Macro events & news for October 28, 2015

28 October, 2015

Macro events & news for October 28, 2015

FX News Today

The AUD provided the main action in overnight trade, the AUDUSD fell around 80 pips in making a three-week low at 0.7111, taking out its 50-day moving average at 0.7138 on route.

German GfK consumer confidence declines, confirming the downtrend in recent months. The low interest rate environment is making savings increasingly unattractive. At the same time, income expectations may have remained steady over the month, but have come down markedly since the summer and with business cycle expectations now in negative territory consumers are clearly starting to get concerned about the outlook.

German import price inflation weaker than expected, this continues to be driven by lower oil prices and the annual rate excluding oil related products remains in positive territory. Lower than expected import price inflation will gradual feed through to headline CPI numbers and therefore add to the arguments of the doves at the ECB, with the updated set of staff projections in December likely to bring another adjustment in inflation projections and delivering Draghi the justification for additional easing.

Australia Core CPI was below projections, putting perhaps some pressure on the RBA to ease again. CPI increased 0.5% in Q3. Australia CPI grew at a 1.5% y/y rate, matching the 1.5% y/y rate in Q2. CPI grew at a 1.3% y/y clip in Q1. Total CPI has run below 2.0% since Q4 of 2014, which was a 1.7% rate. The trimmed mean CPI slowed to a 2.1% y/y pace from a 2.2% y/y pace in Q2 and a 2.3% rate in Q1. The weighted median CPI expanded at a 2.2% y/y rate in Q3 after the 2.4% y/y clip in Q2 and the 2.5% clip in Q1.

Japan retail sales fell 0.2% y/y in Sep, September retail sales fell 0.2% y/y after rising 0.8% y/y in August. On the month sales edged up 0.7% versus unchanged previously. Large retailer sales slowed slightly to a 1.7% y/y pace from August’s 1.8%. (28-Oct). Household spending, or PCE rebounded 2.9% y/y in August after falling 0.2% y/y in July, and versus -2.0% y/y in June. (Aug 28). Consumer Confidence (SA) fell to 40.3 in July from 41.7 in June and 41.4 in May. (Aug 10).

Bank of Japan to Expand Stimulus, Slowing inflation growth alongside and a mixed domestic growth backdrop provide the Bank of Japan with the backing to expand already ample policy accommodation. The rate cut by China’s central bank and dovish guidance from the European Central Bank have stacked the deck in favor of further easing measures from the Bank of Japan, as we expect them to pursue a more is better approach to policy.

FOMC likely to hold firm with minimal changes to outlook, The FOMC meets today and tomorrow and there is virtually no chance for any changes in policy. But the policy statement will be scrutinized for any indications that December will be the start of the tightening process. It’s still the case that only the employment mandate is being met, while inflation is still lagging. But weakness in recent real sector data, including today’s September durables report, along with renewed erosion in commodity prices, and the firmer dollar, argue against accelerating growth and don’t suggest inflationary pressures will be on the rise anytime soon. Look for the Fed to modify its language, perhaps shifting its characterization on the economy from moderate to modest. It’s likely to downshift slightly its view on the labor market after say it’s “continued to improve” in the September statement. On inflation the Fed can reiterate it’s running below forecast, while market based measures have moved lower too. These factors put the FOMC in a difficult spot credibility-wise, especially those policymakers who are anxious to tighten now, as data are leaning to the contrary. Policymakers can’t be encouraged by the Q slowdown abroad either, and the more accommodative postures from the ECB, PBoC, and probably the BoJ, keep the Fed in a bind too.

Main Macro Events Today

• USD Goods Trade Balance: The trade deficit has narrowed sharply since recent-highs early in 2012, and hovered close to levels seen in 2009 before the recent string of widening deficits that peaked in April. The September trade deficit is expected to contract 2.7% to -$47.0 bln after expanding 15.6% to -$48.3 bln in August. Exports in September are expected to decline 0.2% while imports show a 0.7% decrease on the month. The U.S. current account deficit narrowed to -$109.7 bln in Q2 from the -$118.3 bln deficit in Q1. Its expected for the deficit to be -$102 bln in Q3.

• USD FOMC Statement: Few expect any move from the Fed this year, let alone in the off-month of October.

• NZD RBNZ Monetary Policy Statement: the New Zealand Institute of Economic Research’s (NZIER) Shadow Board is sending the Reserve Bank (RBNZ) ahead of its Official Cash Rate (OCR) review today . The Board, comprised of nine economists and business leaders, is calling for RBNZ Governor Graeme Wheeler to leave the OCR at 2.75%. Wheeler has cut the OCR by 25 basis points on three occasions this year, indicating in his September Monetary Policy Statement, “Some further easing in the OCR seems likely”. NZIER senior economist Christina Leung recognizes that while inflation is very subdued at 0.4%, the economy will receive a boost.


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