The FP Markets Research Team produces First Light News during the early hours of the European session, a daily Market Briefing that helps ensure traders and investors are up to date in the macro space for the day ahead.
Good morning.
Aside from UK CPI inflation coming in softer than expected on Wednesday, which will be welcomed news for Prime Minister Rishi Sunak and the Bank of England (BoE), attention for the day largely shifted to US risk events ahead of the US cash open.
US Data Claimed the Spotlight
Headline US retail sales fell -0.1% in October, down from the upwardly revised 0.9% reading in September (from 0.7%). On a year-over-year basis, retail sales were up 2.5% in October (though down from September’s print of 4.1%). Core retail sales—excludes gas and autos—was up 0.1% in October against September’s upwardly revised +0.8% (consensus: 0.0%), while the Control Group, which feeds into GDP, was up 0.2% in October, down from 0.6% in September and matched expectations.
PPI inflation was down 0.5% in October (after being up 0.5% in September [consensus: 0.1%]), marking its largest monthly drop since early 2020 and really feeding into that soft-landing story. On a year-over-year basis, PPI inflation slowed to 1.3% in October (down from 2.2% in September), with the core measure also easing to 2.4% for the same period, down from 2.7% in September.
The US Empire Manufacturing Index for November jumped around 14 points to 9.1, up from negative 4.6 in October and far beyond the -2.8 expected.
There was quite a lot of data to suggest here, but overall, alongside the softer-than-expected US CPI numbers we got on Tuesday (which saw the markets somewhat exaggerate), suggests that the Fed is likely to hold the line in December. However, while it is likely the Fed will keep the Fed Funds target rate at 5.25%-5.50%, it was noted in a recent release from the FP Markets Research Team that we have one more CPI release (for November) to contend with on 12 December (a day ahead of the FOMC meeting) and one NFP release on the radar on 8 December. Of interest, markets have also fully priced in a no-change at December’s meeting, with 100bps of cuts on the table next year.
Aussie Jobs Data
Overnight, Aussie jobs numbers came into focus and was considerably stronger than the market consensus for October, with the Australian economy adding 55,000 new jobs to the economy. Estimates heading into the event were for 25,000 new jobs to be created (prior: 7,800). Regarding the unemployment rate, we saw a tick higher to 3.7%, which was largely expected (prior: 3.6%).
This, of course, potentially throws a spanner in the works for the Reserve Bank of Australia (RBA), which recently increased the Official Cash Rate by 25bps to 4.35% on 7 November (a 12-year high) which followed four consecutive meetings on hold at 4.10%.
The market reaction saw the AUD/USD immediately spike to a high of $0.6517, though swiftly staged a U-turn and reclaimed pre-announcement levels to seek lower terrain. As of writing, the AUD and NZD are clear laggards in the G10 space.
Chart Focus
EUR/GBP Daily Chart:
As evident from the daily chart of the EUR/GBP, bulls remain in control and recently punctured key resistance at £0.8734, which could open the door for breakout buying towards another resistance coming in at £0.8772.
The Day Ahead
The day will focus on the weekly jobless filings and the Philadelphia Fed Manufacturing Index for November from the US at 1:30 pm GMT, closely followed by US Industrial Production for October at 2:15 pm GMT.
G10 FX space as of 08:00 am GMT:
Thanks for reading. Have a great day.
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