I. Market focus
Thursday in the global financial markets began with the publication of the Australian labor market data. The report turned out to be much better than expected: the unemployment rate in October stood at 5 percent, exceeding expectations for 5.1 percent, while the number of new jobs rose much more than forecast. Labor market data confirmed a further improvement in the employment situation in Australia, with the unemployment rate approaching decade lows. A continuation of such a trend could force the Reserve Bank of Australia (RBA) to reconsider its plans for monetary policy. Now the regulator “does not see a strong case to adjust the cash rate in the near term” and the employment data may become such a case.
The focus of market participants also was on reports that the UK cabinet approved on Wednesday a draft text of a Brexit withdrawal agreement. The approval was preceded by a five-hour debate, during which Prime Minister Theresa May argued that such an option was the only possible one. In spite of this, the uncertainty regarding the exit process is still high, since this plan now must be approved by the country's parliament, and many its members do not like the idea of the absence of customs checks at the border between Ireland and Northern Ireland after Brexit.
The main events of Thursday will be the publication of statistics on retail sales in the UK (09:30 GMT) and the United States (13:30 GMT). Attention should be also paid to the comments of Fed Chairman Jerome Powell at 16:30 GMT.
The stock market participants continue to assess the earnings reports of the companies. Today, the focus will be on the results from Cisco Systems, Inc. (CSCO) and Walmart Inc. (WMT).
II. The market highlights are:
The Labor Department announced on Wednesday the U.S. consumer price index (CPI) rose 0.3 percent m-o-m in October after increasing 0.1 percent m-o-m in September. Over the last 12 months, the CPI rose 2.5 percent y-o-y last month, following a 2.3 percent m-o-m gain in the 12 months through September. Economists had forecast the CPI to rise 0.3 percent m-o-m and 2.5 percent y-o-y in the 12-month period. According to the report, a surge in the gasoline index (+3.0 percent m-o-m) was responsible for over one-third of the seasonally adjusted gain in the all items index; advances in the indexes for shelter (+0.2 percent m-o-m), used cars and trucks (+2.6 percent m-o-m), and electricity (+2.3 percent m-o-m) also contributed. The food index (-0.1 percent m-o-m) , in contrast, dropped slightly in October. The core CPI excluding volatile food and fuel costs increased 0.2 percent m-o-m in October, following a 0.1-percent uptick in the previous month. In the 12 months through October, the core CPI rose 2.1 percent, decelerating from a 2.2 percent advance in the year through September. That was the lowest rate since April. Economists had forecast the core CPI to rise 0.2 percent m-o-m and 2.2 percent y-o-y in October.
Federal Reserve Chairman Jerome Powell said on Wednesday the central bank is closely monitoring a modest slowdown in global growth, whose strength significantly supported the U.S. economy last year. “This year has seen a gradual chipping away at that picture. You’ve seen a bit of a slowdown - not a terrible slowdown,” he said. “You still see solid growth, but you see growing signs of a bit of a slowdown. And it is concerning.” At the same time, he noted that the deceleration in global growth was one of a number of challenges. According to Powell, one risk is that U.S. economic growth could slow in the coming years as recent fiscal stimulus from tax cuts and spending increases wears off. Another challenge is that U.S. growth continues to outpace the rest of the world, putting strains on some emerging-market economies that face headwinds from a stronger dollar.
The Australian Bureau of Statistics (ABS) reported on Thursday that the country’s seasonally adjusted unemployment rate was unchanged at 5.0 percent in October. Thus, the jobless rate remained at its the lowest level since April of 2012. Economists had expected Australia’s unemployment rate to edge up to 5.1 percent in October. According to the report, the seasonally adjusted labor force participation rose to 65.6 percent in October from 65.5 percent in the prior month, while the number of unemployed persons increased by 4,600 to 672,100. In the meantime, employment grew by 32,800 to 12,671,500 in October versus economists’ expectations of a gain of 20,000 following an increase of 7,800 jobs in the prior month (revised down from originally announced advance of 5,600). The underlying composition of the net change was an increase of 42,300 persons in full-time employment and a decrease of 9,500 persons in part-time employment, the report said.
III. Market Situation
The currency pair EUR/USD rose moderately, hovering near the previous day’s high. The pair was supported by favorable news on Brexit, as well as the latest speech of the Federal Reserve chairman Jerome Powell. Some investors interpreted Powell’s tone as somewhat dovish, however, there was nothing in his speech to suggest the Fed is to abandon its intention to hike rates at its December meeting. Today, the pair’s performance could be impacted by the release of the U.S. retail sales data for October. In September, retail sales were held down by spending at restaurants and gasoline stations. Softness in headline sales came despite a 0.8 percent climb in auto sales, which was the largest monthly increase since March. This means dealers were able to move inventory over the month, as autos sales by manufacturers to dealers increased to 17.4 million, or +4.5 percent over August. Excluding food, autos, gasoline and building materials, control group sales surged 0.5 percent - consistent with the growth in real personal consumption expenditures recorded in the third quarter. Consumer confidence measure still remains close to its highest levels of the past 18 years, which allows us expecting a strong final quarter of the year. According to economists’ forecast, retail sales in October increased 0.5 percent after gaining 0.1 percent in September. Resistance level - $1.1446 (high of November 8). Support level - $1.1215 (low of November 12).
