There has been a ton of news and commentary from central bankers around the world that has influenced trading in stocks and currencies today.
The biggest moves have been in GBP and NOK after forecasts from the Bank of England turned out to be a lot less hawkish than expected while Norges Bank was less dovish than expected.
The Bank of England held rates steady as expected, but the inflation report suggested UK interest rates may not rise until early 2017, much later than the Q2 2016 that has been commonly expected of late. The Bank also indicated no reduction to its QE holdings is expected until the interest rate reaches 2% which could be several years away.
Bank of England Governor Carney took a more dovish tone as well, suggesting global growth has weakened since the summer and that growth should pick up mid-2016. He also suggested previous GBP gains have dampened inflation. This news send GBP sharply lower against both USD and EUR and added about 50 points to the FTSE
NOK, on the other hand, has been rallying on an interesting statement out of Norges Bank who held rates steady today. Governor Olsen noted that while the oil price crash continues to have a negative impact on the economy, expansionary fiscal policy and the lower NOK are helping to offset the damage. Norges Bank has already cut interest rates three times in the last year. Today’s statement is a reminder that central banks can’t wave a magic wand and fix economies all on their own, it requires a team effort from several parties to balance internal and external forces. That being said, Governor Olsen also indicated there was no discussion on a rate change today but it will be revisited at the December meeting.
There has also been a lot of discussion from central bank leaders overnight.
FOMC Chair Yellen indicated in answers to questions following testimony on banking to congress that December remains a live meeting for a potential interest rate hike as long as data still points to a strong economy and the potential for rising inflation toward the 2% target. She also indicates that moving earlier would enable the Fed to tighten rates at a more gradual pace. Meanwhile New York Fed President Dudley suggested the central bank should consider the impact of a rate hike on individual Americans but confirmed he also sees December as a live meeting depending on the data.
Overnight, FOMC Vice Chair Fischer noted inflation is not that far away from the Fed’s 2% target and that he expects to see inflation rise in 2016, making the case for a rate hike soon. With the three top figures at the Fed all singing from the same song sheet, it would seem at this point that unless incoming data is really really bad the Fed is looking at a December rate hike. USD has continued to attract support at a higher level on this news.
ECB President Draghi confirmed that the central bank will review its policy in early December and that it has the scope to do more. He also suggested that QE has been working so far, which I guess he has to say I guess although the fact that they are considering more stimulus is essentially an admission that current stimulus isn’t doing enough. EUR has bounced back a bit today but this appears to be mainly due to cross channel capital flows with EUR benefitting from the GBP selloff.
RBA Governor Stevens indicated overnight the while his bank remains neutral on policy, if they did make a move, it would most likely be to ease further. He also indicated policy decisions are not contingent on inflation and that recent rate increases at banks are mainly an upward adjustment off of generational lows and not a big concern. AUD traders appear to be taking this in stride with the Aussie Dollar holding steady.
Tomorrow a big week for economic news and trading wraps up with the big US nonfarm payrolls and Canada Labour force survey reports, which could generate significant interest from traders.
Last month, US nonfarm payrolls were weak, coming in below expectations and seeing a sharp downward revision to the prior month. Bank is 2004 when the Fed started raising interest rates, nonfarm payrolls plunged from above 300K to below 100K for 2-3 months and then started to rise again. I think what happened with payrolls last month is that Main Street was expecting the Fed to raise rates in September and acted accordingly. Through October, jobless claims have remains well below 300K indicating the US job market remains healthy.
The street is expecting nonfarm payrolls to rebound toward 180K from 142K last month. This would be equal to yesterday’s 180K ADP private sector growth, which makes sense because government hiring may have slowed due to the debt limit issue. I’m going a bit lower thinking 170K and think that it would take a number well below 100K before the Fed would rethink a December rate hike
For Canada jobs in October, I think we could still see a negative impact from oilpatch layoffs and a slowing in government hiring during the Federal election campaign. I expect full time jobs to bounce back from last month’s big drop but part time could retrench. The street is at 10K I am looking for flat.
Facebook $0.57 vs street $0.52, advertising $4.30B vs street $4.18B, over 1 billion daily users
Symantec $0.44 vs street $0.42
Qualcomm $0.91 vs street $0.86
MetLife $0.62 vs street $0.76
Sun Life $0.78 vs street $0.87
Magna International $1.13 vs street $1.09
BCE $0.93 vs street $0.85
Telus $0.66 vs street $0.63, 4% dividend increase
Canadian Natural CFPS $1.40 vs street $1.18
Penn West CFPS $0.09 vs street $0.10
Crescent Point $0.96 vs street $1.00, CFO stepping down
Enbridge $0.47 vvs street $0.50
Molson Coors $1.40 vs street $1.29
Significant announcements released overnight include:
UK interest rate and QE 0.50% and £375B, 1 hawkish dissenter no change all as expected
Norway interest rate 0.75% no change as expected
US jobless claims street 262K
US continuing claims street 2,140K
Bank of England inflation forecast
First rate hike not expected until early 2017 with rates to reach 1.00% late 2017
Inflation to remain below 1.00% until 2H2016 and rise toward 2.00% by late 2017
GDP forecast 2.7% for 2015 and 2.5% for 2016
European Commission 2015 GDP growth forecast changes
Eurozone raised to 1.6% from 1.5%
Germany cut to 1.7% from 1.9%
UK cut to 2.5% from 2.6%
Italy raised to 0.9% from 0.6%
Germany factory orders (1.7%) vs street 1.9%
UK Halifax house prices 9.7% vs street 9.5%
Sweden industrial production street 3.3%
Eurozone retail sales 2.9% vs street 3.0%
Upcoming significant announcements include:
10:00 am EST Canada Ivey PMI street 54.0 vs previous 53.7
1:30 pm EST FOMC Lockhart speaking
TBA FOMC Tarullo speaking
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