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by Darius Anucauskas

WEEKLY OUTLOOK: NOV 11 – NOV 15: UK EMPLOYMENT, RBNZ INTEREST RATE AND GLOBAL INFLATION

This should be an interesting week, given that we have a bunch of countries delivering on their inflation numbers and some other important data as well. Major central banks will keep a close eye on those CPI numbers, in order to understand how close are the figures to their targets. UK will deliver their GDP and unemployment figures. The RBNZ is set to release their interest rate and Australia will show how its labour market performed over the month of October.

Monday kicked off with Norway delivering on their inflation numbers. The year-to-date core CPI one was believed to come out at +2.3%, but it showed up at the same level as the previous one, at +2.2%. The MoM core CPI was expected to have declined from +0.6% to +0.2%, but showed up worse than expected, at 0.0%. The core CPI excludes energy products and is adjusted for tax changes. The headline MoM and YoY CPI figures came out as forecasted, at +0.2% and +1.8% respectively. This would has placed the rate closer to the Norges Bank’s inflation target, at +2.0%. 

Also, during the European morning, we get UK’s preliminary GDP growth rate numbers for QoQ and YoY. The YoY number is believed to have ticked down slightly, from +1.3% to +1.1%, whereas the QoQ figure is expected to have improved from the previous negative 0.2% to positive 0.4%. Of course, the numbers are preliminary, but this is something that the Bank of England could keep an eye on, as during their monetary policy statement released last week, they’ve mentioned that they might be forced to consider a possible rate cut if growth doesn’t pick up. Also, Great Britain will show us its manufacturing and industrial production levels. Both data sets are expected to have improved slightly, with the manufacturing YoY number going from the previous -1.7% to -1.6% and the industrial YoY one going from -1.8% to -1.3%. We will keep a close eye on GBP, as some optimism could support the British currency against its major rivals. But if the preliminary GDP figures show up below their forecasts, there could be some more weakness seen in the pound.

Tuesday will also produce a few interesting data sets, especially during the European morning. Sweden is set to show its unemployment number for October. The previous reading is at 7.0%. No forecast is available, for now. After that, Norway will produce its GDP numbers for Q3. The new number is believed to have gone up from +0.3% to +0.5%. If that happens, this would be much needed for Norway to boost its economic morale, as the growth has been on a steady decline since around Q3 of 2015. 

Later on, during the European morning, it will be UK’s turn again to release some important data. The country will join Sweden in delivering its employment related figures. The unemployment rate is believed to have remained the same, at +3.9%. A similar story is with the average earnings sets, both including and excluding bonus. Both figures are believed to have stayed at the same +3.8%. 

Just half an hour after that we will get the German ZEW economic sentiment reading for November. Although it is still believed to have remained in the negative territory overall, still, the forecast states that there is room for some improvement. The expectation is that the figure has gone up from -22.8 to -13.0. If so, traders might try and push the euro slightly higher. But that could be a temporary occurrence, as the common currency is currently under some selling pressure.

On Wednesday, Asian time, the RBNZ will decide on monetary policy. The Bank’s latest meeting was held on September 25th. Back then, officials decided to keep interest rates unchanged at +1.00%, maintained their easing bias, but did not provide hints that a November cut is a done deal, despite elevated expectations by the market. The Committee agreed that new information since August did not warrant a significant change in the policy outlook and added that there is still scope for more fiscal and monetary stimulus “if necessary”.

The latest CPI data showed that the YoY rate slowed to +1.5% YoY in Q3 from +1.7%, but still above the RBNZ’s latest projection for the quarter, which was at +1.3%. That said, the employment report for the quarter came in softer than anticipated. The unemployment rate rose to 4.2% from 3.9%, missing the forecast of 4.1%, while the employment change revealed a slowdown in jobs growth to +0.2% QoQ from +0.8%. Expectations were for a slowdown to +0.3% QoQ. The Labor Cost Index slowed as well, to +0.6% from +0.8%. This allowed market participants to stay more convinced than not, that the Bank will cut rates at this gathering. Thus, it would be interesting to see whether the Bank will indeed deliver a cut, and if so, whether it will appear willing to do more if needed.

As for the other Wednesday’s data, released during the Asian morning, we get Australia’s wage price index for Q3. Expectations are for the QoQ rate to have ticked down to +0.5% from +0.6%, which would leave the YoY rate unchanged at +2.3%. The case for a slowdown in quarterly terms is supported by the Labor Costs index of the NAB Business survey report, the QoQ rate of which was at +1.2% in June, but slid at +0.9% in September. Given the RBA’s emphasis on the labor market, we will pay close attention to this index, but we prefer to wait for Thursday’s employment report before we arrive to any conclusions on how all this could affect expectations with regards to the Bank’s future course of action.

During the European morning, we get Sweden’s inflation data for October. Both the CPI and CPIF rates are expected to have declined to +1.3% YoY and 1.2% YoY, from +1.5% and +1.3% respectively. As always, we will also pay extra attention to the core CPIF rate, which held steady at +1.6% YoY in September. At its latest meeting, the world’s oldest central bank kept its repo rate unchanged at -0.25%, but changed its forward guidance saying that the rate will most probably be raised to zero in December. Slowing inflation could raise some doubts on that front, but ahead of the December meeting, we may get the November inflation prints. Thus, we prefer to wait for those numbers before we arrive to safer conclusions as to whether the Riksbank will indeed decide to push the hike button in December, or not.

