Asian stocks reversed losses following stronger-than-expected PMI data from China earlier today, bolstering sentiment after global equities slumped in October by the most in 9 months. Central banks in Australia and Japan refrained from furthering monetary easing policies, adding to concerns that central bankers around the globe are acknowledging the effectiveness of monetary policy is reaching its limit.
- Personal spending and income in September both rose, rising 0.3% and 0.5% respectively, improving from prior figures of 0.2% and -0.1%; economists were expected 0.4% gains for both figures.
- The Fed’s preferred gauge of inflation – the PCE deflator, rose 0.2% month-on-month and 1.2% year-on-year, matching estimates and exceeding prior readings of 0.2% and 1.0% respectively. Core PCE matched expectations as well, gaining 0.1% from a month earlier and 1.7% from a year ago.
- The Chicago Purchasing Manager Index last month registered a reading of 50.6, less than the expected of 54.0 and prior of 54.2.
- US Treasuries gained following last week’s global bond sell-off; crude oil’s decline has also eased concerns over quickening inflation. The benchmark 10yr yield fell 2bp to 1.83%; the yield reached 1.88% last week, its highest level since May.
- The S&P 500 Index was barely changed for the day on the last day of October, as the US benchmark capped off the month with its biggest monthly drop since January, falling in three of the past four weeks for a 1.9% loss in October. Energy shares led decliners last night.
- The US dollar broadly gained in October, with the Dollar Index climbing 3.1% and the Bloomberg Dollar Spot Index registering a 2.2% gain for the month.
- BOE Governor Mark Carney will extend his time in office by a year to 2019 to guide the economy through Britain’s spilt from the EU, thus ending months of speculation over his tenure.
- By providing continuity at the central bank, investor concerns over Brexit uncertainties are likely to be somewhat soothed, although many questions still remain ahead as the UK seeks to negotiate terms over its break with the EU.
- Italian government bonds were the worst performers among their euro-area peers over the past month as polls increasingly signalled a constitutional referendum may be rejected by voters, threatening to destabilize the government. 10yr yields rose 2bp to 1.68% last night.
- As expected, the BOJ kept its monetary policy stance unchanged even as it trimmer its forecast for inflation for the coming fiscal year to 1.5% from 1.7%.
- The central bank kept its target for 10yr government bond yields at around 0%, and left the policy rate on apportion of commercial bank reserves at -0.1%. The BOJ said it will continue buying Japanese government bonds at an annual pace of about 80 trillion yen and maintained previous plans for purchases of other assets such as ETFs.
- China posted its strongest PMI data in more than 2 years. Manufacturing PMI in October rose to 51.2 from 50.4 prior, beating estimates of 50.3. Non-manufacturing PMI posted gains as well, advancing to 54.0 from 53.7 prior.
- The Caixin China Manufacturing PMI advanced to 51.2 in October from 50.1 in September, beating economists’ consensus projections of 50.1.
- The RBA left rates unchanged earlier today, as expected, as Governor Philip Lowe signalled he’s prepared to tolerate weak inflation to avoid further escalating property prices and household debt.
- The central bank further noted that 3Q inflation data was largely as expected and is expected to pick up gradually over the next 2 years.
- Prices of Australia’s two biggest exports, iron ore and coal, have rebounded strongly this year, lifting the nation’s terms of trades. House prices continue to grow strongly in Sydney and Melbourne, up 10.6% and 9.1% respectively in October.
- Since taking the helm in September, Lowe has stressed the flexibility of the RBA’s inflation target and voiced concern further monetary policy easing could start to pose a risk to financial stability.
- Spot gold continues to trade alongside its 200-day moving average of $1,274.70/Oz, as investors await the outcome of the Fed’s November meeting this week.
- Spot silver was 0.6% higher at $17.9404/Oz as the metal nears a three-week high.
- Crude oil for December delivery sank 3.8% last night to settle at $46.86/bbl, after Brazil’s Oil and Gas Secretary Marcio Felix said over the weekend that OPEC ended talks with non-members Brazil and Russia without an agreement.
- Spot 1.3907
- USDSGD fell 0.2% earlier this morning to the 1.3900 handle amid USD weakness today.
- On a longer-term basis, the currency pair could find decent support at the 1.3850 level and some resistance at the 1.4000 psychological handle. A 1.4200 target remains a realistic possibility over the next 12 months.
- Spot 0.7644
- AUDUSD gained 0.7% to 0.7647 after the RBA opted not to further monetary policy and left rates unchanged at 1.50%, as expected.
- Spot 1.3407
- USDCAD continues to trade around the 1.3400 handle, gaining 0.3% to 1.3426 before reverting back to 1.3400.
- In a note to clients, UBS wrote that the 17% chance of a BOC rate cut in January is too low, and forecasts further weakness for the CAD which could be exacerbated by cheaper crude oil prices. The bank revised its year-end forecast for USDCAD to 1.3600 from 1.2500.
- Spot 6.7841
- This morning’s stronger-than-expected PMI data added to a growing consensus that a China’s recovering economy will allow the PBOC to deleverage further.
- The PBOC weakened its reference rate by 0.1% to 6.7734 against the US dollar.
- USDCNH reversed earlier losses and recovered back above the 6.7800 level.
- Spot 104.96
- The yen remains little changed at around 105 to the dollar, after the BOJ maintained its monetary stimulus earlier today and delayed the projected timing for reaching its inflation goal.
- The next key resistance above comes in at 107.50, while 104.00 should act as a new-found support.
- Spot 1.2233
- GBPUSD rose 0.7% to 1.2249 following news of BOE Governor Carney’s extension.
- The 1.2100 handle remains a key support level.