Monday

ECB’s Vujcic (neutral – voter) confirmed that the tightening cycle has ended, and the ECB will now hold rates steady for as long as necessary to get back to their 2% inflation target:

• We have finished with the process of raising interest rates for now.
• At this moment we see that inflation is falling, we have a disinflation process. And after we conducted a series of measures to dampen lending, it has fallen.
• Confident inflation will hit the ECB target by 2025.

The Australian Retail Sales beat expectations:

• Retail Sales M/M 0.9% vs. 0.3% expected and 0.2% prior.
• Retail Sales YoY 2.0% vs. 1.6% prior.

ECB’s Kazimir (hawk – voter) confirms the ECB’s current “wait and see” stance specifying that the central bank might wait for a “few quarters” before deciding on the next policy move:

• Additional tightening could come if incoming data forces us to.
• We will have to stay at the peak for the next few quarters.
• Bets on rate cuts happening in 1H 2024 are entirely misplaced.
• Eagerly awaits December update of inflation forecast to get a clearer picture.
• Upside risks to inflation have yet to dissipate entirely, must stay vigilant.

ECB’s Simkus (hawk – non voter) remains wary of risks but confirms that “unless the data surprises, the current level of restriction is sufficient”.

BoC Governor Macklem repeats that the current monetary policy is doing the job to cool the economy but if inflationary pressures were to persist, the BoC is ready to raise rates further:

• Further easing in inflation is likely to be slow and risks are high.
• We held policy steady because monetary policy is working to cool the economy and relieve price pressures.
• We continue to assess whether monetary policy is sufficiently restrictive.
• If inflationary pressures persist, we are prepared to raise our policy rate further to restore price stability.

Tuesday

The Japanese Unemployment Rate came in line with expectations at 2.6% vs. 2.6% expected and 2.7% prior.

The Japanese Industrial Production missed expectations by a big margin:

• Industrial Production M/M 0.2% vs. 2.5% expected and -0.7% prior.
• Industrial Production Y/Y -4.6% vs. -2.3% expected and -4.4% prior.
• Forecast 1 month ahead is 3.9% vs. 5.8% prior.
• Forecast 2 months ahead is -2.8% vs. 3.8% prior.

Japanese Retail Sales missed expectations:

• Retail Sales M/M -0.1% vs. 0.2% expected and 0.1% prior.
• Retail Sales Y/Y 5.8% vs. 5.9% expected and 7.0% prior.

The Chinese PMIs missed expectations with the Manufacturing sector falling back into contraction:

• Manufacturing PMI 49.5 vs. 50.2 expected and 50.2 prior.
• Services PMI 50.6 vs. 51.8 expected and 51.7 prior.

The BoJ left interest rates unchanged at -0.10% and kept the YCC but changed the language with the 1% now just being a reference cap:

• Keeps short-term interest rate target at -0.1%.
• Keeps 10-year JGB yield target around 0%.
• Widens reference range to 1.0% point up and down each around its 10-year JGB yield target vs previous 0.5% point.
• Flexibly increase JGB buying, fixed-rate operations and collateral fund-supply operations.

• Changes language around 1.0% 10-year JGB yield cap.
• Decides to keep yield target but make 1% a reference cap.
• Will guide market operations nimbly.
• Will regard upper bound of 1% for 10-year JGB yield as reference in its market operations.
• Will determine offer rate for fixed-rate JGB buying operations each time, taking account market rates and other factors.
• Decides to make YCC more flexible.
• Japan's inflation outlook overshooting but due largely to prolonged rises in import costs.

• Wages, prices must strengthen in virtuous cycle.
• BOJ will patiently continue monetary easing under YCC to support economic activity, create environment where wages rise more.
• Appropriate to make YCC more flexible given very high uncertainty over economy, markets.
• Strictly capping long-term rate with fixed-rate purchase operation at 1% will have strong positive effects but could also entail large side effects.
• As such, BoJ decided to conduct YCC mainly through large-scale JGB buying and nimble market operations.
• BoJ makes no change to its forward guidance.

Inflation forecasts boosted:

• Board's core CPI fiscal 2023 median forecast at 2.8% vs. 2.5% in July.
• Board's core CPI fiscal 2024 median forecast at 2.8% vs. 1.9% in July.
• Board's core CPI fiscal 2025 median forecast at 1.7% vs. 1.6% in July.