It will be Britain’s turn to deliver its inflation figures for the month of October. The core MoM and YoY figures are expected to have remained the same, at +0.2% and +1.7% respectively. But unlike the core, the headline ones are forecasted to have gone down a bit. The MoM reading is expected to go from +0.1% to -0.1%, and the YoY one – from +1.7% to +1.6%. This would not be good for the GBP, as it may slide a bit on those headline numbers, if they come below expectations. This is because the BoE has its target for inflation set at 2.0%. But we still understand that data might have only a temporary affect on the British currency, as its main driver right now are the headlines surrounding the Brexit saga. 

Later in the day, we get CPIs for October from the US as well. Expectations are for both, the headline and core rates, to have remained unchanged at +1.7% and 2.4% respectively. At its last meeting, the FOMC cut interest rates by another 25bps, but signaled that it is planning to stay sidelined, unless things fall out of orbit. After the meeting, the employment report for October came in better than expected, the ISM manufacturing PMI rebounded, but less than expected and still stayed within the contractionary territory, while the non-manufacturing index rebounded by more than its forecast suggested. Despite the relative improvement in these releases, as well as the recent optimism surrounding the US-China trade saga, investors remained largely unconvinced that the Fed has stopped cutting rates. According to the Fed funds futures, they believe that the Fed will deliver another quarter-point decrease in September 2020. Thus, a disappointing set of CPIs may prompt participants to bring that timing forth, while a positive surprise could encourage them to push it back.

On Thursday, Asian trading, we get Japan’s GDP for Q3, as well as Australia’s employment report for October. Getting the ball rolling with Japan’s GDP, expectations are for the QoQ rate to slide to +0.1% from +0.3%, something that would driver the YoY rate down to +0.4% from +1.3%.

At the last BoJ meeting, policymakers decided to keep their ultra-loose policy steady, but in the accompanying statement, they altered their forward guidance to signal chances of a future rate cut more clearly. Instead of saying that the current extremely low levels of interest rates are likely to stay unchanged “at least through spring 2020”, they noted that short- and long-term interest rates are expected to remain at their present of lower levels as long as it is necessary to pay close attention to the possibility that the momentum toward achieving the price stability target will be lost. Combined with very low inflation rates, a slowdown in economic growth may increase the chances for this Bank to cut rates, but we stick to our guns that with little space to ease further, policymakers may decide wait for a while before acting, and perhaps rely on their signals to do the work for now.

Passing the ball to Australia’s jobs data, the unemployment rate is forecast to have ticked back up to 5.3%, while the net change in employment is expected to show job gains of 15.0k, pretty close to the previous 14.7k. At its latest meeting, the RBA kept interest rates unchanged and hinted that it may have done easing for now. However, with the unemployment still distant from the 4.5% threshold which the Bank itself expects to start generating inflationary pressures, some investors may be tempted to increase their bets with regards to further easing by this Bank, perhaps at some point next year.

The European morning will start off with Germany’s preliminary GDP numbers for Q3 on a QoQ and YoY basis. Both numbers are believed not to have improved. The QoQ is expected to stay the same, at -0.1%, and the YoY number is forecasted to have down from 0.0% to -0.3%. After that, we will get the Swedish unemployment number for October, which is expected to have improved, going from the previous 7.1% to 6.7%. If so, we may see some buying interest in SEK against some of its major counterparts. 

Britain will once again take the spotlight, but this time with its core and headline retail sales numbers for October on a MoM and YoY basis. All the forecasts are currently for better numbers than expected. The core MoM is believed to have gone up slightly from +0.2% to +0.3%, and the YoY one is expected to have risen from +3.0% to +3.5%. The headline YoY number is also forecasted to rise from +3.1% to +3.7%. 

Half an hour after the UK data release, the eurozone will deliver its preliminary GDP numbers for Q3 on a QoQ and YoY basis. Both figures are believed to have stayed the same, at +0.2% and +1.1% respectively. 

Later in the day, the US releases its MoM and YoY PPI figures for October. We will keep an eye on the MoM Producer Price Index, which is believed to have improved from the previous -0.3% to +0.3%. About half an hour after the US opening bell, the head of the Federal Reserve, Jerome Powell, is set to deliver his testimony before Congress on the state of the economy. 

Finally, on Friday, the main data, on which we will keep our focus, will be the eurozone inflation numbers and the US retail sale figures. There is not much excitement around the first data set, as it is expected that the eurozone CPIs have stayed the same, as previous. The core YoY number is forecasted to have remained at +1.1% and the headline one on the same YoY basis is believed to have stayed at +0.7%. According to the ECB, the figures would still satisfy one part of its aim – to maintain inflation below +2.0%, but it wouldn’t satisfy the other part of the target, to have inflation close to +2.0%. If inflation comes out better than expected, this might support the euro, and the common currency could rise against some of its major counterparts. 

An hour before the US opening bell, we will get the US retail sales numbers for the month of October. The expectations suggest improvements in the figures, with the core MoM one forecasted going from -0.1% to +0.4% and the headline going from -0.3% to +0.2%. If so, this could help bring the figures back into positive territory, after a brief decline in September. This could also help boost the greenback slightly against its major counterparts. 

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