IC Markets Europe Fundamental Forecast | 18 October 2024

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October 18, 2024 13:00

IC Markets Europe Fundamental Forecast | 18 October 2024

What happened in the Asia session?

China released a barrage of macroeconomic data points this morning which showed economic activity growing 4.6% YoY in the third quarter, slightly lower than the second quarter reading of 4.7% while industrial production rebounded strongly on a monthly and annualised basis. Manufacturing activity rose 0.6% MoM and 5.4% YoY in September, beating the estimate of 4.6% by a wide margin. It was the fastest expansion since May which also marked the first acceleration in five months. In addition, retail sales also rose more than anticipated as consumer spending increased 0.4% MoM and 3.2% YoY (versus the estimate of 2.5%) to register the strongest growth in retail activity since May.

Although the data was good overall, the latest GDP reading remains below the annual target of 5% prompting speculation on further stimulus measures to revive a sluggish economy. Crude oil prices saw a muted response as WTI oil rose from $70.21 to a high of $70.60 per barrel, suggesting that this commodity will continue to face strong headwinds as the final trading day of the week is wrapped up.

What does it mean for the Europe & US sessions?

Consumer spending in the U.K. grew 1.0% MoM in August to mark a second successive month of higher sales as sales soared at supermarkets and clothing retailers. This increased spending was attributed to warmer weather and end-of-season sales. However, the estimate for September points to a relatively steep decline of 0.4% in sales, bringing the recent upward momentum in sales to a halt. Should retail spending disappoint market expectations, Cable could face significant overhead pressures before the start of the European session.

The Dollar Index (DXY)

Key news events today

FOMC Member Waller Speaks (4:10 pm GMT)

What can we expect from DXY today?

Although Federal Reserve Governor Christopher Waller’s speech at a macroeconomics workshop in Vienna focuses on decentralized finance, he could also use this platform as an opportunity to convey insights on the outlook for future monetary policy action by the Fed. Any direct statement on monetary policy could inject higher volatility for the markets.

Central Bank Notes:

The Federal Funds Rate target range was reduced by 50 basis points to 4.75% to 5.00% on 18th September in an 11 to 1 vote with Governor Michelle Bowman dissenting, preferring to cut rates by a smaller amount.
The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run and has gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance.
The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.
Recent indicators suggest that economic activity has continued to expand at a solid pace while job gains have slowed, and the unemployment rate has moved up but remains low.
Inflation has made further progress toward the Committee’s 2% objective but remains somewhat elevated.
In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks and does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook and would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.
In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities. Beginning in June, the Committee slowed the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion.
The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion and will reinvest any principal payments in excess of this cap into Treasury securities.
Next meeting runs from 6 to 7 November 2024.

Next 24 Hours Bias

Weak Bullish

Gold (XAU)

Key news events today

FOMC Member Waller Speaks (4:10 pm GMT)

What can we expect from Gold today?

Next 24 Hours Bias

Medium Bullish

The Australian Dollar (AUD)

Key news events today

No major news events.

What can we expect from AUD today?

Despite robust U.S. consumer spending, the Aussie remained above 0.6680 before edging above 0.6700 overnight. This currency pair pulled back slightly by the end of the U.S. session but it resumed its uptrend once more as Asian markets came online – these are the support and resistance levels for today.

Support: 0.6650

Resistance: 0.6760

Central Bank Notes:

The RBA kept the cash rate target unchanged at 4.35% on 24th September, marking the seventh consecutive pause.
Inflation has fallen substantially since its peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance but it is still some way above the midpoint of the 2 to 3% target range.
The trimmed-mean CPI was 3.9% YoY in the June quarter, broadly as forecast in the May Statement on Monetary Policy (SMP) while headline inflation declined in July as measured by the monthly CPI indicator.
Headline inflation is expected to fall further temporarily but current forecasts do not see inflation returning sustainably to target until 2026.
GDP data for the June quarter have confirmed that growth has been weak but growth in aggregate consumer demand, which includes spending by temporary residents such as students and tourists, remained more resilient.
Broader indicators suggest that labour market conditions remain tight, despite some signs of gradual easing while wage pressures have eased somewhat.
Data since then have reinforced the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out while agreeing that policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range.
The Board will continue to rely upon the data and the evolving assessment of risks to guide its decisions and will pay close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market.
Next meeting is on 5 November 2024.

Next 24 Hours Bias

Weak Bullish

The Kiwi Dollar (NZD)

Key news events today

No major news events.

What can we expect from NZD today?

The Kiwi continued to face overhead pressures as it fell towards 0.6050 overnight. This currency pair stabilized this morning to climb towards 0.6070 at the beginning of the Asia session and could edge higher as the day progresses – these are the support and resistance levels for today.

