Forgive no charts today, I’ve got a glitch. Westpac has the data:
Event Wrap
US JOLTS job openings in September remained strong at 10.4bn (est.10.3bn, prior revised to 10.6bn from 10.4bn). The job opening rate slipped to 6.6% from 6.7% but remains near below the record high of 7.0% from July, and the hiring rate was unchanged at 4.4%. The quit rate rose to 3.0% – a new record high.
University of Michigan consumer sentiment survey surprised with a slump to a 10-year low. Headline Sentiment fell to 66.8 (est. 72.5, prior 71.7), both current conditions (73.2, est. 77.2, prior 77.7) and expectations (62.8, est. 68.8, prior 67.9) declining. The commentary cited confidence dented by a “growing belief among consumers that no effective policies have yet been developed to reduce the damage from surging inflation”. Inflation expectations 1yr-ahead rose from 4.8% to 4.9% (highest since the 5.2% in 2008), while 5-10yr ahead remained at 2.9%.
Eurozone industrial production in September was less weak than expected, falling 0.2%m/m and rising 5.2%y/y (est. -0.5%m/m and +4.1%y/y).
Event Outlook
Aust: RBA Assistant Governor (Economic) Ellis to appear before the House of Representatives Tax and Revenue Committee, 11:30am.
NZ: The October BusinessNZ PSI is expected to lift as Auckland’s restrictions eased. September’s net migration will remain subdued given closed borders.
Japan: The impact of delta and supply chain issues will hit Q3 GDP (market f/c: -0.2%) and September industrial production.
China: Although the services PMI was promising, retail sales growth will likely slow in October as delta hinders consumption (market f/c: 3.7%yr; 14.7%ytd). October’s industrial production growth is meanwhile expected to slow as a consequence of supply issues and power outages, and regulatory change should continue to place pressure on fixed asset investment (market f/c: 6.2%).
Europe/UK: Europe’s trade balance for September may narrow further, continuing the downward trend seen through 2021. November’s Rightmove house prices could see house price growth approach 2020’s peak of 6.6%yr.
US: The November Fed Empire state survey will provide a timely update on the NY manufacturing sector.
Credit Agricole (PA:CAGR) has the analysis:
AUD: lending rate rises and iron ore
Australia’s banks have continued to push up their 2-3Y fixed lending rates due to higher funding costs. Two sources of cheap funding have or are drying up. First, the RBA ended its Term Funding Facility in June, which provided AUD188bn worth of cheap 3Y funding to banks and other authorised deposit-taking institutions (ADIs) from March 2020. Second, government income support and lockdowns during the pandemic both boosted households’ savings and limited their spending opportunities. This fiscal support is ending with lockdowns, which will see households start drawing down on their high levels of saving. So, banks going to the wholesale funding market for financing right when these costs are rising due to the RBA ending its YCC and rising US rates. Analysts’ estimates for Australian banks’ funding requirements in 2022 are around AUD 150bn and this will be done at a much higher cost than in 2021, which will lead to further rises in effective lending rates, independent of the RBA targeting a cash rate of 0.10%. This scenario will help keep the RBA on the side-lines and trailing other central banks in hiking rates. Indeed, it is worth noting that rising rates in the US would increase rates in Australia without the RBA doing anything. We continue to expect the AUD to trail other commodity currencies in the coming quarters. Weak iron ore prices also leave the AUD struggling, and we expect this to continue for several months yet as China curbs steel production to limit pollution ahead of the Winter Olympics in Beijing in February and China’s residential property sector remains weak.
Forget the Olympics. Bejing can clear the air only a week before with steel cuts if it wants to. This is all about the structural adjustment of less realty. Hence, it is even more impactful for the currency.
When steel raw materials and the carry spread both fall, so does the AUD.