FX News Today
European Outlook: Asian stock markets are mixed, with Japanese markets fluctuating and closed with slight gains after the BoJ left rates unchanged, but lowered the inflation outlook. The Hang Seng is outperforming and mainland Chinese markets are also underpinned, after the official manufacturing PMI improved. The ASX underperformed as AUD strengthened and U.S. and U.K. stock futures are moving higher. Oil prices are up from lows, but the front end WTI future is just above USD 47 per barrel and clearly down from recent highs, amid the lack of an OPEC output deal. In Europe trade is likely to be quieter than usual, with a public holiday in some European countries, including parts of Germany. This will delay the release of final EMU manufacturing PMI numbers until tomorrow, while Switzerland and the U.K. will publish manufacturing PMI data today.
The BoJ left policy unchanged following the conclusion of its latest policy meeting, as had been widely expected. This left the interest rate at -0.1% and QQE unchanged at Y80 tln per year. The central bank also pushed back, once again, the time when it expects inflation to reach the 2% target, now projecting this to happen “around fiscal 2018.” Previously the BoJ had forecast inflation returning to target by the end of fiscal 2017, which ends in March 2018. The ellusive target was first introduced in 2013. Headline core CPI fell to -0.5% y/y in October, while the so-called “core-core” CPI figure was flat y/y, a three-year low and highlighting sluggish consumer demand. The central bank also trimmed its inflation forecasts today, now seeing core CPI at 1.5% in 2017 versus 1.7% previously. On the economy, the BoJ said that the economy would continue to expand moderately, but noted that households haven’t been spending increased income and that the risks to the outlook were skewed to the downside.
FX Update: The Aussie dollar was the standout performing, rallying on the RBA’s decision to leave policy unchanged. AUD-USD and AUD-JPY are registering the biggest movement out of the currencies we track, showing respective gains of 0.7% and 0.8% into the London interbank open. Australia’s weak core inflation data had fed some speculation that the RBA might have opted to make a third rate cut of the year. But the antipodean central bank stood pat and Governor Lowe’s statement was upbeat in outlook, noting that “over the next year, the economy is forecast to grow at close to its potential rate before gradually strengthening” with inflation “expected to pick up gradually over the next two years.” AUDUSD clocked a six-day high at 0.7688 while AUDJPY broke into three-month high terrain. Stronger than expected October manufacturing PMI surveys out of China, with the Caixin version reaching its best level since August 2011, also lifted the Aussie. Elsewhere, currencies generally saw narrow ranges. Cable consolidated gains seen into the London close yesterday, holding around 1.2220-30. EURUSD continued to narrowly orbit the 1.0950 level. USDJPY popped moderately higher after the expected decision by the BoJ to leave policy unchanged with the central bank lowering CPI forecasts and yet again pushing back the time it expects the 2% target to be reached.
US Data reports: Mixed. We saw a moderate 0.3% September personal income gain, but with a solid 0.5% consumption rise, alongside divergent October swings for the Chicago PMI and the Dallas Fed that left both measures below prior estimates. We saw a Chicago PMI drop to a 5-month low of 50.6 from 54.2, and a rise for the Dallas Fed to a still-negative -1.5 in October from -3.7. We saw an ISM-adjusted Dallas Fed drop to 49.6 from 51.2 in October and 50.7 in September.
Carney to stay and extra 12 months: BoE’s Carney will stay on another year, taking his term beyond the expected Article 50 process in order to help secure an orderly transition. This followed a meeting yesterday with PM May, the UK Finance Minister Hammond says he’s “very pleased” to hear that Carney intends to stay until the end of June 2019.
Main Macro Events Today
- US manufacturing ISM – The October ISM should reveal a headline increase to 51.7 from 51.5 in September and 49.4 in August. Already released measures of sentiment for October have revealed headline declines. More broadly we expect sentiment to improve in October with the ISM-adjusted average of all measures climbing to 51 after two months at 50 as inventory headwinds dissipate and the mining sector rebounds.
- Canada GDP – Expectations are for a 0.2% rise in September GDP. The modest gain would follow the back to back surges in August (+0.5%) and July (+0.6%), as the economy, or more specifically oil sands production in the Fort McMurray region, rebounded from the wildfires that shuttered production in May (when GDP fell 0.6%). The energy sector saw continued growth in September, as export volumes grew and higher volumes boosted manufacturing production.
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