An exciting week witnessed further Sino-US trade developments, a Brexit “flextension” and the Fed’s hawkish rate cut by 25bps to 1.5-1.75%. Pleased with where monetary policy stands, Fed Chair Powell did comment on the lack of price pressures saying: “we would need to see a really significant move up in inflation that’s persistent before we would consider raising rates to address inflation concerns”.
Following the Fed’s favoured core PCE deflator reading - which was flat on the month and missed expectations released at 1.3% - like the Fed opined, we see no inflationary pressures currently. Aside from the broadly mixed data prints (US quarterly growth and personal consumption surprised to the upside, while ISM manufacturing missed expectations) the employment dump was on everyone’s minds. The all-important nonfarm payroll report for October came in at +128k, against expectations of +85k and a (moderately) revised +44k change for September. Average hourly earnings were up 0.2%mom (versus expectations of 0.3%) and 3% yoy, and the unemployment rate was up marginally at 3.6%. The yield on the 10-year US Treasury rallied 9bps to 1.71% and the dollar (DXY Index) fell 0.61% on the week.
Following the cancellation of the APEC summit which was due to be held in Chile - the place where the much discussed Sino-US “Phase 1” trade deal was to be signed - we have heard reports that the deal could be signed at a new venue in the US. Ahead of that, markets treaded water unconvinced of an agreement until the ink is set. Staying with trade, any chance of a US-UK deal appears slim after Trump said the US "can't make a trade deal with the UK" with the current EU withdrawal agreement. As Brexit uncertainty lingers the UK consumer is becoming increasingly pessimistic; the GFK UK consumer confidence reading fell to six-year lows in October, to -14. On the positive, the UK’s Markit PMI manufacturing reading beat expectations and rose from the September reading.
In Asia, the Caixin China PMI manufacturing print surprised to the upside, at 51.7. The Chinese offshore renminbi held on to its gains against the dollar, up 0.13% over the week. Meanwhile, following the social unrest and trade war concerns, Hong Kong officially entered a technical recession in Q3’19. Elsewhere, the BOJ says it could take rates lower on the back of global growth concerns and the lack of inflationary pressures.
This week the main data highlights include: US factory orders and Euro-area manufacturing PMI on Monday, US JOLT jobs, Caixin China services PMI and UK Markit PMI readings on Tuesday, German factory orders on Wednesday and US consumer sentiment, China’s trade balance and France IP on Friday. The BOE’s rate decision on Thursday will be watched closely as will the array of earning reports. All the while expect more Sino-US trade chatter and Brexit headlines, alongside UK election campaigning.