The Federal Reserve’s Beige Book gave an upbeat assessment of the US Economic Performance in September-October despite several regions being affected by Hurricane damage. In its Beige Book, the Fed noted that despite a tightening Labour Market, most Fed Districts only reported ‘modest to moderate’ wage pressures. US President Donald Trump is set to make his pick for the next Chair of the Federal Reserve in the ‘coming days’, according to press reports, with the race seemingly still competitive between all potential candidates. Mr Trump meets Janet Yellen, the incumbent Chair, later today with the Market likely to parse their interactions closely given the President’s tendency to favour officials with whom he can build rapport.
Labour Data from the UK showed workers earning higher Wages in the three months to August while overall Unemployment held steady at 4.3%. Wage Growth expanded 2.2%, slightly faster than market expectations while Unemployment is holding near its lowest levels in more than 40 years. The Labour figures come a day after UK CPI showed a jump up to 3%, highlighting how workers are grinding against higher prices even as the Labour picture looks sanguine. For the Bank of England, the positive Labour Data and elevated Inflation make balancing an expected Rate Hike challenging with overall Economic output that has been drifting.
China’s Economy slowed in Q3, expanding by 6.8% y/y compared with 6.9% in Q2. The decline in GDP Growth was in line with Market expectations as the authorities in China had been taking steps to try and control rampant property activity and get to grips with a large debt overhang, particularly at the province-level. Overall, the GDP performance falls neatly in line with China’s targeted growth of 6.5% this year, leaving room for a further slowdown in Q4. Also on China, Factory Output in September expanded by 6.6% y/y, better than the market had expected, and faster than August while fixed Asset Investment slowed further to growth of 7.5%.
In a market with huge risk appetite, JPY underperformed on Wednesday, softening against the other major currencies. Over the course of the day, USDJPY rose for a third consecutive day, gaining 0.66% to close at 112.94, and reinforce the break out of the former daily downtrend that had been in effect. While the cross stays above the 200 day MA (111.76) and 61.8%; one year Fibonacci Retracement, we expect further gains towards 114.50 in the medium term. The risk of this outcome is compounded further by the pattern of Q4 seasonality in USDJPY Price Action to be biased to the upside. GBPUSD trades at 1.3213, trading 0.54% lower than at the start of the week. This afternoon, markets will be awaiting Retail Sales Data which are expected to show a 0.2% m/m contraction in September. Should the Data show a bigger decline than this, it can be expected that we shall see a larger decline with Sterling.
Oil markets perked up slightly yesterday as a draw in US inventories and a decline in production reported by the EIA helped boost prices. Brent futures closed up 0.47% while WTI ended the day higher up 0.3%. Production in the US was affected by Hurricane Nate and output fell more than 1m b/d but judging by past responses to hurricanes, we would expect the recovery to be reasonably swift. Market chatter is suggesting OPEC will agree to a nine-month extension of its existing production cuts with its partners, taking the cuts to the end of 2018 instead of just the end of Q1. If OPEC succeeds in extending and enforcing the cut then the oil market balance would appear much healthier next year but the pressure to stick with the deal and limit production may be severely challenging for OPEC economies to endure.