Support: 0.6050

Resistance: 0.6100

Central Bank Notes:

The Monetary Policy Committee agreed to reduce the OCR by 50 basis points, bringing it down to 4.75% in October as inflation converges to target.
The Committee assesses that annual consumer price inflation is within its 1 to 3% inflation target range and converging on the 2% midpoint.
Economic activity in New Zealand is subdued, in part due to restrictive monetary policy while business investment and consumer spending have been weak, and employment conditions continue to soften.
The economy is now in a position of excess capacity, encouraging price- and wage-setting to adjust to a low-inflation economy; lower import prices have assisted the disinflation.
High-frequency indicators point to continued subdued growth in the near term, mostly due to weak consumer spending and business investment while labour market conditions are expected to ease further, with filled jobs and advertised vacancy rates continuing to decline.
The Committee confirmed that future changes to the OCR would depend on its evolving assessment of the economy.
Next meeting is on 27 November 2024.

Next 24 Hours Bias

Weak Bullish

The Japanese Yen (JPY)

Key news events today

No major news events.

What can we expect from JPY today?

Higher demand for the greenback lifted USD/JPY above 150.30 before settling around 150.20 by the end of the U.S. session. This currency pair stabilized around 150 as Asian markets came online but could resume the uptrend as the day progresses – these are the support and resistance levels for today.

Support: 149.00

Resistance: 150.90

Central Bank Notes:

The Policy Board of the Bank of Japan decided, by a unanimous vote, to set the following guideline for money market operations for the intermeeting period:
1. The Bank will encourage the uncollateralized overnight call rate to remain at around 0.25%
2. The Bank will embark on a plan to reduce the amount of its monthly outright purchases of JGBs so that it will be about 3 trillion yen in January-March 2026; the amount will be cut down by about 400 billion yen each calendar quarter in principle.
The year-on-year rate of increase in the consumer price index (CPI, all items less fresh food) has been in the range of 2.5 to 3.0% recently, as services prices have continued to rise moderately, reflecting factors such as wage increases, although the effects of a passthrough to consumer prices of cost increases led by the past rise in import prices have waned.
Meanwhile, underlying CPI inflation is expected to increase gradually, since it is projected that the output gap will improve and that medium- to long-term inflation expectations will rise with a virtuous cycle between wages and prices continuing to intensify.
In the second half of the projection period of the July 2024 Outlook for Economic Activity and Prices, it is likely to be at a level that is generally consistent with the price stability target.
Japan’s economy has recovered moderately, although some weakness has been seen in part, but it is likely to keep growing at a pace above its potential growth rate, with overseas economies continuing to grow moderately and as a virtuous cycle from income to spending gradually intensifies against the background of factors such as accommodative financial conditions.
Next meeting is on 31 October 2024.

Next 24 Hours Bias

Weak Bearish

The Euro (EUR)

Key news events today

No major news events.

What can we expect from EUR today?

As widely expected, the ECB reduced its three key interest rates by 25 basis points (bps), bringing the main refinancing rate down to 3.40%. This marked the second consecutive rate cut as an updated assessment of inflation showed disinflation progressing well as headline CPI fell below the ECB’s target of 2% for the first time in more than three years, dropping to 1.7% YoY in September. During her press conference, ECB President Christine Lagarde warned of an economic slowdown in the Euro Area but downplayed suggestions that a recession is incoming. She also stressed that the 25-bps cut was the only option on the table and that the Governing Council had made a unanimous decision. The Euro dropped to a low of 1.0811, losing nearly 55 pips in the immediate aftermath of the announcement.

Central Bank Notes:

The Governing Council today decided to reduce the three key ECB interest rates by 25 basis points on 17th October to mark the second successive rate cut.
Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be decreased to 3.40%, 3.65% and 3.25% respectively.
The incoming information on inflation shows that the disinflationary process is well on track while the inflation outlook is also affected by recent downside surprises in indicators of economic activity.
Inflation is expected to rise in the coming months, before declining to target in the course of next year. Domestic inflation remains high, as wages are still rising at an elevated pace. At the same time, labour cost pressures are set to continue easing gradually, with profits partially buffering their impact on inflation.
The Eurosystem no longer reinvests all of the principal payments from maturing securities purchased under the pandemic emergency purchase programme (PEPP), reducing the PEPP portfolio by €7.5 billion per month on average and the Governing Council intends to discontinue reinvestments under the PEPP at the end of 2024.
The Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner and will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim and is not pre-committing to a particular rate path.
Next meeting is on 12 December 2024.

Next 24 Hours Bias

Medium Bearish

The Swiss Franc (CHF)

Key news events today

No major news events.

What can we expect from CHF today?

Robust consumer spending in the U.S. lifted USD/CHF above 0.8660 for the second time this week. This currency pair was floating around this level as Asian markets came online and could climb higher as the day progresses – these are the support and resistance levels for today.