• Board's real GDP fiscal 2023 median forecast at 2.0% vs. 1.3% in July.
• Board's real GDP fiscal 2024 median forecast at 1.0% vs. 1.2% in July.
• Board's real GDP fiscal 2025 median forecast at 1.0% vs. 1.0% in July.

BoJ quarterly report:

• Japan's economy likely to continue recovering moderately.
• Inflation likely to slow, then re-accelerate as wages rise, inflation expectations heighten.
• Uncertainty over Japan's economic, price outlook very high.
• Must be vigilant to financial, FX market moves and their impact on Japan's economy, prices.

BoJ quarterly report on risks:

• Uncertainty over Japan's economy, prices is extremely high.
• Need to closely watch financial, currency market moves, their impact on Japan's economy, prices.
• Risks to price outlook skewed to upside in FY2023.
• Must closely watch whether favourable cycle of wage growth, prices will strengthen.
• Risks to economic outlook generally balanced in FY2023 and FY2024, but skewed to downside for FY2025.
• There is possibility wage growth may not strengthen as expected next year onward, causing prices to deviate downward.

Moving on to the Press Conference, BoJ Governor Ueda repeated once again that the central bank will keep at it with its easing measures as they don’t see a sustainable and stable increase in prices:

• Will patiently continue monetary easing with decided new measures.
• Will closely scrutinise economy, price situation by examining wages and prices.
• Main reasons for inflation outlook overshoot compared to July are longer-than-expected effects of price pass-through and rising oil prices.
• But we are not in a situation to foresee sustainable and stable price increases.
• Will not hesitate to take easing measures if necessary.
• Don't think long-term rates will come under pressure to exceed 1%.
• Today's steps came partly as a result of rising US long-term rates.
• Strength of inflation, wages still not sufficient.
• Inflation outlook is slightly improved but can't say with full confidence that it can be sustained.
• But we are getting gradually closer to achieving the price target.
• Next spring's wage negotiations will be an important factor.
• Believes that can anticipate a certain level of wage hike next year.
• But difficult to say if can achieve continuous cycle of wage hikes and price increases.
• Until achievement of inflation target is in sight, both YCC and NIRP will be in place.
• The order of end of either policy would depend on economic, financial trends at the time.

The Eurozone October Preliminary CPI missed expectations on the headline measure and came in line with forecasts on the core figure:

• CPI Y/Y 2.9% vs. 3.1% expected and 4.3% prior.
• CPI M/M 0.1% vs. 0.3% expected and 0.3% prior.
• Core CPI Y/Y 4.2% vs. 4.2% expected and 4.5% prior.
• Core CPI M/M 0.2% vs. 0.2% prior.

The Eurozone Q3 Preliminary GDP missed expectations:

• GDP Q3 -0.10% vs. 0.0% expected and 0.1% prior.

ECB’s Visco (dove – non voter) acknowledged the positive developments around inflation:

• Inflation falling as expected.
• Need to be cautious in coming months after the many rate hikes.
• Demand seen further contained due to delayed impact of rate hikes.
• Need to avoid excessive tightening of monetary, credit conditions.
• Fears of a wage-price spiral have sharply diminished.

The Canadian August GDP came in flat at 0.0% vs. 0.1% expected and 0.0% prior:

• September advance GDP 0.0%.
• Services 0.1%.
• Goods -0.2%.
• Wholesale trade 2.3%.
• The mining, quarrying, and oil and gas extraction sector rose 1.2%.
• Manufacturing -0.6%.
• Accommodation and food services declined 1.8%.
• The transportation and warehousing sector increased 0.8%.
• Retail trade contracted 0.7%.

The US Employment Cost Index for Q3 beat expectations:

• Employment Cost Index 1.1% vs. 1.0% expected and 1.0% prior.
• Wages 1.2% vs. 1.0% prior.
• Employment benefits 0.9% vs. 0.9% prior.

ECB’s Stournaras (dove – voter) talked about his requirement for a rate cut:

• Personally, I would consider cutting interest rates if inflation falls permanently and sustainably below the 3% threshold in mid-2024.
• Says he hasn't discussed cutting rates next year with colleagues.
• We are now deep in restrictive territory, no matter which perspective you look at it from.
• The economy is much weaker than we thought in September.
• Financing conditions are also somewhat tighter than expected.

