I. Market focus
Wednesday began with a speech of the Federal Reserve Bank of New York President John Williams. The Fed’s representative said that the U.S. labor market is “very strong”, and there are no signs of greater inflationary pressure. He also noted that the Fed does not see a noticeable effect from the tariffs the United States and China have imposed on each other’s exports. Williams repeated the already known information, so his comments had a little influence on the U.S. dollar.
In the morning, the dollar continued to decline against major currencies, but its uptrend is still intact. Therefore, the resumption of growth of the U.S. currency seems very likely in the near future. The trigger can be data on inflation in the United States, which will be published today (producer price index) and tomorrow (consumer price index).
Among the macroeconomic data received by the beginning of the European session, it should be noted the Westpac Bank’s survey of consumer sentiment in Australia. According to the report, consumer sentiment in Australia improved in October thanks to strong economic growth, solid labor market and ongoing recoveries in the previously weak mining states.
Apart from the U.S. statistics on the producer price index (12:30 GMT), the focus of market participants today will also be on the UK’s data on industrial production and GDP for August (08:30 GMT). In addition, attention should be paid to the comments of Atlanta Fed President Raphael Bostic (22:00 GMT) and the RBA Assistant Governor Luci Ellis (22:30 GMT).
II. The market highlights are:
The Canada Mortgage And Housing Corp. (CMHC) reported on Tuesday the seasonally adjusted annual rate of housing starts was 188,683 units in September, down from a downwardly revised 198,843 units in August (originally 200,986). Economists had forecast an annual pace of 210,000 for September. According to the report, urban starts dropped 5.9 percent m-o-m last month to 175,653, as multiple urban starts fell by 8.9 percent m-o-m to 122,656 units, while single-detached urban starts increased by 2.0 percent m-o-m, to 52,997 units. At the same time, rural starts were estimated at a seasonally adjusted annual rate of 13,030 units (+7.2 percent m-o-m).
Westpac Bank reported on Tuesday its gauge for consumer sentiment in Australia rose 1.0 percent m-o-m to 101.5 in October. A reading above 100 indicates more optimists than pessimists. According to the report, October’s small gain followed a 5.2 percent drop through August and September, which was caused by the leadership change and mortgage rate increases. Several positives helped stabilize the index, including strong economic growth, a solid labor market and ongoing recoveries in the previously weak mining states. Most index components recorded small gains in October. The measures of family finances showed the most promising revival, with the ‘finances vs. a year ago’ sub-index climbing 2.6 percent m-o-m and the ‘finances, next 12 months’ sub-index edging up 0.6 percent m-o-m. Meanwhile, consumer expectations for the economy showed mixed moves. The ‘economic outlook, next 12 months’ sub-index jumped 2.3 percent m-o-m, while the ‘economic outlook, next 5 years’ sub-index dropped 0.3 percent m-o-m. The ‘time to buy a major household item’ measure slipped a further 0.9 percent m-o-m in October, following September’s 4.8 percent m-o-m drop, unwinding all of the 5.5 percent m-o-m surge in August.
The report released by the Cabinet Office on Tuesday showed Japan's core machinery orders unexpectedly rose in August. According to the report, core machinery orders, an indicator of capital expenditures in the coming six to nine months, surged 6.8 percent m-o-m in August, following an unrevised 11.0 percent m-o-m climb in July, while economists expected a 4.0 percent m-o-m drop. According to the report, manufacturing orders jumped 6.6 percent m-o-m in August, while non-manufacturing orders rose 6.0 percent m-o-m. Orders from overseas rose 7.8 percent m-o-m, while government orders dropped 21.1 percent m-o-m and orders from agencies decreased 5.2 percent m-o-m. In y-o-y terms, core orders, which excludes those of ships and electricity, surged 12.6 percent in August, compared to a 13.9 percent y-o-y jump recorded in July and a 1.6 percent y-o-y gain projected by the economists.
III. Market Situation
The currency pair EUR/USD rose slightly, reaching the high of October 8, due to the broad weakness in the U.S. currency. Investors are also adjusting their positions ahead of the release of the U.S. data on producer prices for September. In August, producer prices fell by 0.1 percent m-o-m, while economists had expected an increase of 0.2 percent m-o-m. Meanwhile, the gauge of underlying producer price pressures that excludes food, energy and trade services, rose by 0.1 percent m-o-m, but also missed economists’ forecast. It is expected that the producer prices continued to grow gradually in September, gaining 0.2 percent m-o-m. Resistance level - $1.1594 (high of October 3). Support level - $1.1432 (low of October 9).
