FX News Today
European Outlook: Asian stock markets moved broadly higher overnight, following on from gains on Wall Street and in Europe yesterday. U.S. and U.K. stock futures are also posting gains. A weaker Yen and stimulus hopes ahead of tomorrow’s ECB meeting are underpinning markets and gains in banks, exporters and telecoms helps to compensate for the lack of impulses from energy produces as oil prices dip. The front end WTI future is trading at USD 50.76 per barrel amid doubts over compliance with the OPEC deal on production cuts. Gold also closed below USD 1170.00 The European calendar has production data out of the U.K. and even if the German number is likely to surprise on the upside after much stronger than expected orders data yesterday, it is unlikely to derail hopes of a QE extension from Draghi tomorrow.
German production data came in weaker than expected, with a modest 0.3% m/m rebound from the drop in September that was revised up to -1.6% m/m from -1.8% m/m reported initially. After the stronger than expected orders number yesterday it looked like production would also surprise on the upside, but a contraction in energy and intermediate goods production held back the overall number. Still, the three months trend rate jumped sharply and together with the strong manufacturing orders data yesterday and robust survey data the numbers still back expectations for an acceleration in overall growth in the last quarter of the year.
Australian GDP: Australia’s economy contracted by 0.5% in the September quarter, ending five years of uninterrupted growth. The slowdown is mainly attributed to cutbacks in spending by businesses, consumers and the government. This is the first shrinkage in the economy since early 2011. Interestingly the previous quarter was revised upwards to 0.65 from 0.5% and some analysts are optimistic that this may be an outlier in data terms and that growth will pick up in subsequent quarters. The mining boom and high demand for Australia’s commodities have kept the economy recession-free for the past 25 years. The Australian dollar fell by half a US cent after the data, to $0.7420.
Masayoshi Son of Softbank agreed to a $50 bln investment in the U.S. businesses: To create 50k in new jobs, according to DJ Trump Tweets and now confirmed by Son on CNBC. Trump said that Son said he would never have done this had Trump not won the election. Trump is continuing his run as CEO of the United States well before his inauguration as president. Look for activity in telecom shares (particularly Sprint, T- Mobile (merger?) AT&T and Verizon) based upon this revelation. U.S. equities firmed to close at record highs and Softbank shares closed up 6% in Tokyo trading.
Yesterday’s US Data Reports: Revealed slight undershoots for October factory goods and trade, along with an unrevised Q3 productivity figure that undershot expectations of a small boost thanks to a hike in the Q3 hours-worked figure that offset the output hike implied by the last GDP report. We did see the big Q2 and Q3 compensation boosts implied by the last set of income data, and the figures remain consistent with an assumed 1.8% growth rate for Q4 GDP after a Q3 growth boost to 3.3% from 3.2%, though with some downside risk given the surprisingly slow rate of recovery for inventories as we enter Q4 alongside October export weakness.
Main Macro Events Today
- BOC Outlook – Downside risks may feature in the announcement later, as export volumes tumbled 0.9% in October after the 1.7% plunge in September. The growth trajectory has progressed roughly as expected since October, with the 3.5% rebound in Q3 GDP and strong hand-off to Q4 GDP tilting the outlook for 2016 and 2017 slightly higher. But the lack of growth in exports is a persistent source of uncertainty going forward, and the recent appreciation in the loonie adds to the uncertainty around the trade outlook. Granted, oil prices have driven the improvement in the loonie, and higher oil prices are, of course, good news for Canada. With second half growth on track to run roughly as expected, crude oil back at $50 and the U.S. economy continuing to improve, the December announcement seems unlikely to warrant a repeat of October’s “close call” between a cut and no change. Expectations are for no change in rates well into 2018.
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