FX News Today
European Outlook: Stock markets were mixed in Asia overnight, with Japanese markets fluctuating ahead of the OPEC meeting, before closing with a marginal gain. Mainland Chinese bourses corrected amid fears of overheating and the ASX closed with a -0.31% loss. In Europe it remains to be seen if the Italian led improvement in sentiment yesterday can be sustained as the referendum draws closer. The prospect of technocrat government if and when Renzi should resign and a source story suggesting that the ECB may temporarily up Italian bond purchases to prevent market tensions, helped Italian stock as well as equity markets to bounce back and Eurozone stock markets to post broad gains. The FTSE 100 underperformed yesterday amid fresh Sterling strength and U.K. stock futures are still heading south this morning, against gains in U.S. futures. Oil prices managed to claw back some of yesterday’s losses, but remain below recent highs amid reports of ongoing disagreements on output cuts.
German Oct retail sales: Much stronger than expected at 2.4% m/m against expectations for a rise of 1.0% m/m. The sharp rise managed to counterbalance the -1.5% m/m drop in September, but the annual rate still fell back into negative territory at -1.0% y/y, versus 0.6% y/y in September. Retail sales cover only a part of overall consumption and are subject to frequent revisions, but ongoing improvements on the labour market and the monthly pick up in retail sales adds to signs that overall growth is accelerating again in the last quarter of the year.
US Reports Update: U.S. reports joined the parade of data that have lifted the growth outlook since the November elections, though the Q3 GDP boost predates the election, and the hefty November consumer confidence surge to a new cycle-high followed an October hike. For Q3 GDP, the upward revision to 3.2% growth from 2.9% beat estimates thanks to a big service-led boost to consumption alongside a smaller than expected $5.1 bln inventory trimming, though both net exports and construction were lifted as assumed. We left our Q4 GDP growth estimate at 1.8%, though we lifted our Q1 GDP growth estimate to 2.3% from 2.2%. Productivity growth for Q3 is now pegged at 3.5% instead of 3.1%, and we saw personal income boosts that left growth of 4.5% (was 3.9%) in Q3 and 4.9% (was 3.9%) in Q2. The consumer confidence surge to a 107.1 new cycle-high from 100.8 (was 98.6) left confidence well above the 103.8 prior cycle-high in January of 2015, though other surveys have yet to surpass their early-2015 peaks.
Fedspeak: Powell said the case for a rate hike has “clearly strengthened,” in his prepared remarks on “Recent Economic Developments and Longer-Run Challenges.” Powell is one more FOMC member to state such a case, though this is the firmest. The market has already priced in a 25 bp increase for the December 14 policy meeting, so there won’t be any significant impact on the markets. The Fed is “reasonably close” to meeting its goals. He looks for GDP growth of about 2% to persist for a while, with inflation continuing to move toward 2%. The economy still has some slack, so the FOMC’s patience in boosting rates has paid dividends, he added. However, moving too slowly could mean more abrupt action in the future. The main risks to growth at this point come from abroad.
Main Macro Events Today
- German Labour Market – Preliminary PMIs suggested ongoing improvement in the labour market and there should be a drop in German jobless numbers of -6K n November, which would leave the jobless rate unchanged at 6.0%. So far wage growth hasn’t really picked up, likely also due to the fact that low inflation has lifted real disposable income anyway, but headline rates are now on the rise, which amid tighter labour markets may also start to translate into higher wage demands.
- Canada 3Q GDP – Real Q3 GDP is expected to rebound 3.4% in the report due today after the 1.6% drop in Q2. A bounce-back in real net exports is seen driving the pick-up. Consumption growth is seen slowing, while M&E investment should manage another small gain. Inventories are the usual wildcard, projected to modestly subtract from GDP. Meanwhile, September GDP by industry is seen up 0.1% m/m, leaving a tepid hand-off to Q4. Moreover, the Q3 surge will be driven by a return to production and activity in the Forth McMurray region after the wildfire temporarily halted production in Q2.
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