The currency pair GBP/USD continued the previous day’s rally, triggered by the diplomats’ statements, and reached its high of September 27. Citing the diplomatic sources, the media reported that the EU and UK were making progress in Brexit talks and the terms of the divorce deal could be settled by Monday. The pair was also supported by the weakening of the U.S. dollar. In addition, investors were preparing to receive the UK’s data on GDP for August. In July, the Office for National Statistics (ONS) started publishing its monthly GDP figure in addition to the usual quarterly series. After several months of relatively strong growth, a smaller increase in August will not come as a surprise. Economists’ forecast an increase of 0.1 percent for August following a 0.3 percent advance in the prior month. Apart from the GDP monthly estimate, focus also will be on the UK’s data on industrial/manufacturing production for August. Resistance level - $1.3217 (high of September 26). Support level - $1.3003 (low of October 5).
The currency pair AUD/USD traded moderately higher, underpinned by upbeat data from Australia and a drop in the value of the U.S. dollar. Westpac Bank reported on Tuesday its gauge for consumer sentiment in Australia rose 1.0 percent m-o-m to 101.5 in October. A reading above 100 indicates more optimists than pessimists. According to the report, October’s small gain followed a 5.2 percent drop through August and September, which was caused by the leadership change and mortgage rate increases. Several positives helped stabilize the index, including strong economic growth, solid labor market and ongoing recoveries in the previously weak mining states. Most index components recorded small gains in October. Resistance level - AUD0.7240 (high of September 28). Support level - AUD0.7041 (October 8).
The currency pair USD/JPY consolidated near the opening level due to the lack of new catalysts. Japan’s report on core machinery orders for August had little impact on the pair’s performance. The Cabinet Office reported the core machinery orders, an indicator of capital expenditures in the coming six to nine months, surged 6.8 percent m-o-m in August, following an unrevised 11.0 percent m-o-m climb in July, while economists expected a 4.0 percent m-o-m drop. According to the report, manufacturing orders jumped 6.6 percent m-o-m in August, while non-manufacturing orders rose 6.0 percent m-o-m. In y-o-y terms, core orders, which excludes those of ships and electricity, surged 12.6 percent in August, compared to a 13.9 percent y-o-y jump recorded in July and a 1.6 percent y-o-y gain projected by the economists. Resistance level - Y114.09 (high of October 5). Support level - Y112.42 (low of September 24).
U.S. stock indexes closed mostly lower on Tuesday, weighed down by concerns about global economic growth and rising interest rates.
Asian stock indexes closed slightly higher on Wednesday, as the growth was limited by mixed signals from Wall Street and lingering concerns about rising interest rates and tensions between the U.S. and China. Japan’s Nikkei rose slightly, helped by the stabilization of the yen and upbeat data from Japan, which showed that core machinery orders were above expectations in August, suggesting possible growth in capital expenditure.
European stock indexes are expected to trade mixed in the morning trading session.
Yields of US 10-year notes hold at 3.21% (0 basis points)
Yields of German 10-year bonds hold at 0.55% (0 basis points)
Yields of UK 10-year gilts hold at 1.58% (0 basis points)
Light Sweet Crude Oil (WTI) futures traded lower. Crude oil for delivery in November settled at $74.69 (-0.36%). The crude oil prices declined moderately, responding to a weaker U.S. dollar. Market participants are preparing for the release of the reports on oil inventories in the U.S. Today, the American Petroleum Institute (API) will publish its weekly data on the U.S. crude oil stockpiles. Tomorrow, the focus will be on official report on crude inventories in the U.S. from the U.S. Energy Information Administration (EIA). Economists forecast the U.S. oil inventories rose by 2.647 million barrels last week, following a build of 7.975 million barrels in the previous week.
Gold traded at $1,190.60 (+0.09%). Gold prices edged up, helped by the negative dynamics of the U.S. currency. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, fell by 0.11% to 95.57. Since gold prices are tied to the dollar, a weaker dollar makes the precious metal cheaper for holders of foreign currencies.
IV. The most important scheduled events (time GMT 0)
Total Trade Balance
MPC Member Andy Haldane Speaks
PPI excluding food and energy
NIESR GDP Estimate
FOMC Member Charles Evans Speaks
Food Prices Index
FOMC Member Bostic Speaks
RBA Assist Gov Ellis Speaks
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