
comfortably in the SNB’s target range:

• CPI Y/Y 1.7% vs. 1.7%
  expected and 1.7% prior.
• Core CPI Y/Y 1.5% vs.
  1.3% prior.

The US Challenger Job
Cuts came in at 36.84K vs. 47.46K prior, the least in three months.

The BoE left interest
rates unchanged at 5.25% as expected:

• Bank rate vote 3-6 vs. 3-6 expected (Greene, Haskel, Mann voted to raise by
  25 bps).
• Policy likely needs to be restrictive for extended period of time.
• Will continue to monitor closely inflation persistence and resilience in
  the economy as a whole.
• Further tightening in monetary policy would be required if there were
  evidence of more persistent inflationary pressures.
• Estimates UK GDP flat for Q3 2023 (previously 0.1%).
• Estimates UK GDP to be 0.1% in Q4 2023.
• Inflation well above target of 2% but expected to continue to fall sharply.
• Market participants had reported an increasing conviction that UK policy
  rates would remain ‘higher-for-longer’.
• Some business surveys are pointing to a fall in GDP in Q4 2023.
• But more forward-looking indicators were less pessimistic about growth
  prospects.

Moving on to the press
conference, BoE Governor Bailey just reaffirmed that the central bank will now
keep rates high for long enough to return inflation to their 2% target:

• Inflation is still
  too high.
• We will keep rates
  high enough for long enough to return inflation to target.
• OFGEM price cap
  means we can be confident about energy bills lowering inflation.
• It’s important that services
  inflation falls steadily over next year.
• There is a
  considerable way to go on quashing inflation.
• Whether GDP growth
  is slightly negative or slightly positive won’t impact monetary policy.
• How long restrictive
  stance will be needed depends on incoming data.
• We have to be
  mindful of balance of risks between doing too little and too much.
• Events in Middle
  East create risk of higher energy prices.
• We are making good
  progress on bringing inflation down.
• Now some signs that
  the economy has started to grow more slowly, that’s to be expected.

The US Jobless Claims
missed expectations across the board once again:

• Initial Claims 217K
  vs. 210K expected and 210 K prior.
• Continuing claims
  1818K vs. 1.800K expected and 1790K prior.

ECB’s de Cos (dove – voter)
just stated that it’s too early to be speaking about rate cuts as the ECB is now
committed to keep interest rates high for a sufficiently long time.

ECB’s Schnabel (hawk –
voter) moves to the sidelines as the ECB is now in a “wait and see” mode:

• With our current
  monetary policy stance, we expect inflation to return to our target by
  2025.
• The disinflation
  process during the last mile will be more uncertain, slower and bumpier.
• We cannot close the
  door to further rate hikes.
• If Middle East conflict
  remains contained, energy price impact limited.

The Chinese Caixin
Services PMI missed expectations:

• Services PMI 50.4 vs.
  51.2 expected and 50.2 prior.
• Composite PMI 50.0 vs. 50.9 prior.

The Eurozone Unemployment
Rate missed expectations coming in at 6.5% vs. 6.4% expected and 6.4% prior.

The Canadian Jobs data
missed expectations across the board:

• Employment change
  17.5K vs. 22.5K expected and 63.8K prior.
• Unemployment rate
  5.7% vs. 5.6% expected and 5.5% prior.
• Full-time employment
  -3.3K vs. 15.8K prior.
• Part-time employment
  20.8K vs. 47.9k prior.
• Participation rate
  65.6% vs. 65.5% prior.
• Average hourly wages
  permanent employees 5.0% vs. 5.3% prior.

The US Labour Market
report missed expectations across the board with negative revisions to the
prior figures and some upward pressure on wages although they are likely to
cool with a softening labour market:

• Non-farm Payrolls
  150K vs. 180K expected and 297K prior (revised from 336K).
• Two-month net
  revision -101K vs 119K prior.
• Unemployment rate
  3.9% vs. 3.8% expected and 3.8% prior.
• Participation rate 62.7% vs. 62.8% prior.
• U6 underemployment
  rate 7.2% vs. 7.0% prior.
• Average hourly
  earnings M/M 0.2% vs. 0.3% expected and 0.3% prior (revised from 0.2%).
• Average hourly
  earnings Y/Y 4.1% vs. 4.0% expected and 4.3% prior (revised from 4.2%).
• Average weekly hours
  34.3 vs. 34.4 expected and 34.4 prior.
• Change in private
  payrolls 99K vs. 158K expected.
• Change in
  manufacturing payrolls -35K vs. -10K expected.
• Household survey
  -348K vs. 86K prior.
• Birth-death
  adjustment 412K vs. -119K prior.

BoE’s Pill just
reaffirmed the central bank’s “wait and see” approach:

• Hold decision
  reflected view some restrain on economy needed to be maintained.
• There is still a
  need to bear down on inflation.
• Balance of economic
  drivers has switched to supply side.
• We can be less
  sanguine about idea of slowing demand will lead to inflation returning to target.
• We have not really
  entertained the idea of cutting rates.

The Hezbollah leader Hassan
Nasrallah is distancing himself from the terrorist operation in Gaza saying
that “the operation was 100% planned in Gaza”. Crude Oil fell following the
headline as the market is starting to look past the conflict with the
recessionary fears now back in focus.

The Canadian Services PMI fell further into contraction:

• Services PMI 46.6
  vs. 47.8 prior.

The US ISM Services PMI
missed expectations:

• ISM Services PMI 51.8
  vs. 53.0 expected and 53.6 prior.
• Employment index 50.2 vs. 53.4 prior.
• New orders index
  55.5 vs. 51.8 prior.
• Prices paid index
  58.6 vs. 58.9 prior.
• New export orders
  48.8 vs. 63.7 prior.
• Imports 60.0 vs. 50.6 prior.
• Backlog of orders
  50.9 vs. 48.6 prior.
• Inventories 49.5 vs. 54.2 prior.
• Supplier deliveries 47.5 vs. 50.4 prior.
• Inventory sentiment 54.4 vs. 54.8 prior.

The
highlights for next week will be:

• Monday: BoJ Meeting Minutes.
• Tuesday: Japan Wage data, Chinese
  Trade data, RBA Policy Decision, Switzerland Unemployment Rate, Eurozone PPI.
• Wednesday: Eurozone Retail Sales,
  BoC Summary of Deliberations.
• Thursday: BoJ Summary of Opinions,
  Chinese Inflation data, US Jobless Claims, New Zealand Manufacturing PMI.
• Friday: UK GPD
  Q3 Preliminary, University of Michigan Consumer Sentiment.

That’s all folks. Have a
great weekend!