ECB’s Kazaks (hawk – non voter) is refraining from rate cuts discussion as he remains wary of inflation risks:

• No need to discuss rate cuts now.
• The risk of inflation persists.
• Door should always be open to hike if needed.
• Dramatic turnaround in economy needed for rate cuts.

ECB’s Villeroy (neutral – voter) reaffirms the ECB’s “wait and see” stance:

• The latest data shows France has clearly passed inflation peak.
• Economy fully justifies end of rate hikes and future must be guided towards patience.

The US Consumer Confidence for October beat expectations:

• Consumer Confidence 102.6 vs. 100.0 expected and 104.3 prior (revised from 103.0).
• Present situation index 143.1 vs. 147.1 prior.
• Expectations index 75.6 vs. 73.7 prior.
• 1-year inflation expectations 5.9% vs. 5.8% prior.
• Jobs hard-to-get 13.1 vs. 13.6 prior.

ECB’s Nagel (hawk – voter) acknowledges the positive developments on the inflation front but stresses the need to keep rates higher for longer:

• Rates must be sufficiently high for sufficiently long.
• Inflation has now fallen significantly but it is still too high.
• We must not let up too soon, rates must be sufficiently high for long time.
• It is not yet possible to say if rates have reached their peak.
• There are several upside risks to inflation.
• Inflation has proven stubborn.

Wednesday

The New Zealand labour market report for Q3 missed expectations:

• Employment change -0.2% vs. 0.4% expected and 1.0% prior.
• Unemployment rate 3.9% vs. 3.9% expected and 3.6% prior.
• Participation rate 72.0% vs. 72.5% expected and 72.5% prior (revised from 72.4%).
• Labour cost index Y/Y 4.1% vs. 4.2% expected and 4.3% prior.
• Labour cost index Q/Q 0.8% vs. 1.0% expected and 1.1% prior.

ECB’s Muller (neutral – voter) is acknowledging the progress on the inflation front:

• Inflation in the euro area is clearly coming down.
• Inflation will continue to fall over the coming two years.
• Geopolitical tensions are causing energy prices to rise again, and the conflict in the Middle East and the danger of it spreading are one of the main risks facing the decline of euro area inflation.
• Inflation is still too high. One of the main causes the relatively fast growth in wages.

The Chinese Caixin Manufacturing PMI for October returns in contraction coming in at 49.5 vs. 50.8 expected and 50.6 prior.

The Switzerland Manufacturing PMI for October fell again further in contraction:

• Manufacturing PMI 40.6 vs. 45.0 expected and 44.9 prior.

The Canadian Manufacturing PMI for October improved but remained in contraction:

• Manufacturing PMI 48.6 vs. 47.5 prior.

The US Job Openings beat expectations:

• Job openings 9.553M vs. 9.250M expected and 9.497M prior (revised from 9.610M).
• Hires 3.7%% vs. 3.7% prior.
• Separations rate 3.7% vs. 3.6% prior.
• Quits 2.3% vs. 2.3% prior.

The US ADP missed expectations coming in at 113K vs. 150K expected and 89K prior:

• Small (less than 50 employees) 19K vs. 95K prior.
• Medium firms (500 – 499) 78K vs. 72K prior.
• Large (greater than 499 employees) 18K vs. -83K prior.

Changes in pay:

• Job stayers 5.7% vs. 5.9% prior.
• Job changers 8.4% vs. 9.0% prior.

The US ISM Manufacturing PMI missed expectations by a big margin:

• Manufacturing PMI 46.7 vs. 49.0 expected and 49.0 prior.
• Prices paid 45.1 vs. 45.0 expected and 43.8 prior.
• Employment 46.8 vs. 50.3 expected and 51.2 prior.
• New orders 45.5 vs. 49.2 prior.
• Inventories 45.8 vs. 45.8 prior.
• Production 52.5 vs. 52.5 prior.

The Federal Reserve left interest rates unchanged at 5.25-5.50% with no material change to the statement:

• Recent indicators suggest that economic activity expanded at a strong pace in the third quarter vs. prior statement that said economy was “solid”.
• Repeats that inflation remains elevated.
• Repeats "The Committee remains highly attentive to inflation risks".

