Monday

Monday was an empty day on the data front with just a
couple of notable events:

• We
  haven’t seen a ground offence in Gaza over the weekend, although the airstrikes continued.
  Nonetheless, the risk sentiment improved as the ground operation is seen as
  the biggest risk by the markets. Later in the day, we have also got a report that Hamas was releasing two hostages in response to a Qatari-Egyptian mediation.
• Treasury
  yields fell across the board following a tweet from Bill Ackman where he said that he covered his bond short position
  due to “the economy slowing faster than the recent data suggests”. Later on, Bill Gross, former PIMCO fund manager, said that “higher for
  longer is yesterday’s mantra” as he sees a US recession in Q4.

Tuesday

Tuesday was the PMIs Day with most of them
disappointing, except the US ones:

• Australia Manufacturing PMI 48.0 vs. 48.7 prior.
• Australia
  Services PMI 47.6 vs. 51.8 prior.
• Japan Manufacturing PMI 48.5 vs. 48.5 prior.
• Japan
  Services PMI 51.1 vs. 53.8 prior.
• Eurozone Manufacturing PMI 43.0 vs. 43.7 expected and 43.4 prior.
• Eurozone
  Services PMI 47.8 vs. 48.7 expected and 48.7 prior.
• UK
  Manufacturing PMI 45.2 vs. 44.7 expected and 44.3 prior.
• UK
  Services PMI 49.2 vs. 49.3 expected and 49.3 prior.
• US Manufacturing PMI 50.0 vs. 49.5 expected and 49.8 prior.
• US
  Services PMI 50.9 vs. 49.8 expected and 50.1 prior.

The rest of the UK’s labour market report beat
expectations although it doesn’t change anything for the BoE at this point in
time:

• Employment change -82K vs. -198K expected and -207K prior.
• Unemployment rate 4.2% vs. 4.3% expected and 4.3% prior.

RBA’s Governor Bullock just reaffirmed her focus on
bringing inflation back to target “within a reasonable timeframe”:

• Focused on brining inflation to target within reasonable timeframe.
• There are risks inflation could return to target more slowly than forecast.
• Will not hesitate to raise rates if there is a material upward revision to inflation outlook.
• Australian dollar is relatively stable in trade-weighted terms, not a policy concern.

ECB’s Makhlouf (dove – non voter) is watching the
developments in the Middle East closely as an expansion of the conflict could
cause another wave of energy inflation:

• Far too early to tell consequences of Middle East situation.
• We are watching the developments very closely.
• They are bound to have economic implications for us to some extent.
• Don’t want to jump to conclusions on extent of impact on economies, monetary policy.

ECB’s President Lagarde (neutral – voter) is
acknowledging the positive developments on the inflation front but warns about
stagnation in the next few quarters:

• Inflation fight is going well.
• Eurozone economy to stagnate in the next few quarters.
• Risks to inflation have become more balanced.
• Fiscal impasse is starting to turn into a headache.

China has approved $139bn in new bonds (1 trillion yuan) to bolster the economic recovery as
the stimulus widens the deficit to 3.8% from 3.0% this year. This has led to a
rally in Chinese risk assets, although the gains were completely erased the day
after.

Wednesday:

The Australian Q3 CPI data beat expectations across
the board leading the market to price in a higher chance of a 25 bps rate hike
from the RBA in November:

• CPI Y/Y 5.4% vs. 5.3% expected and 6.0% prior.
• CPI Monthly Y/Y 5.6% vs. 5.4% expected and 5.2% prior.
• CPI Q/Q 1.2% vs. 1.1% expected and 0.8% prior.
• CPI Trimmed Mean Y/Y 5.2% vs. 5.0% expected and 5.9% prior.
• CPI Trimmed Mean Q/Q 1.2% vs. 1.1% expected and 1.0% prior (revised from 0.9%).
• CPI Weighted Mean Y/Y 5.2% vs. 5.0% expected and 5.4% prior (revised from 5.5%).
• CPI Weighted Mean Q/Q 1.3% vs. 1.0% expected and 1.0% prior.

The German IFO Business Climate Index beat
expectations:

• IFO Index 86.9 vs. 85.9 expected and 85.8 prior (revised from 85.7).
• Current conditions 89.2 vs. 88.5 expected and 88.7 prior.
• Expectations 84.7 vs. 83.3 expected and 83.1 prior (revised from 82.9).