Support: 0.8630

Resistance: 0.8690

Central Bank Notes:

The SNB eased monetary policy by lowering its key policy rate by 25 basis points for the third consecutive meeting, going from 1.25% to 1.00% in September.
Inflationary pressure has again decreased significantly compared to the previous quarter, reflecting the appreciation of the Swiss franc over the last three months.
Inflation in the period since the last monetary policy assessment was lower than expected, standing at 1.1% in August compared to 1.4% in May.
The new conditional inflation forecast is significantly lower than that of June: 1.2% for 2024, 0.6% for 2025 and 0.7% for 2026, based on the assumption that the SNB policy rate is 1.0% over the entire forecast horizon.
Swiss GDP growth was solid in the second quarter of 2024 as momentum in the chemicals/pharmaceuticals industry was particularly strong.
However, growth is likely to remain rather modest in the coming quarters due to the recent appreciation of the Swiss franc and the moderate development of the global economy.
The SNB anticipates GDP growth of around 1% this year while currently expecting growth of around 1.5% for 2025.
Further cuts in the SNB policy rate may become necessary in the coming quarters to ensure price stability over the medium term.
Next meeting is on 12 December 2024.

Next 24 Hours Bias

Weak Bullish

The Pound (GBP)

Key news events today

Retail Sales (6:00 am GMT)

What can we expect from GBP today?

Central Bank Notes:

The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 8 to 1 to maintain Bank Rate at 5.0% while one member preferred to reduce Bank Rate by 25 basis points to 4.75%, on19th September 2024.
The MPC also voted unanimously to reduce the stock of UK government bond purchases held for monetary policy purposes, and financed by the issuance of central bank reserves, by £100B over the next 12 months to a total of £558B.
Twelve-month CPI inflation had been 2.2% in August and July, slightly lower than August Report expectations. Consumer core goods and food price inflation had remained subdued as the cost pressures from previous global shocks had unwound further, and producer price levels had been broadly flat while energy prices had continued to drag on CPI inflation.
Services price inflation had increased to 5.6% in August compared to 5.2% in July and 5.7% in June. This was slightly lower in August than had been expected at the time of the August Report. There had been volatility in a number of services sub-components in the July and August outturns, including accommodation and catering prices and airfares.
GDP had increased by 0.6% in 2024 Q2, 0.1 percentage points lower than had been expected in the August Monetary Policy Report. That had followed 0.7% growth in Q1, but Bank staff judged that the underlying pace of growth had been somewhat weaker during the first half of the year.
Headline GDP growth was expected to return to its underlying pace of around 0.3% per quarter in the second half of the year. Based on a broad set of indicators, the MPC judged that the labour market continued to loosen but that it remained tight by historical standards.
Monetary policy decisions have been guided by the need to squeeze persistent inflationary pressures out of the system so as to return CPI inflation to the 2% target both in a timely manner and on a lasting basis; policy has been acting to ensure that inflation expectations remain well anchored.
In the absence of material developments, a gradual approach to removing policy restraint remains appropriate while monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further.
The Committee continues to monitor closely the risks of inflation persistence and will decide the appropriate degree of monetary policy restrictiveness at each meeting.
Next meeting is on 7 November 2024.

Next 24 Hours Bias

Weak Bearish

The Canadian Dollar (CAD)

Key news events today

No major news events.

What can we expect from CAD today?

The Loonie continues to remain under pressure causing USD/CAD to rise towards the threshold of 1.3800 overnight. This currency pair pulled back slightly at the beginning of the Asia session but the upward trend should resume as the day progresses – these are the support and resistance levels for today.

Support: 1.3750

Resistance: 1.3840

Central Bank Notes:

The Bank of Canada reduced its target for the overnight rate by 25 basis points for the third consecutive meeting to 4.25% while continuing its policy of balance sheet normalization on 4th September.
Canada’s economy grew 2.1% in the second quarter of 2024, led by government spending and business investment.
This second quarter GDP growth was slightly stronger than forecast in July, but preliminary indicators suggest that economic activity was soft through June and July.
As expected, inflation slowed further to 2.5% in July. The Bank’s preferred measures of core inflation averaged around 2.5% and the share of components of the consumer price index growing above 3% is roughly at its historical norm.
High shelter price inflation is still the biggest contributor to total inflation but is starting to slow while inflation also remains elevated in some other services.
The labour market continues to slow, with little change in employment in recent months. Wage growth, however, remains elevated relative to productivity.
The Governing Council is carefully assessing these opposing forces on inflation and monetary policy decisions will be guided by incoming information and our assessment of their implications for the inflation outlook.
The Bank remains resolute in its commitment to restoring price stability for Canadians.
Next meeting is on 23 October 2024.

Next 24 Hours Bias

Medium Bullish

Oil

Key news events today

China GDP (2:00 am GMT)

China Industrial Production (2:00 am GMT)

China Retail Sales (2:00 am GMT)

What can we expect from Oil today?

Next 24 Hours Bias

Weak Bullish

The post IC Markets Europe Fundamental Forecast | 18 October 2024 first appeared on IC Markets | Official Blog.

IC Markets Europe Fundamental Forecast | 18 October 2024

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