Moving on to the press conference, Fed Chair Powell in his opening remarks basically repeated that the central bank is proceeding carefully due to the monetary policy lags but they are also attentive to the recent strength in data:

• The Committee is proceeding carefully.
• We remain strongly committed to bringing inflation back to goal.
• The full effects of policy tightening have yet to be felt.
• Economy has expanded well above expectations.
• The labour market remains tight.
• Supply and demand conditions for labour continue to come into better balance.
• Nominal wage growth has shown some signs of easing.
• The process of getting inflation back to 2% still has a long way to go.
• We are highly attentive to the risks that inflation poses to our mandate.
• A few months of good inflation data 'only the beginning of what it will take'.
• We are attentive to recent data showing resilience in growth and labour.
• Data could warrant further tightening of monetary policy.
• We will continue to make our decisions meeting-by-meeting.
• Reducing inflation is likely to require a period of below-potential growth and labour market conditions softening.

Moving on to the Q&A session:

• We are attentive to the increase in longer-term yields.
• Higher rates can have implications for monetary policy but would need to be persistent.
• Higher yields are being reflected in the market and having an effect on borrowing.
• It does not appear that policy expectations are driving rates.
• We have not made any decisions on future meetings.
• Going into the December meeting, we'll get 2 more jobs and inflation reports.
• Will look at all things into December but the idea that it's difficult to re-start hikes after stopping, it's just not true.
• Decision for today was this meeting only.
• The staff did not put a recession back into the forecast.
• We're not thinking about rate cuts or talking about rate cuts.
• The question we are asking is: Should we hike more?
• We are proceeding carefully.
• It feels like the risks are more two-sided now around inflation.
• Labor demand is clearly very strong, but we've seen supply of workers come online.
• It's not clear that the conflict in the Middle East is on track to have an economic impact on the USA.

Thursday

ECB’s Knot (hawk – voter) is comfortable with the current level of rates:

• Policy rates now are at a good 'cruising altitude'.
• Current level of rates can remain for some time.
• Should be a little patient and not raise rates too much to prevent choking off the economy.

The Switzerland CPI came in line with expectations with the Core measure rising a bit but remaining comfortably in the SNB’s target range:

• CPI Y/Y 1.7% vs. 1.7% expected and 1.7% prior.
• Core CPI Y/Y 1.5% vs. 1.3% prior.

The US Challenger Job Cuts came in at 36.84K vs. 47.46K prior, the least in three months.

The BoE left interest rates unchanged at 5.25% as expected:

• Bank rate vote 3-6 vs. 3-6 expected (Greene, Haskel, Mann voted to raise by 25 bps).
• Policy likely needs to be restrictive for extended period of time.
• Will continue to monitor closely inflation persistence and resilience in the economy as a whole.
• Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures.
• Estimates UK GDP flat for Q3 2023 (previously 0.1%).
• Estimates UK GDP to be 0.1% in Q4 2023.
• Inflation well above target of 2% but expected to continue to fall sharply.
• Market participants had reported an increasing conviction that UK policy rates would remain ‘higher-for-longer’.
• Some business surveys are pointing to a fall in GDP in Q4 2023.
• But more forward-looking indicators were less pessimistic about growth prospects.

Moving on to the press conference, BoE Governor Bailey just reaffirmed that the central bank will now keep rates high for long enough to return inflation to their 2% target:

• Inflation is still too high.
• We will keep rates high enough for long enough to return inflation to target.
• OFGEM price cap means we can be confident about energy bills lowering inflation.
• It's important that services inflation falls steadily over next year.
• There is a considerable way to go on quashing inflation.
• Whether GDP growth is slightly negative or slightly positive won't impact monetary policy.
• How long restrictive stance will be needed depends on incoming data.
• We have to be mindful of balance of risks between doing too little and too much.
• Events in Middle East create risk of higher energy prices.
• We are making good progress on bringing inflation down.
• Now some signs that the economy has started to grow more slowly, that's to be expected.

The US Jobless Claims missed expectations across the board once again:

• Initial Claims 217K vs. 210K expected and 210 K prior.
• Continuing claims 1818K vs. 1.800K expected and 1790K prior.