The BoC left interest
rates unchanged at 5.00% as expected:

• BoC sees “clearer signs that monetary policy is moderating spending
  and relieving price pressures”.
• “There is growing evidence that past interest rate increases are
  dampening economic activity and relieving price pressures”.
• BoC repeated that it ” is prepared to increase the policy interest
  rate further if needed”.
• Sees inflation returning to 2% at the end of 2025 vs. “mid-2025”
  previously.
• The global economy is slowing, and growth is forecast to moderate further
  as past increases in policy rates and the recent surge in global bond yields
  weigh on demand.
• Weaker demand and higher borrowing costs are weighing on business
  investment.
• The surge in Canada’s population is easing labour market pressures in some
  sectors while adding to housing demand and consumption.
• The labour market remains on the tight side and wage pressures persist.
• A range of indicators suggest that supply and demand in the economy are now
  approaching balance.
• The BoC projects global GDP growth of 2.9% this year, 2.3% in 2024 and 2.6%
  in 2025, little changed from previously.
• Growth in the euro area has slowed further.

New forecasts:

• Cuts 2023 growth forecast to 1.2% vs. 1.8% prior.
• 2024 to 0.9% vs. 1.2% prior.
• 2025 to 2.5% vs. 2.4% prior.
• Raises 2023 inflation forecast to 3.9% vs. 3.7% prior.
• 2024 inflation to 3.0% vs. 2.5% prior.
• 2025 inflation to 2.2% vs. 2.1% prior.

Moving on to the Press
Conference, BoC Governor Macklem and BoC’s Rogers gave their remarks on the
policy decision:

• Inflation is on a higher path than we expected.
• Demand pressures have eased more quickly than we forecast in July.
• Overall inflation risks have increased since July.
• We held policy rate steady because we want to allow monetary policy time to cool economy.
• Worried higher energy prices and persistence in underly inflation are slowing progress.
• We’ve made a lot of progress but we’re not there yet.
• We now expect oil prices to remain higher than we assumed in July.
• The exchange rate is part of how monetary policy works.
• Normally large rate hikes boost the currency but because the US is also hiking, the currency has been relatively stable.
• We don’t target the exchange rate, but we take it into account.
• We are seeing clear evidence that higher rates are working.
• We left the door open to higher interest rates, if needed.
• We need to see clear downward momentum in core inflation.
• There could certainly be two or three quarters of negative growth.
• A path to a soft landing in Canada is narrower vs USA.
• Highlights the difference between US and Canadian mortgage markets.
• BoC’s Rogers: Relative to interest rates, we’re not seeing the drop in housing prices we’d expect.
• BoC’s Rogers: Canada continues to suffer from a lack of housing supply.
• BoC’s Rogers: We’re paying very close attention to the mortgage-renewal cycle.
• BoC’s Rogers: Will look more at housing in November Financial System Review.
• Government spending doesn’t look like it’s been adding undue inflation pressure in the past year.
• It’s easier to get inflation down if governments and central banks are moving in the same direction.
• Now is not the time to discuss reductions in the overnight rate.
• Says he wouldn’t use the term ‘stagflation’.
• The risks that oil could go a lot higher have increased.

The following day we got
comments from Macklem on CBC Radio where he said that the economy was not
overheated anymore and if inflation were to cool as projected, the BoC wouldn’t
have to raise rate further.

The Israeli PM Netanyahu
delivered a speech late in the day that triggered risk aversion across the
markets as he said that they were “preparing for a ground invasion”. This was
preceded by a WSJ report where it was said that
the US requested to delay the invasion so it could get more missile defences in
place:

• Doing everything possible to bring hostages home.
• We are preparing for a ground invasion.
• I won’t give the details.
• Timing of the invasion will be reached by consensus.
• Civilians in Gaza should move to the South.
• We encourage Israel citizens to carry arms.
• I will have to answer for what happened on October 7.

Thursday

RBA Governor Bullock
surprisingly downplayed the higher-than-expected CPI report with the markets
trimming the rate hike odds as a consequence:

• The CPI was a little higher than we expected.
• But CPI was about where we thought it would come.
• Goods prices coming down, but services inflation remains persistent.
• Services inflation is higher than what we are comfortable with.
• Will have to build this into our forecasts.
• The longer inflation remains outside target band the more likely inflation expectations change.
• RBA has always had a low tolerance for inflation.
• RBA aims to slow the economy without tipping it into recession.
• She says the Bank is still thinking about if yesterday’s inflation data showed a “material” change to policy outlook.
• Would not like to say if CPI makes a rate rise more likely.
• We are wary on inflation.
• We have made it clear we might have to hike interest rates again.

The ECB left interest
rates unchanged as widely expected:

• Incoming information has broadly confirmed previous assessment of
  medium-term inflation outlook.
• Inflation is still expected to stay too high for too long.
• Past interest rate increases continue to be transmitted forcefully into
  financing conditions.
• This is increasingly dampening demand and thereby helps push down inflation.
• Key interest rates at levels that, maintained for a sufficiently long
  duration, will make a substantial contribution to ensure that inflation returns
  to its 2% medium-term target in a timely manner.
• Future decisions will ensure that policy rates will be set at sufficiently
  restrictive levels for as long as necessary.
• To continue data-dependent approach to determining the appropriate level
  and duration of restriction.

