Markets Anticipating Another Fed Rate Cut

October 30, 2019

The dollar marked time overnight as investors await confirmation of further easing from the FOMC. Their expectation of a third 25-basis point reduction since July 31st of the federal funds target is thought by many to be accompanied by forward guidance indicating a predisposition to pause afterwards. The announcement at 18:00 GMT will be followed by Powell’s press conference 30 minutes later, but this is not one of the meetings at which¬† macroeconomic forecasts are scheduled to be updated.

The dollar is unchanged against the euro, Aussie dollar and yen, down 0.1% versus the loonie and yuan,down 0.2% relative to the Swiss franc and by 0.3% vis-a-vis sterling.

Ten-year sovereign debt yields have slipped 2 basis points in the U.K. and a basis point in the U.S., Germany and Japan. Among commodity prices, gold and oil have firmed 0.3% and 0.2%. Share prices in the Pacific Rim dropped 0.8% in Australia, 0.8% in Japan and South Korea, 0.4% in Hong Kong and 0.3% in China but rose 0.6% in India and 0.4% in Taiwan. Equities are little changed in Germany, France or Great Britain.

U.S. real GDP grew 1.9% on quarter at a seasonally adjusted rate in 3Q19. That pace represented a smaller-than-forecast 0.1 percentage point deceleration from the second quarter growth rate and was similar to on-year growth of 2.0%. Personal consumption accounted for the entire quarterly rise of GDP. Net exports, inventories, and non-residential investment spending exerted drags on GDP growth in the latest quarter, and the PCE price deflator reflected on-year inflation of 1.4% for a third straight quarter. ADP’s estimate of private sector jobs growth in October was 125k.

Euroland’s economic sentiment index fell 0.9 index points to a 57-month low in October of 100.8. Sentiment deteriorated in services, manufacturing, and households but improved in construction.

French real GDP posted a third straight quarter-on-quarter rise of 0.3% in the summer, and the quarterly move has ranged between 0.2% and 0.4% for seven straight quarters. On-year growth, however, slowed progressively from 3.1% in the final quarter of 2017 to 1.3% in the third quarter of this year. French consumer spending declined 0.4% in September according to a separate report.

Slower on-year CPI inflation during October has been reported today in the German states of North Rhine Westphalia, Hesse, Bavaria and Brandenburg. The number of German unemployed workers rose unexpectedly by 7k in October but was associated with an unchanged 5.0% jobless rate. Employment posted on-year growth of 0.8% in both September and the third quarter as a whole.

In Italy, consumer confidence fell half an index point to a 4-month low in October, but sentiment among manufacturers rebounded to a 2-month high.

British shop prices were 0.4% below year-earlier levels in October.

Spanish CPI inflation remained steady at a minuscule 0.1% in October, down from a 1.5% on-year pace back in April. Belgian CPI inflation slowed to 0.5% in October from 0.8% in September and 1.3% in August.

Greek producer prices were 2.0% lower than a year earlier in September despite a robust monthly increase. Austrian producer prices in September recorded their largest 12-month drop (1.1%) in three years. Austrian GDP, which was also reported today, rose 0.2% on quarter during the summer, resulting in the smallest year-on-year rise (1.5%) in three years.

Portuguese on-year retail sales growth in September of 3.8% was at a 1-year low, and industrial production in that economy simultaneously fell by 5.2%.

Norwegian retail sales was only 0.8% greater in September than a year earlier, and Swedish consumer confidence revived to a 2-month high in October but, at 92.7, was still 3.9% softer than July’s level.

Investor sentiment toward Switzerland according to the ZEW expectations index sank 15.1 index points in October to its second weakest value so far in 2019. The Swiss leading economic index, however, perked up to a 2-month high in October.

Japanese retail sales leaped 7.1% on month in September and were 9.1% greater than a year earlier. However, these data were extremely distorted by the two percentage point national sales tax hike that went into effect at the start of October.

Australian CPI inflation edged up 0.1 percentage point to a 3-quarter high of 1.7% in 3Q19. Core inflation was unchanged from second-quarter results. A separate Australian economic data release showed a 5.7% monthly increase in new home sales.

Besides the Fed, central banks in Canada and Brazil also will be announcing the latest interest rate policy decisions later today.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.


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