The currency pair GBP/USD traded slightly higher, holding within the previous day’s range. Market participants continued to price in the latest news on Brexit while awaiting the UK statistics on retail sales for October. The UK cabinet approved a draft text of a Brexit withdrawal agreement on Wednesday. The EU chief negotiator Barnier welcomed this decision, calling it a “decisive, crucial step” towards an orderly Brexit. However, this is only the first important milestone - the agreement now must be approved by the British Parliament, which can cause great difficulties. As for the UK data, consensus estimates suggest that retail sales in October increased by 0.2 percent m-o-m and 3 percent y-o-y. In September, sales decreased by 0.8 percent m-o-m but rose 3 percent y-o-y. Resistance level - $1.3175 (high of November 7). Support level - $1.2827 (low of November 12).
The currency pair AUD/USD rose sharply, reaching a one-week high. The catalyst for this was upbeat data on the Australian labor market, which could force the Reserve Bank of Australia (RBA) to revise its monetary policy plans. The Australian Bureau of Statistics (ABS) reported Australia’s seasonally adjusted unemployment rate was unchanged at 5.0 percent in October. Thus, the jobless rate remained at its the lowest level since April of 2012. Economists had expected Australia’s unemployment rate to edge up to 5.1 percent in October. According to the report, the seasonally adjusted labor force participation rose to 65.6 percent in October from 65.5 percent in the prior month, while the number of unemployed persons increased by 4,600 to 672,100. In the meantime, employment grew by 32,800 to 12,671,500 in October versus economists’ expectations of a gain of 20,000 following an increase of 7,800 jobs in the prior month (revised down from originally announced advance of 5,600). Resistance level - AUD0.7302 (high of November 8). Support level - AUD0.7164 (low of November 13).
The currency pair USD/JPY consolidated near the opening level, as investors took a breather after a sharp drop in the pair the day before while expecting new catalysts. Meanwhile, the focus continued to be on the latest comments by the Fed chairman Jerome Powell, who said the central bank is closely monitoring a modest slowdown in global growth, whose strength significantly supported the U.S. economy last year. He noted that the deceleration in global growth was one of a number of challenges but he did not say that any of them were strong enough right now to change the Fed’s current policy path of gradually lifting rates. Powell also said that he is optimistic about the future of the U.S. economy. Resistance level - Y114.15 (high of October 12-13). Support level - Y112.94 (low of November 7).
U.S. stock indexes closed lower on Wednesday, dragged down by a continued decline in Apple (AAPL; -2.8%) shares and a drop in financials sector on fears that regulations on the banking industry would tighten once the Democratic Party takes control of the U.S. House of Representatives. The focus also was on the consumer price index (CPI) for October. The Labor Department reported the U.S. CPI rose 0.3 percent m-o-m last month after increasing 0.1 percent m-o-m in September. Over the last 12 months, the CPI rose 2.5 percent y-o-y last month, following a 2.3 percent m-o-m gain in the 12 months through September. Economists had forecast the CPI to rise 0.3 percent m-o-m and 2.5 percent y-o-y in the 12-month period. Meanwhile, the core CPI excluding volatile food and fuel costs increased 0.2 percent m-o-m in October, following a 0.1-percent uptick in the previous month. In the 12 months through October, the core CPI rose 2.1 percent, decelerating from a 2.2 percent advance in the year through September. That was the lowest rate since April. Economists had forecast the core CPI to rise 0.2 percent m-o-m and 2.2 percent y-o-y in October.
Asian stock indexes closed mostly higher on Thursday, amid rising commodity prices and optimism around the U.S.-China trade relations. Reuters reported that China has delivered a written response to U.S. demands for wide-ranging trade reforms, a move that could trigger more formal negotiations to resolve a withering trade war between the world’s top economies.
European stock indexes are expected to trade higher in the morning trading session.
Yields of US 10-year notes hold at 3.14% (+1 basis points)
Yields of German 10-year bonds hold at 0.40% (0 basis points)
Yields of UK 10-year gilts hold at 1.37% (0 basis points)
Light Sweet Crude Oil (WTI) futures traded little changed. Crude oil for delivery in December settled at $56.24 (-0.02%). The crude oil prices consolidated near the opening level, due to the stabilization of the U.S. dollar and the publication of the latest data from the American Petroleum Institute (API). The API reported late Wednesday that U.S. crude supplies rose by 8.8 million barrels for the week ended November 9. At the same time, gasoline supplies increased by 188,000 barrels and distillate stockpiles fell 3.2 million barrels. Market participants are now awaiting weekly data on U.S. crude inventories from the U.S. Energy Information Administration (EIA).
Gold traded at $1,213.10 (+0.20%). Gold prices rose slightly, continuing the previous day’s rally, which was caused by the broad weakness in the U.S. currency. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, stood at 96.82. Since gold prices are tied to the dollar, a weaker dollar, usually, has a positive effect on them, as it makes the precious metal cheaper for holders of foreign currencies.
IV. The most important scheduled events (time GMT 0)
Trade balance unadjusted
ECB's Benoit Coeure Speaks
ECB's Peter Praet Speaks
Continuing Jobless Claims
Retail sales excluding auto
NY Fed Empire State manufacturing index
Import Price Index
Philadelphia Fed Manufacturing Survey
Initial Jobless Claims
FOMC Member Quarles Speaks
Crude Oil Inventories
Fed Chair Powell Speaks
FOMC Member Bostic Speaks
Business NZ PMI
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