Moving on to President
Lagarde’s Press Conference, she reiterated that rates held for longer will curb inflation and highlighted the weakening economic growth:

• Past hikes are increasingly dampening demand.
• Rates will make a ‘substantial contribution’ to curbing inflation.
• The eurozone economy remains weak.
• Tighter conditions are weighing on investment and savings; highlights drag from industrial sector.
• Economy is likely to remain weak for the remainder of this year.
• There are signs that the labour market is weakening.
• Food price inflation slowed again, though it remains high by historical standards.
• Risks to economic growth remain tilted to the downside.
• Domestic price pressures remain strong.
• Credit dynamics have weakened further.
• Now is not the time for forward guidance, it’s time for data dependency.
• PEPP wasn’t discussed at this meeting.
• Our determination to bring inflation to 2% is intact.
• Rise in yields is a spillover that we take into account, it helps bring inflation down.
• What we are seeing is a very-strong transmission of our monetary policy in the banking system in particular.
• Hold doesn’t mean we will never hike again.
• We know that growth has weakened, we will have no forecasts in December.
• PMI numbers are not indicative of vigorous growth.
• Decision was unanimous.

The US Q3 Advance GDP
beat forecasts coming in at 4.9% vs. 4.3% expected:

• Final Q2 reading was 2.4% annualized.
• Q1 was 2.0% annualized.
• Best quarter since Q4 2021.
• Estimates ranged from 2.5%-6.0%.

Details:

• Consumer spending 4.0% vs. 0.8% prior.
• GDP final sales 3.5% vs. 4.5% expected and 2.3% prior.
• GDP deflator 3.5% vs. 2.5% expected and 2.2% prior.
• Core PCE 2.4% vs. 2.5% expected and 3.8% prior.
• Exports 6.2% vs. -9.3% prior.
• Imports 5.7% vs. -7.6% prior.
• Business investment 8.4% vs. 5.2% prior.

The US Durable Goods
orders beat expectations:

• Durable Goods 4.7% vs. 1.7% expected and -0.1% prior (revised from 0.2%).
• Nondefense capital goods orders ex air 0.6% vs. 1.1% prior (revised from 0.9%).
• Ex Transportation 0.5% vs. 0.2% expected and 0.5% prior (revised from 0.4%).
• Ex Defense 5.8% vs. -0.7% prior.
• Shipments -$0.8 billion or -0.3 percent to $283.7 billion. This followed a 0.5 percent August increase.

The US Jobless Claims
missed expectations across the board this time with Continuing Claims now
showing a strong upward trend:

• Initial Claims 210K vs. 208K expected and 198K prior.
• Continuing Claims 1790K vs. 1.740K expected and 1.727K prior (revised from
  1.734K).

Friday

The Tokyo CPI, which is
seen as a leading indicator for National CPI, came in higher than the prior
figures:

• CPI 3.3% vs. 2.8% prior.
• CPI ex Food 2.7% vs. 2.5%
  expected and 2.5% prior.
• CPI ex Food and Energy 2.7% vs. 2.4% prior.

The Australian Q/Q PPI
came in higher than the prior month:

• PPI Q/Q 1.8% vs. 0.5% prior.
• PPI Y/Y 3.8% vs. 3.9%
  prior.

The US PCE came in line
with forecasts:

• PCE Y/Y 3.4% vs. 3.4% expected and 3.4% prior (revised from 3.5%).
• PCE M/M 0.4% vs. 0.3% expected and 0.4% prior.
• Core PCE Y/Y 3.7% vs. 3.7% expected and 3.8% prior (revised from 3.9%).
• Core PCE M/M 0.3% vs. 0.3% expected and 0.1% prior.

Consumer spending and
income for September:

• Personal income 0.3% vs. 0.4% expected and 0.4% prior.
• Personal spending 0.7% vs. 0.5% expected and 0.4% prior.
• Real personal spending 0.4% vs. 0.1% prior.

The highlights for next
week will be:

• Monday: Australia Retail
  Sales.
• Tuesday: Japan Jobs data,
  Japan Retail Sales and Industrial Production, Chinese PMI, BoJ Policy Decision,
  Swiss Retail Sales, Eurozone GDP and CPI, Canada GDP, US ECI, US Consumer
  Confidence, New Zealand Jobs data.
• Wednesday: Chinese Caixin
  Manufacturing PMI, US ADP, Canada Manufacturing PMI, US ISM Manufacturing PMI,
  US Job Openings, FOMC Policy Decision.
• Thursday: Swiss CPI, US
  Challenger Job Cuts, BoE Policy Decision, US Jobless Claims.
• Friday: Chinese Caixin
  Services PMI, Eurozone Unemployment Rate, Canada Jobs data, US NFP, US ISM
  Services PMI.

That’s all folks. Have a
great weekend.

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