U.S. & U.K. Elevated Interest Rates Are Needed, U.S. Stock Market Slump, Metals Higher & Higher, Bitcoin Gains Strength, BOC and ECB Rates Ahead

PREVIOUS WEEK’S EVENTS (Week 16 – 20 Oct 2023)

Announcements:

U.S. Economy

The Empire State index (General business conditions index) has gone back into negative territory. The headline general business conditions index fell seven points to -4.6. Labour market indicators pointed to a slight increase in both employment and the average workweek.

US retail sales increased in September more than expected, suggesting durable household demand as the third quarter drew to a close. The value of retail purchases, unadjusted for inflation, increased 0.7% after an upwardly revised 0.8% gain in August. Excluding gasoline, September sales advanced 0.7%.

The labour market remains generally strong, offering Americans resources for spending. A continued strength in consumer spending still takes place. While inflation is still running well above the Fed’s 2% target, the prices of key consumer goods including apparel and furniture fell sharply last month.

New claims for unemployment benefits number fell to a nine-month low last week at 198K, indicating that the labour market remains tight. The data suggest that the Federal Reserve could keep interest rates higher for longer. The labour market is showing strength despite the U.S. central bank raising its benchmark overnight interest rate by 525 basis points to the current 5.25% to 5.50% range since March 2022.

Financial markets expect the Fed will leave rates unchanged at its Oct. 31-Nov. 1 policy meeting, according to CME Group’s FedWatch Tool, given the surge in Treasury yields.

Australia Economy

Employment data for Australia are showing that the labour market is losing steam. Underlying figures suggest vacancies are being filled and openings are declining. Employment change was reported just 6.7K from the expected 20.6K.

The participation rate, at 66.7% in September, is at its lowest level since February, suggesting fewer people are looking for work. Had that not been the case, Australia’s jobless rate would have jumped last month as per economists’ statements.

U.K. Economy

Change in Retail sales figures for the U.K. was reported way more negative than expected, -0.90%. Retailers reported that the fall over the month was because of continuing cost of living pressures. Retail sales volumes were 1.4% lower than a year earlier and lower than the forecasts for a 1.2% decline.

The BoE halted its increase in borrowing costs, saying it saw signs of an economic slowdown.

Canada Economy

Canadian retail sales fell by 0.1% in August from July. Core retail sales figures actually increased by 0.1%. Analysts were expecting a 0.3% decline from July instead. Growth in Canada has remained halted.

The data enforce the view that the Bank of Canada is done hiking rates.

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Inflation

New Zealand:

New Zealand inflation slowed more than what economists expected in the third quarter and this caused the market to react with NZD depreciation. Consumer prices advanced 1.8% from three months earlier, less than the 1.9% median estimate.

The RBNZ maintained the Official Cash Rate at 5.5% and said that policy may need to be restrictive for a sustained period of time to get inflation back into its 1-3% target range by the second half of 2024.

Canada:

CPI data for Canada showed that the annual inflation rate unexpectedly slowed in September and underlying core measures also eased. Two of the Bank of Canada’s (BoC’s) three core measures of underlying inflation also decelerated. CPI-median edged down to 3.8% from 4.1% in August, while CPI-trim decreased to 3.7% from 3.9%.

The central bank is unlikely to raise rates when it announces its policy decision on Oct. 25 based on these reports. However, at 3.8%, inflation is still nearly double the bank’s 2% target. The central bank does not anticipate inflation slowing to its 2% target until mid-2025. The bank will issue new forecasts alongside its rate announcement next week.

U.K. :

The U.K.’s yearly inflation figure was reported higher than expected at 6.7% in September, remaining the highest of any major advanced economy. This raises the possibility that the BOE will keep rates elevated or even proceed to hike rates in the near future.

Petrol prices kept rising between August and September and this was the main factor pausing a fall in the annual rate.

Consumer prices in Britain have risen 17% in the past two years, an increase that would normally take almost a decade. Wednesday’s data showed core inflation fell less than expected to 6.1% in September from August’s 6.2%. Services price inflation increased to 6.9% in September from 6.8%.

