Date : 2nd November 2015.
CURRENCY MOVERS OF 2nd November 2015.
Main Macro Events This Week
United States: There are several crucial economic reports this week, including nonfarm payrolls, vehicle sales, ISMs, and trade. The October employment report due out on Friday will be the week’s main event. The unemployment rate is forecast dipping to 5.0% from 5.1% previously, another multi-decade low. Also of importance is October ISM manufacturing figures on Monday and the services data on Wednesday. The manufacturing index is estimated edging up to 50.5 from 50.2 in September, though that’s just barely in expansionary territory. The non-manufacturing index is expected to rise to 57.0 from 56.9 as solid growth is seen accelerating a bit. Vehicle sales on Tuesday are expected to inch lower, however, after strong sales through the summer. Trade figures for September on Wednesday should show sharp narrowing in the deficit to a -$41.5 bln gap, from -$48.3 bln in August, given the drop in the goods deficit posted last week. Q3 productivity on Thursday is seen at unchanged for the preliminary report, from the 3.3% Q2 pace. Unit labor costs should rebound to a 2.5% rate in Q3, versus Q2′s -1.4%. Other data include October ADP private payrolls on Wednesday, construction spending for September also on Monday, September factory orders on Tuesday, and September consumer credit to be released on Friday.
• Canada: Key reports this week from Canada, with September trade and October employment on the schedule. The September trade balance on Wednesday is expected to narrow to -C$1.9 bln in from the -C$2.5 bln shortfall in August. Employment on Friday is expected to improve 10.0k in October after the 12.1k gain in September. The unemployment rate is seen at 7.1% in October, matching the 7.1% rate seen in September. The Ivey PMI on Thursday is projected to improve to 55.0 in October from the seasonally adjusted 53.7 in September. Building permits on Friday are anticipated to grow 1.0% in September after the 3.7% drop in August. The RBC manufacturing PMI for October is due Monday. Results in line with analyst estimates, especially on trade and employment, would be supportive of the Bank of Canada’s constructive view on the growth and inflation outlook as detailed in the October Monetary Policy Report.
• Japan: The October Markit/JMMA PMI on Monday is expected to slip to 51.0 from 51.2. Auto sales are also on tap. The markets are closed Tuesday for the Culture Day holiday. The calendar does not pick up again until late in the week with the BoJ minutes to the October 6, 7 meeting on Thursday. Preliminary September leading and coincident indices on Friday should show the former down 1.3% m/m from the prior -1.5% reading, while the latter is expected to come in at -0.7% m/m from -0.9% in August. In addition, eyes will be peeled for news on a rumored Japanese government special stimulus budget, which made the rounds last Friday following the BoJ’s inaction on the QE front.
• China: The Caixin/Markit series released today improved slightly to 48.3 from 47.2. October services PMI out on Wednesday is likely to improve to 50.7 from 50.5.
• Australia: The calendar for Australia features the RBA on Tuesday, which is expected to maintain the current 2.00% policy setting, although the slowing in core CPI during Q3 revealed last week opened the door to a possible rate cut. As for economic data, the trade deficit on Wednesday is expected to narrow to -A$3.0 bln in September from -A$3.1 bln in August. Retail sales on Wednesday are seen rising 0.3% in September after the 0.4% gain in August. Building approvals on Monday expanded 2.2% in September after the 6.9% drop in August. The RBA’s quarterly Statement on Monetary Policy due out on Friday will update the bank’s growth and inflation projections.
• New Zealand: The calendar features the Q3 employment report on Wednesday. It’s expected for HLFS employment to rise 0.5% in Q3 (q/q, sa) after the 0.3% gain in Q2. The unemployment rate is seen rising to 6.0% in Q3 from 5.9% in Q2.
• Europe: This week’s reports are unlikely to change the macro outlook fundamentally for the Eurozone . The services index is out on Wednesday. Economic activity continues to expand, and on the whole, confidence readings have surprised on the upside in October, which shows the recovery remains on track. German manufacturing orders on Thursday are also expected to have rebounded in September, after falling sharply in August. German industrial production on tab for Friday is seen up 0.4% m/m , after falling 1.2% m/m in August — the September drop in orders likely will prevent a more pronounced rebound. Eurozone retail sales are also due out on Thursday.
FX News Today
The GBP is slightly higher, against the EUR and USD after a much stronger than expected U.K. Manufacturing PMI reading. The unexpected jump in the manufacturing PMI, which has lowered the chances that the BoE will remove its implicit tightening bias. Gains against EUR, JPY and USD are modest however.
Eurozone manufacturing PMI, All Eurozone PMI readings apart from Greece are above the 50 point no change mark and even in Greece, confidence is improving further. Still, while the numbers signal a slight uptick in manufacturing output at the start of the last quarter, growth in the manufacturing sector is hardly buoyant and the sector is feeling the strain from the slowdown in emerging market economies, most notably China.
Eurozone stock markets are higher, the FTSE 100 is underperforming and posting slight losses, despite much better than expected PMI readings.
Worries over China’s growth, the official manufacturing PMI held steady at 49.8 in October, disappointing expectations for a bounce back to the 50.0 expansion-contraction line. It’s a third straight sub-50 reading. The non-manufacturing index slipped to to 53.1 from 53.4, still reflecting expansion but is the slowest pace since December 2008.
Greek banks need EUR 14.4 bln recapitalization, the ECB said in its Asset Quality Review, published Saturday, that Greek banks need at least EUR 4.4 bln from shareholders and bondholders to meet the shortfall identified under the current baseline macroeconomic assumptions.
Turkish lira soars, with stocks on Erdogan election success. The currency jumped the most since 2008 according to Bloomberg calculations after Erdogan’s AK Party won the second election this year. This ends months of political deadlock and gave a boost to stocks, as well as bonds, with 10-year yields dropping to the lowest level in three months.
Main Macro Events Today
• GBP U.K. manufacturing PMI: Jumped to 55.5 in October from 51.8 in September. A much stronger than expected reading and in fact the highest since June last year. The new orders number jumped to 56.9 from 52.9 in the previous month and is at the highest level since July 2014. GBP is slightly higher against EUR and USD and the Gilt contract has extended losses on the strong number that will back the arguments to maintain the BoE’s tightening bias.
• EUR Markit Manufacturing PMI: EMU Oct manufacturing PMI revised up to 52.3 from 52.0 reported initially and versus 52.0 in the previous month. National readings had been mixed, but with Spanish and French numbers slightly lower than expected, while the Italian reading surged higher and the German PMI was revised up markedly with the final release.
• USD ISM Manufacturing PMI: The manufacturing index is estimated edging up to 50.5 from 50.2 in September, though that’s just barely in expansionary territory.
• CAD RBC Manufacturing PMI: If the results are in line with consensuses, especially on trade and employment, this would be supportive of the Bank of Canada’s constructive view on the growth and inflation outlook as detailed in the October Monetary Policy Report.
Please note that times displayed based on local time zone and are from time of writing this report.
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Senior Currency Strategist
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