Rate Hikes Due in Europe and the UK Tonight
AUD
The Aussie is mixed across the board this morning, as markets brace for the remaining central bank announcements out of the Eurozone and Britain. After a brief hour of volatility off the back of the Fed interest rate announcement, markets return to pre-announcement levels. The big data out of Australia today will be the labour figures – The Unemployment rate is expected to stay flat at 3.4%, and Employment change is penciled in for a 19.4k increase. Looking to Asian equities, the ASX was up 0.7%, The Shanghai Comp flat, the Nikkei up 0.7%. There wasn’t too much movement in commodities, with Gold and Silver flat, Iron Ore down 0.1%, and Copper up 0.4%. In China today a raft of headline data will be released. November PMI and some high frequency data (such as domestic flights and subway passenger turnover) have already unveiled some dire impacts of the initial zero-Covid exit on economic activities. As a result, the growth of industrial production could slow to 3.4% YoY from 5% in Oct, while retail sales are projected to slump by 3.9% YoY on policy back-and-forth. Meanwhile, credit data could be a little bit better on the government’s push. Australian Flash Manufacturing and Services PMIs will also print on Friday morning with manufacturing printing an expansionary 51.3 last month, and Services printing at a contractionary 47.6 last month.
USD
The AUDUSD is up slightly from yesterday, opening at 0.6863, after briefly dropping 60bps at the Fed interest rate announcement, the AUD quickly gained this territory back and settled at pre-announcement levels. The interest rate change by the Fed came in at the expected 0.5% increase, taking the US cash rate to 4.5%. FX markets perceived this slowdown in the Feds plan to cool down the US economy rolling out as expected, as after a brief volatile period, US currency pairs returned to their levels before the announcement across the board. The Fed also released their economic projection, saying they see the terminal rate at 5.1% in 2023, then as much as 100bp cuts to the interest rate by the end of 2024. Also seeing a 0.5% GDP growth for the end of 2022, 0.5% growth in 2023, and 1.6% growth for 2024. Fed Officials also see pce inflation at 3.1% in 2023, and 2.5% in 2024. US equities weakened off the news, with the S&P500 closing -0.8%, Dow Jones -0.3%, NASDAQ -0.4%. Looking to the week ahead, The US has Core Retail Sales, the Retail Sales, and Unemployment Claims on Friday.
EUR
The Aussie opens at 0.6422 against the Euro this morning, after seeing a low of 0.6386, then a high of 0.6472 in the overnight session. A few small bits of data over the past day, before the interest rate announcement on Tonight. Italian Quarterly Unemployment Rate printed slightly better than expectation at 7.9%, Eurozone Industrial Production m/m came in below expectation at -2% vs the expected -1.4%. Markets are pricing in a 50bp increase for the ECB interest rate announcement tonight. The current hike cycle is the fastest since the ECBs conception in 1999, it has taken the ECB 3 months to raise interest rates by 200bps, whilst previous tightening cycles took 18 months. After the announcement a few bits of economic data will be released leading into the weekend. Flash Services and Flash Manufacturing PMIs for both Germany and France. All expecting contractionary numbers. Final CPI y/y and Final Core CPI y/y will also be released – markets are currently expecting 10% and 5% respectively.
GBP
The Aussie opens down against the Pound Sterling this morning at 0.5507. The Aussie experienced a very slow drop from a high of 0.5558 overnight. Lower than expected CPI data came out last night, with CPI y/y for the UK being 10.7% for Nov, down from 11.1% in October. Core CPI y/y came in at 6.3%. The largest downward contribution to the change in both the CPIH and CPI annual inflation rates between October and November 2022 came from transport, particularly motor fuels, with rising prices in restaurants, cafes and pubs making the largest, partially offsetting, upward contribution. Markets are pricing in a 50bp increase for the Bank of England’s Interest rate announcement tonight, which will bring the cash rate from 3% to 3.5% for the UK. Investors expect a downshift to a half-point rate increase, though the UK’s messy economic outlook could cause wider divisions within the rate-setting committee, creating extra volatility for the pound. The last rate hike in November was largest single increase since 1989 and the eighth in a row, as inflation grew at a double-digit rate and was more than five times higher than its 2.0% target. In the rest of the economic calendar for Britain, on Friday we’ll see Retail Sales m/m, currently penciled in at a 0.3% increase. Also, on Friday, Flash Service and Manufacturing PMI are printing, both currently expecting contractionary numbers.
NZD
The Aussie opens up at 1.0626 against the Kiwi this morning, after a 50bp rally yesterday afternoon. New Zealand Q3 GDP printed at a 2% increase this morning, far above the expected 0.8% increase. The RBNZ incorporated a +0.8% q/q forecast in the November MPS. Trade data suggest that both goods and services trade contributed significantly to the expenditure measure of Q3 GDP growth. These data are of secondary importance currently for the RBNZ outlook so markets have not reacted drastically. The last bit of data out of NZ this week is the BusinessNZ manufacturing Index – the last figure was contractionary.