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Sources:

https://www.newyorkfed.org/survey/empire/empiresurvey_overview

https://www.reuters.com/markets/us/futures-up-ahead-earnings-data-middle-east-tensions-weigh-2023-10-16/

https://www.bloomberg.com/news/articles/2023-10-17/us-retail-sales-top-forecasts-in-sign-of-durable-consumer-demand

https://www.reuters.com/markets/us/us-weekly-jobless-claims-unexpectedly-fall-2023-10-19/

https://www.bloomberg.com/news/articles/2023-10-19/australia-s-job-market-shows-signs-of-cooling-as-rate-hikes-bite

https://www.reuters.com/world/uk/british-retail-sales-rise-by-04-august-2023-09-22

https://www.reuters.com/markets/canada-august-retail-sales-down-01-boost-expectations-rate-pause-2023-10-20/

https://www.bloomberg.com/news/articles/2023-10-16/new-zealand-inflation-slowed-more-than-expected-in-third-quarter

https://www.reuters.com/world/uk/uk-inflation-rate-holds-67-september-2023-10-18

https://www.reuters.com/markets/canada-annual-inflation-rate-edges-down-38-september-2023-10-17/

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Currency Markets Impact – Past Releases (Week 16 – 20 Oct 2023)

Server Time / Timezone EEST (UTC+03:00)

On the 16th Oct the Empire State Manufacturing Index figure released at 15:30 showed that business activity edged lower in New York State, according to firms responding to the October 2023 Empire State Manufacturing Survey. No major impact in the market was recorded at that time so no major effect on USD

Canadian business sentiment fell to its weakest level since the Covid recession of 2020, but inflation expectations remain high. At the time of the release the CAD was not significantly affected.

The quarterly CPI change for New Zealand was reported 1.80% slowing more than what economists expected in the third quarter. The annual inflation rate fell to 5.6%, a two-year low, from 6% in the second quarter. NZD depreciated at the time after the shock with NZDUSD dropping near 20 pips before retracing to the mean.

On the 17th Oct, the average weekly earnings figure for the U.K. was reported at 9:00 showing that annual growth in employees’ average total pay (including bonuses) was 8.1% from June to August 2023. The impact on the GBP was minimal, GBP experienced some depreciation that soon faded.

Canada’s CPI data were reported at 15:30 as scheduled and showed that inflation has lowered significantly. The market reacted with a shock for the CAD pairs and with an initial CAD The USDCAD jumped near 60 pips before retracing back fully.

U.S. Retail Sales figures were reported at the same time showing that consumers boosted retail sales well above expectations. Retail sales rose 0.7% on the month, well above the 0.3% estimate. At the time of the release, the USD appreciated but the impact of the news was not so great. The market soon reversed.

On the 18th Oct it was reported that the Consumer Prices Index (CPI) for the U.K. rose by 6.7% in the 12 months to September 2023, the same rate as in August. This better-than-expected figure caused GBP to appreciate significantly at the time of the release on the 18th Oct.

At 15:30 the Building Permits were reported lower than expected. The figures were 4.4 % below the revised August rate of 1.54M and 7.2% below the September 2022 rate of 1.58M. The impact on the market was not so great, no major shock was recorded.

Crude inventory data showed a negative change as expected but huge with 4.5M barrels. A bigger-than-expected U.S. storage draw and concerns about global supplies push oil higher, while the Gaza hospital attack and strong Chinese data could be the reasons for oil to climb further these days too.

On the 19th Oct at 3:30 the labour market data for Australia came out. Just a 6.7K change in employment while the unemployment rate was reported lower than expected. The AUD was affected by depreciation upon release but the impact was minimal. AUDUSD dropped little more than 20 pips and continued later to the downside until it found support reaching near 35 pips drop overall from the time of the news release.

U.S. Unemployment claims were reported at 198K and again remain close to the 200K level. The numbers are kind of expected to be low thus no shock was recorded at the time of the release for the USD pairs.

The Philly Fed Man. index showed an increase of 5 points but remained negative at -9 points this month. Manufacturing activity in the region was mixed. The firms continue to expect overall growth over the next six months, but most future indicators declined. USD pairs were not affected by the release.

The change in retail sales for the U.K. was released on the 20th Oct. Retail sales volumes have dropped by 0.9% in September 2023, following a rise of 0.4% in August 2023. GBP depreciated at the time of the release.

Canada’s retail sales figures were released at 15:30. They showed an improvement in core retail sales, however, in general, Canadian retail sales fell in August and were flat in September as consumption slowed. The CAD appreciated momentarily at the time of the release but the direction soon faded.

