The Weekly Wrap – Inflationary Pressures Shift Monetary Policy Expectations, Pegging Back the Dollar

The Stats

It was a busier week on the economic calendar, in the week ending 22^nd October.

A total of 61 stats were monitored, which was up from 56 stats in the week prior.

Of the 61 stats, 26 came in ahead forecasts, with 30 economic indicators coming up short of forecasts. There were 5 stats that were in line with forecasts in the week.

Looking at the numbers, 29 of the stats reflected an upward trend from previous figures. Of the remaining 32 stats, 31 reflected a deterioration from previous.

For the Greenback, a pickup in market risk appetite weighed further. Adding further pressure on the Dollar was a rise in expectations of a shift in central bank policy elsewhere. Rising cost pressures have lifted the chances of the ECB, the BoE, the BoC, and others to make an earlier move than had been previously anticipated. In the week ending 22^nd October, the Dollar Spot Index fell by 0.31% to 93.642. In the previous week, the Dollar had fallen by 0.14% to 93.937.

Out of the U.S

Early in the week, industrial production disappointed, with production falling by 1.3% in September. Production had fallen by 0.1% in August.

On Thursday, the focus shifted to Philly FED Manufacturing PMI and jobless claims figures.

While the Philly FED Manufacturing PMI fell from 30.7 to 23.8, the employment sub-index rose from 26.3 to 30.7.

Jobless claims also provided a positive view of labor market conditions. In the week ending 15^th October, jobless claims fell from 296k to 290k. Avoiding a return to 300k levels was key.

At end of the week, prelim private sector PMIs delivered mixed results.

In October, the Manufacturing PMI slipped from 60.7 to 59.2, while the Services PMI rose from 54.9 to 58.2. The pickup in service sector activity was key in the week.

On the monetary policy front, FED Chair Powell spoke at the end of the week, with the FED on scheduled to begin tapering.

Out of the UK

It was busier week.

Early in the week, inflation figures pegged back the Pound, with inflationary pressures softening in September.

The annual rate of inflation softened, albeit modestly, from 3.2% to 3.1%. In September, the producer price input index rose by 0.4%, month-on-month, after having risen by 0.5% in August.

At the end of the week, retail sales and private sector PMIs delivered mixed results.

Core retail sales fell by 0.6%, following a 1.2% decline in August. Retail sales declined by 0.2% after having fallen by 0.6% in August.

Prelim private sector PMIs were Pound positive, however.

In October, the Manufacturing PMI rose from 57.1 to 57.7, with the Services PMI climbing from 55.4 to 58.0.

In the week, the Pound rose by 0.03% to end the week at $1.3755. The Pound had rallied by 1.00% to $1.3751 in the previous week.

The FTSE100 ended the week down by 0.41%, partially reversing a 1.95% gain from the previous week.

Out of the Eurozone

Inflation figures were in focus mid-week.

German wholesale inflationary pressures picked up, with the annual wholesale rate of inflation accelerating from 12.0% to 14.2%.

Finalized inflation figures for the Eurozone also affirmed the current trend in consumer prices.

In September, the Eurozone’s annual rate of inflation picked up from 3.0% to 3.4%.

On Thursday, consumer confidence disappointed, however. For October, the Eurozone’s consumer confidence indicator fell from -4.0 to -4.8.

At the end of the week, however, prelim private sector PMIs for October provided some comfort.

Germany’s Manufacturing PMI slipped from 58.4 to 58.2, with the Eurozone’s Manufacturing PMI falling from 58.6 to 58.5.

Service sector activity saw a more marked slowdown in growth at the turn of the quarter.

The Eurozone’s Services PMI fell from 56.4 to 54.7.

For the week, the EUR rose by 0.36% to $1.1643. In the week prior, the EUR had risen by 0.28% to $1.1601.

The DAX40 fell by 0.28%, while the EuroStoxx600 and the CAC40 ended the week up by 0.53% and 0.09% respectively.

For the Loonie

Stats included inflation and retail sales figures, which were Loonie positive.

In September, the annual core rate of inflation picked up from 3.5% to 3.7%, raising the prospects of a move by the BoC.

At the end of the week, retail sales also impressed in spite of rising inflationary pressures.

In August, retail sales increased by 2.1% after having fallen by 0.1% in July. Core retail sales jumped by 2.8%, reversing a 0.4% decline from July with interest.

From the BoC, the Business Outlook Survey was in focus at the start of the week. The survey revealed increased demand but also upward pressure on costs. Firms highlighted ongoing supply constraints that would peg back sales.

In the week ending 22^nd October, the Loonie rose by 0.01% to C$1.2367. In the week prior, the Loonie had risen by 0.83% to C$1.2368.

Elsewhere

It was another bullish week for the Aussie Dollar and the Kiwi Dollar.

The Aussie Dollar rose by 0.61% to $0.7466, with the Kiwi Dollar ending the week up by 1.27% to $0.7157.

For the Aussie Dollar

It was a quiet week, with economic data limited to business confidence figures.

For the 3^rd quarter, the NAB Business Confidence Index fell from 18 to -1. The decline had a muted impact on the Aussie Dollar, however, with restrictions having weighed on sentiment near-term.

On the monetary policy front, the RBA meeting minutes provided support. In spite of the latest lockdown measures, the RBA stood by its policy outlook on a shift in policy in 2024.

For the Kiwi Dollar

Inflation was back in focus, delivering the Kiwi Dollar a boost.

In the 3^rd quarter, the annual rate of inflation accelerated from 3.3% to 4.9%. Quarter-on-quarter, consumer prices rose by 2.2% after having risen by 1.3% in the previous quarter.

For the Japanese Yen

Trade data was in focus mid-week. In September, Japan’s trade deficit narrowed from ¥637.2bn to ¥622.8bn. Exports were up 13.0% year-on-year, with imports up 38.6%.

Late in the week, inflation and private sector PMIs were positive for the Yen.

In September, the annual core rate of inflation picked up from -0.2% to 0.1%.

More significantly, however, was a return to growth across the private sector in October.

The Manufacturing PMI rose from 51.5 to 53.0, with the Services PMI climbing from 47.9 to 50.7.

The Japanese Yen rose by 0.63% to ¥113.500 against the U.S Dollar. In the week prior, the Yen had fallen by 1.76% to ¥114.220.

Out of China

It was a busy week, with GDP numbers in focus.

In the 3^rd quarter, the Chinese economy grew by just 0.2% after having expanded by 1.3% in the previous quarter. Year-on-year, the economy grew by 4.9% versus 7.9% in the quarter prior.

While industrial production and fixed asset investment figures also disappointed, retail sales and unemployment were upbeat.

In September, retail sales were up by 4.4% year-on-year, which was up from 2.5% in August.

China’s unemployment rate fell from 5.1% to 4.9%, which was also a positive for the markets.

In the week ending 22^nd October, the Chinese Yuan rose by 0.79% to CNY6.3850. In the week prior, the Yuan had ended the week down by 0.13% to CNY6.4357

The CSI300 and the Hang Seng ended the week up by 0.56% and by 3.14% respectively.