Forex Major Currencies Outlook (Nov 21 – Nov 25)

USD

Retail sales in October posted a strong gain and came in at 1.3% m/m, up from being flat in September. Control group came in at 0.7% m/m while previous month’s reading was revised to 0.6% m/m from 0.4% m/m. This shows a healthy contribution to Q4 GDP. Ex autos category also printed 1.3% m/m vs 0.1% m/m in September. Potentially early Christmas shopping pushed the numbers higher. Housing data shows how high interest rates impact housing activity. Housing starts fell to 1425k from 1488k in September while building permits came in at 1526k, down from 1564k the previous month. NAHB sentiment survey fell to 33 making it the lowest level since 2012, if we exclude the pandemic caused drop in 2020.

The yield on a 10y Treasury started the week at around 3.9%, fell during the week to 3.67% and finished the week at around 3.8%. The yield on 2y Treasury reached 4.4% during the week. Spread between 2y and 10y Treasuries started the week at -49bp and widened to -70bp. FedWatchTool sees the probability of a 50bp rate hike in December at 80.6% with a probability of a 75bp rate hike at 19.4%.

EUR

German ZEW survey for the month of November surprised to the upside. German current conditions came in at -64.5 vs -72.2 in October with expectations climbing to -36.7 from -59.2 the previous month. Expectations for the Eurozone came in at -38.7, up from -59.7 in October. This is a much welcomed positive data, however the readings are still deep into negative territory and close to historical lows. Second reading of Q2 GDP was unchanged at 0.2% q/q and 2.1% y/y.

This week we will have preliminary PMI data for the month of November.

Important news for EUR:

Wednesday:

• S&P Global Manufacturing PMI (EU, Germany, France)
• S&P Global Services PMI (EU, Germany, France)
• S&P Global Composite PMI (EU, Germany, France)

GBP

UK employment report saw ILO unemployment rate tick up to 3.6% for the month of September while employment change for the three month period preceding September came in at -52k. Average weekly earnings held strong at 6% 3m/y while when we exclude bonus they rose to 5.7% 3m/y from 5.5% 3m/y as reported previous month. Hiring process seems to pass its peak in the UK and now it is a matter of filling vacancies. Still there are troubles regarding shortage of skilled workers.

Inflation print in October hit the 11% level as indicated by BOE by coming in at 11.1% y/y vs 10.1% y/y in September. It was a full 2% m/m increase! Headline number is the highest since 1981. Gas and electricity prices were the biggest contributors followed by increases in food prices. ONS noted that if EPG (Energy Price Guarantee) was not imposed, electricity and gas prices would have increased by much bigger percent and that would have translated to headline inflation of 13.8%. Core reading was steady at 6.5% y/y with increase of 0.7% m/m. Markets are pricing another 50bp rate hike in December with 75bp not so distant possibility. Retail sales came in at 0.6% m/m, up from -1.5% m/m in September. When we dig into the details we see that volumes decreased 6.1% y/y leaving the rise in consumption reading to rising prices.

This week we will have preliminary PMI data for the month of November.

Important news for GBP:

Wednesday:

• S&P Global Manufacturing PMI
• S&P Global Services PMI
• S&P Global Composite PMI

AUD

RBA meeting minutes from the November meeting kept things vague signalling that neither larger hikes ahead or a pause cannot be ruled out. Incoming data suggests that Q3 GDP will be a solid one. The board will closely watch price-wage spiral and medium term inflation expectations and wages are consistent with inflation returning to 2-3% target. Wage growth in Q3 came in at 3.1% y/y. With inflation running at 7.3% y/y it shows how deeply in the negative territory real wages are.

October jobs report was another proof of a tight market. Employment change came in at 32.2k vs 15k as expected. The unemployment rate ticked down to 3.4% which is the lowest level since 1974. Participation rate did tick down to 66.5% from 66.6% in September. All of the jobs added and then some were full-time (47.1k) while part-time saw a decrease of 14.9k. RBA is expected to raise by 25bp at the December meeting.

Chinese data for October turned sour. Industrial production slid to 5% y/y from 5.3% y/y in September while retail sales came in at -0.5% y/y, down from 2.5% y/y the previous month. Consumer electronic goods, decorations and furniture sales showed the biggest drop. China eased its Covid restrictions on last Friday (November 11). Greater mobility should help retail sales go up in November.

NZD

Q3 PPI data showed inputs increasing 0.8% q/q, down from 3.1% q/q the previous quarter while outputs increased 1.6% q/q, down from 2.4% q/q in Q2. Slower increases compared to Q2 may indicate that price pressures are waning and it will be welcomed by the RBNZ. There was a nice bounce back in dairy prices as GDT index rose 2.4%. This comes after three consecutive auctions of falling prices so overall dairy prices are still subdued.

This week we will have RBNZ meeting and Q3 consumption data. Markets positioning hovers between a 50bp and a 75bp rate hike with OIS curve discounting 63bp.

Important news for NZD:

Wednesday:

• RBNZ Interest Rate Decision

Thursday:

• Retail Sales

CAD

October inflation report saw headline reading unchanged at 6.9% y/y as was expected. Core readings were higher across the board with median ticking up to 4.8% y/y, trimmed to 5.3% y/y while common rose to 6.2% y/y from 6% as expected and as printed in September. Headline holding high and core readings ticking up may nudge BOC towards raising further 50bp instead of 25bp as they would wish for.

JPY

Preliminary Q3 GDP reading saw economy contract -0.3% q/q and -1.2% annualized. This comes after healthy revisions up to the Q2 GDP reading and it more than softens the blow. Private consumption rose 0.3% q/q while business investment rose 1.5% q/q. Net external demand deducted -0.7pp from the GDP as imports rose faster than exports. Final industrial production reading for September fell 1.7% m/m but continued to improve 9.6% y/y making it a fifth consecutive month of y/y increases. Core machinery orders, a good proxy for the capex 6-9 months into the future, missed badly in September with -4.6% m/m vs 0.7% m/m as expected and 2.9% y/y vs 8% y/y as expected. With falls in industrial production and core machinery orders BOJ will be in no hurry to tighten monetary policy.

National inflation in October rose to a 40-year high at 3.7% y/y vs 3% y/y in September. Ex fresh food component rose to 3.6% y/y from 3% y/y the previous month while ex fresh food, energy came in at 2.5% y/y vs 1.8% y/y in September. BOJ Governor Kuroda continued with its rhetoric stating that CPI will likely slow from 2023 and added that there are no signs of sustainable inflation over 2%. The bank will continue with its easing monetary policy.

CHF

SNB total sight deposits for the week ending November 11 came in at CHF571.1bn vs CHF572.1bn the previous week. Another week another decline, however this time almost a negligible decline. SNB Chairman Jordan stated that growth in 2023 will be lower than in 2022. The bank’s stance is that inflation will moderate but there is a great probability that they will need to tighten monetary policy further. He also added that rate hike may occur at next month’s meeting but decision will be data dependent.

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_{Please note that this analysis should not be used as investing advice as it is only an overview of the economic events influencing the markets. Please remember that our accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.}