The Weekly Wrap – Inflationary Pressures Shift Monetary Policy Expectations and Peg the Dollar
It was a busier week on economic calendar, in the week ending 22sd October.
A total of 61 statistics were monitored, up from 56 the week before.
Of the 61 statistics, 26 are ahead of forecast, with 30 economic indicators below expectations. There were 5 stats that were in line with the week’s forecast.
Looking at the numbers, 29 of the statistics reflect an upward trend compared to previous numbers. Of the 32 remaining statistics, 31 reflected a deterioration from the previous one.
For the greenback, a recovery in the market’s risk appetite weighed again. Rising expectations of a central bank policy change elsewhere have added additional pressure on the dollar. Growing cost pressures have increased the chances of the ECB, BoE, BoC and others to act sooner than expected. In the week ending 22sd In October, the Dollar Spot Index fell 0.31% to 93.642. The week before, the dollar had fallen 0.14% to 93.937.
Outside the United States
At the start of the week, industrial production disappointed, falling 1.3% in September. Production fell 0.1% in August.
On Thursday, attention shifted to the Philly FED Manufacturing PMI and jobless claims numbers.
As the Philly Fed’s manufacturing PMI fell from 30.7 to 23.8, the employment sub-index fell from 26.3 to 30.7.
The jobless claims also gave a positive picture of labor market conditions. In the week ending 15the October, jobless claims fell from 296k to 290k. Avoiding a drop to 300,000 levels was key.
At the weekend, preliminary private sector PMIs delivered mixed results.
In October, the manufacturing PMI fell from 60.7 to 59.2 while the services PMI fell from 54.9 to 58.2. The recovery of activity in the service sector was decisive during the week.
On the monetary policy front, Fed Chairman Powell spoke at the end of the week as the Fed is expected to start shrinking.
Outside the UK
It was a busier week.
Earlier this week, inflation figures pegged the pound sterling as inflationary pressures eased in September.
The annual inflation rate slowed, albeit modestly, from 3.2% to 3.1%. In September, the producer price index for inputs rose 0.4% month-on-month, after increasing 0.5% in August.
At the weekend, retail sales and private sector PMIs delivered mixed results.
Core retail sales fell 0.6%, following a 1.2% drop in August. Retail sales fell 0.2% after falling 0.6% in August.
However, preliminary private sector PMIs were positive for the pound.
In October, the manufacturing PMI fell from 57.1 to 57.7 and the services PMI from 55.4 to 58.0.
During the week, the Grind rose 0.03% to end the week at $ 1.3755. The British pound had advanced 1.00% to $ 1.3751 the week before.
The FTSE100 ended the week down 0.41%, partially offsetting a 1.95% gain from the previous week.
Outside the euro zone
Inflation figures were in the spotlight midweek.
Wholesale inflationary pressures in Germany intensified, with the annual wholesale inflation rate falling from 12.0% to 14.2%.
The final inflation figures for the euro area also confirmed the current trend in consumer prices.
In September, the euro zone’s annual inflation rate fell from 3.0% to 3.4%.
On Thursday, however, consumer confidence disappointed. For October, the euro zone consumer confidence indicator fell from -4.0 to -4.8.
Over the weekend, however, the preliminary private sector PMIs for October brought some comfort.
The German manufacturing PMI fell from 58.4 to 58.2, while the eurozone manufacturing PMI fell from 58.6 to 58.5.
Activity in the service sector experienced a more marked slowdown in growth at the turn of the quarter.
The eurozone services PMI index fell from 56.4 to 54.7.
For the week, the EUR rose 0.36% to $ 1.1643. The previous week, the euro had risen 0.28% to $ 1.1601.
The DAX40 was down 0.28%, while the EuroStoxx600 and CAC40 ended the week up 0.53% and 0.09% respectively.
For the loonie
The statistics included inflation and retail sales figures, which were positive for the loonie.
In September, the annual core inflation rate fell from 3.5% to 3.7%, raising the prospect of a BoC move.
At the weekend, retail sales also impressed despite mounting inflationary pressures.
Retail sales rose 2.1% in August after falling 0.1% in July. Core retail sales jumped 2.8%, reversing a 0.4% drop from July with interest.
From the BoC, the business outlook survey was the focus at the start of the week. The survey revealed an increase in demand but also an upward pressure on costs. The companies have highlighted the current supply constraints that could tie up sales.
In the week ending 22sd October, the loonie rose 0.01% to C $ 1.2367. During the previous week, the loonie had risen 0.83% to reach C $ 1.2368.
The Australian dollar rose 0.61% to $ 0.7466, with the Kiwi dollar ending the week up 1.27% to $ 0.7157.
For the Australian dollar
It has been a quiet week, with economic data limited to business confidence numbers.
For the 3rd quarter, the NAB Business Confidence Index fell from 18 to -1. The decline had a moderate impact on the Australian dollar, however, as the restrictions weighed on sentiment in the near term.
On the monetary policy front, the minutes of the RBA meeting gave support. Despite the latest lockdown measures, the RBA has maintained its political outlook on policy change in 2024.
For the Kiwi Dollar
Inflation was the focus of concern again, giving the Kiwi dollar a boost.
In the 3rd quarter, the annual inflation rate accelerated from 3.3% to 4.9%. On a quarterly basis, consumer prices rose 2.2% after increasing 1.3% in the previous quarter.
For the Japanese yen
Business data was the center of attention in the middle of the week. In September, Japan’s trade deficit narrowed from 637.2 billion yen to 622.8 billion yen. Exports increased by 13.0% year on year, and imports by 38.6%.
At the weekend, inflation and private sector PMIs were positive for the yen.
In September, the annual core inflation rate fell from -0.2% to 0.1%.
More importantly, however, was the return to growth in the private sector in October.
The manufacturing PMI fell from 51.5 to 53.0, and the services PMI from 47.9 to 50.7.
The Japanese yen rose 0.63% to 113,500 against the US dollar. During the previous week, the yen had fallen 1.76% to 114.220.
Outside of china
It has been a busy week, with the GDP figures in focus.
In the 3rd quarter, the Chinese economy grew only 0.2% after growing 1.3% in the previous quarter. Year on year, the economy grew 4.9% against 7.9% in the previous quarter.
While industrial production and capital investment figures were also disappointing, retail sales and unemployment were positive.
In September, retail sales rose 4.4% year on year, compared to 2.5% in August.
The unemployment rate in China fell from 5.1% to 4.9%, which was also positive for the markets.
In the week ending 22sd In October, the Chinese yuan rose 0.79% to 6.3850 CNY. The previous week, the yuan ended the week down 0.13% to CNY6.4357
The CSI300 and Hang Seng ended the week up 0.56% and 3.14% respectively.
This item was originally posted on FX Empire