ECB’s de Cos (dove – voter) just stated that it’s too early to be speaking about rate cuts as the ECB is now committed to keep interest rates high for a sufficiently long time.

ECB’s Schnabel (hawk – voter) moves to the sidelines as the ECB is now in a “wait and see” mode:

• With our current monetary policy stance, we expect inflation to return to our target by 2025.
• The disinflation process during the last mile will be more uncertain, slower and bumpier.
• We cannot close the door to further rate hikes.
• If Middle East conflict remains contained, energy price impact limited.

Friday

The Chinese Caixin Services PMI missed expectations:

• Services PMI 50.4 vs. 51.2 expected and 50.2 prior.
• Composite PMI 50.0 vs. 50.9 prior.

The Eurozone Unemployment Rate missed expectations coming in at 6.5% vs. 6.4% expected and 6.4% prior.

The Canadian Jobs data missed expectations across the board:

• Employment change 17.5K vs. 22.5K expected and 63.8K prior.
• Unemployment rate 5.7% vs. 5.6% expected and 5.5% prior.
• Full-time employment -3.3K vs. 15.8K prior.
• Part-time employment 20.8K vs. 47.9k prior.
• Participation rate 65.6% vs. 65.5% prior.
• Average hourly wages permanent employees 5.0% vs. 5.3% prior.

The US Labour Market report missed expectations across the board with negative revisions to the prior figures and some upward pressure on wages although they are likely to cool with a softening labour market:

• Non-farm Payrolls 150K vs. 180K expected and 297K prior (revised from 336K).
• Two-month net revision -101K vs 119K prior.
• Unemployment rate 3.9% vs. 3.8% expected and 3.8% prior.
• Participation rate 62.7% vs. 62.8% prior.
• U6 underemployment rate 7.2% vs. 7.0% prior.
• Average hourly earnings M/M 0.2% vs. 0.3% expected and 0.3% prior (revised from 0.2%).
• Average hourly earnings Y/Y 4.1% vs. 4.0% expected and 4.3% prior (revised from 4.2%).
• Average weekly hours 34.3 vs. 34.4 expected and 34.4 prior.
• Change in private payrolls 99K vs. 158K expected.
• Change in manufacturing payrolls -35K vs. -10K expected.
• Household survey -348K vs. 86K prior.
• Birth-death adjustment 412K vs. -119K prior.

BoE’s Pill just reaffirmed the central bank’s “wait and see” approach:

• Hold decision reflected view some restrain on economy needed to be maintained.
• There is still a need to bear down on inflation.
• Balance of economic drivers has switched to supply side.
• We can be less sanguine about idea of slowing demand will lead to inflation returning to target.
• We have not really entertained the idea of cutting rates.

The Hezbollah leader Hassan Nasrallah is distancing himself from the terrorist operation in Gaza saying that “the operation was 100% planned in Gaza”. Crude Oil fell following the headline as the market is starting to look past the conflict with the recessionary fears now back in focus.

The Canadian Services PMI fell further into contraction:

• Services PMI 46.6 vs. 47.8 prior.

The US ISM Services PMI missed expectations:

• ISM Services PMI 51.8 vs. 53.0 expected and 53.6 prior.
• Employment index 50.2 vs. 53.4 prior.
• New orders index 55.5 vs. 51.8 prior.
• Prices paid index 58.6 vs. 58.9 prior.
• New export orders 48.8 vs. 63.7 prior.
• Imports 60.0 vs. 50.6 prior.
• Backlog of orders 50.9 vs. 48.6 prior.
• Inventories 49.5 vs. 54.2 prior.
• Supplier deliveries 47.5 vs. 50.4 prior.
• Inventory sentiment 54.4 vs. 54.8 prior.

The highlights for next week will be:

• Monday: BoJ Meeting Minutes.
• Tuesday: Japan Wage data, Chinese Trade data, RBA Policy Decision, Switzerland Unemployment Rate, Eurozone PPI.
• Wednesday: Eurozone Retail Sales, BoC Summary of Deliberations.
• Thursday: BoJ Summary of Opinions, Chinese Inflation data, US Jobless Claims, New Zealand Manufacturing PMI.
• Friday: UK GPD Q3 Preliminary, University of Michigan Consumer Sentiment.

That’s all folks. Have a great weekend!