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FOREX MARKETS MONITOR 

DXY (US Dollar Index)

The dollar index was moving with low levels of volatility at the start of the wheel but soon showed higher levels, especially after the 18th Oct.  The USD showed strength, thus moving to the upside and over the 30-period MA until it found resistance. On the 19th it moved to the downside returning back to the mean. After the announcement of the low Unemployment Claims figures it showed some retarcement to the upside and continued with the sideways path.

EURUSD

The EURUSD found support at near 1.05255. It moved to the upside overall and over the 30-period MA. After the 19th Oct a triangle formation was recorded but the price made a false breakout upwards. Now resistance seems to be the level 1.06150 while the support is near 1.059. The USD seems to have had a moderate impact on the pair’s path last week. However recently we see the dollar losing strength while the pair moves upwards.

CRYPTO MARKETS MONITOR

BTCUSD

Bitcoin continued to the upside leaving the level of 28K USD and going back over the 30K USD after breaking 29800. It even reached levels near 30370 before reversing back to the mean. It is not clear if this upward trend will remain. As people ditch stocks as they are considered risky at the moment due to geopolitical tensions, and funds move to other assets we see some gains for those assets, such as metals and crypto instead.

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NEXT WEEK’S EVENTS (Week 23 – 27 Oct 2023)

 This week we have PMI releases for both the Manufacturing and services sector.

Some Inflation reports for Australia and Tokyo.

Long-waited rate decisions from BOC and ECB.

Currency Markets Impact:

On the 24th October the Claimant Count change could cause high volatility levels or even an intraday shock for the GBP It is expected to be reported higher since labour market cooling is expected with elevated interest rates.

PMI releases will probably have a good impact in the markets. Usually they are generating high shocks at the time of the release for the affected pairs, EUR, GBP, USD.

On the 25th the release of the inflation report for Australia will probably cause an impact to the AUD During the Asian session it is expected that retracement back to the mean after big deviations happen soon.

At 17:00 the Bank of Canada is going to decide on rates. Regardless of the outcome, it is possible that at that time the market will experience a shock affecting mainly the CAD A similar effect during press conferences, no shock but elevated levels of volatility are probable to take place.

On the 26th the EUR pairs and probably other major currencies will be affected. A shock intraday during the rate decision from the European Central Bank potentially will take place.

At 15:30 several announcements related to USD pairs will take place including durable goods orders and unemployment claims. All these measure the strength of the labour market and level of manufacturing activity giving an indication of how the economy is affected by the recent policies. We are expecting a moderate intraday shock for the USD pairs at that time.

On the 27th Tokyo’s yearly inflation figure at release at 2:20 might have an impact on the JPY pairs but usually are low. The PCE index figure release could move the USD pairs significantly, at 15:30.

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COMMODITIES MARKETS MONITOR

U.S. Crude Oil

After a period of retracement back at 84.5 USD/b, Crude finally moved higher breaking the channel that was formed. On the 17th of Oct., it crossed the 30-period MA on its way up and moved higher, reaching the next peak for the week at nearly 88.5 USD before retracing again to the mean. Volatility seems high. On the 19th of Oct., its price moved rapidly to the upside reversing significantly and crossing the MA on its way up reaching the next resistance at 89.4 USD/b. It eventually retraced to 88 USD/b as per the forecast in the previous report.

Gold (XAUUSD)

The price was moving to the upside rapidly reaching the next resistance at nearly 1960 USD/oz by the 18th of Oct. That resistance broke and Gold moved further upward reaching 1980 USD/oz. On Friday, it continued with the upside movement until it reached near the important psychological resistance level at 2000 USD/oz before retracing. It is quite remarkable that fundamentals are pushing Gold to higher and higher levels. While tensions and warfare still exist, market participants are buying more safe haven metals, ditching risky assets such as stocks.

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EQUITY MARKETS MONITOR

NAS100 (NDX)

Price Movement

On the 17th of Oct., the index eventually dropped heavily until the support at 14940 USD before a remarkable full retracement that took place soon after. It showed amazing volatility with big deviations from the mean. Eventually, we see that the downside prevails as the stock market is currently suffering losses. All benchmark indices follow the same path to the downside. NAS100 crashed when it broke significant support levels yesterday such as the 14945 USD and moved lower even to 14825. After Powell’s speech last week, the market crashed again. It dropped near the support 14700 and after breaking that support it dropped rapidly to the downside. While risky assets such as stocks are not preferred currently, metals gain instead.

 

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