FX News Today
European Outlook: Asian stock markets headed south, with Hong Kong once again underperforming, after disappointing Chinese trade data and as the FED minutes said the case for a rate hike has strengthened. Together with curbs on property in China, the Hang Seng continues to underperform, while a stronger Yen is weighing on Japanese bourses. A Reuters source story meanwhile confirmed that a decision on the ECB’s QE changes and a possible extension is unlikely to be taken before December, although the council may already discuss some technical tweaks next week. U.S. and U.K. stock futures are also I negative territory and oil prices are down with the front end WTI future below USD 50 per barrel. With Sterling heading south again and the EUR moving higher against most currencies, the FTSE 100 may once again outperform the DAX, but yields are generally trending higher on both sides of the Channel. Released overnight U.K. RICS house price data came in better than expected.
FOMC minutes: Several members wanted to raise rates “relatively soon,” though we already knew that with the three dissenters. But, “a reasonable argument could be made either for an increase at this meeting or for waiting for some additional information on the labor market and inflation.” Obviously the Committee chose the latter and in a “close call,” decided to delay action. Nothing jumps out from the minutes to solidify expectations on a hike later this year. Interestingly, the FOMC worried about “eroding its credibility, especially given that recent economic data had largely corroborated the Committee’s economic outlook.” . While it’s still the case that economic data reports matter, this latter comment regarding worries over credibility, will keep the markets guessing about a December hike.
German Sep HICP inflation: Confirmed at 0.6% y/y, the national HICP rate at 0.7% y/y. The breakdown showed that the uptick over the month was mainly due to less negative base effects from energy prices, with prices for petrol falling -3.5% y/y in September, after still dropping -9.1% y/y in August. The rate excluding energy rose to 1.0% from 0.7% and excluding energy and petrol the rate rose to 1.2% y/y from 1.1% y/y in August. A confirmation then that inflation is trending higher, as oil prices stabilise and the most recent uptick in oil prices means the adjustment could happen quicker than anticipated. Further ammunition then for the ECB’s hawk, which are reluctant to extent the already generous stimulus further when the current QE program ends in March next year. Against that background a tapering, with somewhat reduced monthly purchase levels could be a typical European compromise.
FX Update: A big miss in Chinese exports drove a risk-off play in forex markets in the Asia session. AUDJPY, which is a risk appetite proxy, shed nearly 1%, while USDJPY, which had earlier clocked a 10-week high at 104.63, tipped back sharply to a low of 103.55, subsequently settling around 103.80. Aside from the 10% y/y dive in Chinese exports, softer oil prices and the latest FOMC minutes highlighting of hawkish arguments at the Fed were also in the mix of risk appetite spoilers. The yen gained in accordance with its historical inverse correlation with global stock market direction. The MSCI Asia-Pacific ex-Japan index lost over 1% as it fell into three-week low territory. USDJPY needs to hold 103.28, yesterday’s low to retain bullish trend credentials. A breach would signal a greater risk of a mean reversion move. The 20- and 50-day moving averages are presently at 102.09 and 101/89, respectively.
Main Macro Events Today
- US Initial Job Claims – Initial claims data for the week of October 8 are out today and should reveal a slight headline increase to 253k from 249k last week and 254k in the week of September 24. More broadly, claims are expected to average 256k in October from 254k in September and 262k in August.
- US Import & Export Prices – September trade price data is expected to show import prices unchanged with export prices down 0.2% on the month. This follows respective August figures which had import prices down 0.2% and export prices down 0.8%. The drop in oil prices over last winter and spring depressed headlines in this release but as prices rebounded over summer so too did headline import prices.
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