Market Weekly Recap for November 21st 2014
Yen in the spotlight for the third week
The Japanese Yen continued to remain in the Fx spotlight after weeks of rumors saw confirmation from Premier Shinzo Abe dissolving his parliament and calling for snap elections in December. The third quarter GDP saw a consecutive decline, taking Japan into a technical recession.
The much anticipated delay to the sales tax hike from current 8% to 10% was also postponed by 18 months. It was due to come into effect in October 2015. The Bank of Japan’s monetary policy refrained from taking on further measures despite pre-policy statement rumors of plans to launch a mini stimulus to the tune of 3trillion Yen. The BoJ highlighted the risks of lower inflation during its press conference.
The Yen weakened considerably across the board and was seen easing after comments from Finance Minister on the rapid depreciation of the Yen during early Friday’s trading session.
- Q3 GDP -0.4%
- All industries activity m/m rises 1% vs. 1.2% estimates
- Flash manufacturing PMI 52.1 vs. 52.7 estimates
Aussie continues to be jawboned by RBA
There was no respite for the Australian Dollar which declined yet again after comments from RBA Governor Glenn Stevens this week. Sticking to the usual rhetoric, Stevens called the Aussie’s exchange rate unjustifiable and also noted that the RBA could lower interest rates should the need arise. The comments pushed back expectations of any RBA rate hikes by a further 12 months.
There was however some consolation during Friday’s trading session for the Aussie dollar from China. The PBOC, China’s Central bank cut its 1-year lending rate by 0.4bps, effective November 22nd and also raised the ceiling for deposit rates to 1.2 times the benchmark lending rates. The news managed to pull the Aussie from the weekly lows of 0.8565.
- New Motor vehicle sales m/m -1.6%
- RBA Stevens opens possibility of a rate cut should the need arise
Eurozone – Mixed signals across the board
The Euro continues to get more confusing as it tip toes between QE or no QE expectations. After last week’s better than expected GDP data, the markets were hoping to see some improvement in the PMI’s this week. Expectations rose after earlier this week, economic sentiments from Germany and Eurozone on the whole saw a positive mood. Markets were however disappointed as flash manufacturing and services PMI across France, Germany and Eurozone declined falling below estimates.
Meanwhile speeches and comments from key ECB officials continue to confuse the markets. While members such as Jens Weidmann continue to question the effectiveness of QE in terms of purchasing sovereign bonds, other members such as Yves Mersch’s comments that QE in ‘theory’ was a possibility continue to show that the ECB is not quite united as it seemed during the ECB’s press conference earlier this month.
- German ZEW economic sentiment 11.5 vs. 0.9 consensus, Eurozone ZEW economic sentiment 11 vs. 4.3 consensus
- France services PMI 48.8 vs. 48.6; manufacturing PMI 47.6 vs. 48.9
- Germany services PMI 52.1 vs. 54.5; manufacturing PMI 50 vs. 51.5
- Eurozone services PMI 51.3 vs. 52.3; manufacturing PMI 50.4 vs. 50.9
- Eurozone consumer confidence -12
Greenback turns mixed this week
The US dollar was mixed this week despite some upbeat economic data. The key event during the week was the FOMC meeting minutes which to the disappointment for most turned out to be mostly neutral to dovish. Markets were expecting to see a hawkish minutes based on the October FOMC statement. The Fed underlined its concerns on inflation but the markets are well expecting to see the Fed hike rates in 2015 which has managed to keep the bullish momentum going on the Greenback.
- Empire state manufacturing index 10.2 vs. 12.1
- PPI m/m 0.2% vs. -0.1%; Core PPI m/m 0.4% vs. 0.2%
- CPI m/m unchanged vs. -0.1%; Core CPI m/m 0.2% vs. 0.2% consensus
- Flash manufacturing PMI 54.7 vs. 56.2 consensus
- Philly Fed manufacturing index 40.8 vs. 18.9 consensus
British Sterling struggles to hold on to gains
Inflation data released this week saw a modest improvement but core CPI remained weak. The BoE meeting minutes continued to show two members voting for a rate hike but it failed to push the Sterling any higher. Even an upbeat retail sales data failed to breathe any signs of strength into the Cable which hit a weekly low to 1.5588. Current price action at the time of writing continues to show indecision in the GBPUSD.
- CPI y/y 1.3% vs. 1.2%; Core CPI y/y 1.5% vs. 1.6%
- BoE meeting minutes; interest rate hike vote 7 -2
- Retail sales m/m 0.8% vs. 0.4%
- MI inflation expectations 4.1% vs. 3.4% previously