Macro Data and Key Events

In the US, the most anticipated release this week was the October employment report, which showed nonfarm payrolls rose 161,000, slightly weaker than the expected 173,000; however, the prior two month’s revisions saw an additional 44,000 jobs added. The unemployment rate declined to 4.9% from 5.0% previously, with the participation rate dipping to 62.8% from 62.9%, still comfortably in the 62.4%-63.0% range seen over the last two-and-a-half years. Service-sector momentum remains strong, with education and health (+52,000) and professional business services (+43,000) continuing to post firm gains, while goods-producing sectors were flat, with gains in construction (+11,000) offset by declines in manufacturing (-9,000) and mining and logging (-2,000). Average hourly earnings (+0.4% mom) rose more than expected (+0.3% mom). This translates into a 2.8% yoy increase, the strongest since June 2009 and likely indicative of continued labour market tightening. The average work week remained at 34.4 hours.
An aggressive acceleration of wage growth would likely increase the resolve of the hawks on the Federal Open Market Committee (FOMC) that a swifter tightening of monetary policy is required. As expected, the FOMC decided to keep its monetary policy on hold. The statement was little changed from September, but the US Federal Reserve (Fed) did state that the case for raising rates “has continued to strengthen,” paving the way for a likely rate hike in December. In its assessment of the economy, the main changes were a more cautious view of household spending, reflecting the slowdown in private consumption in Q3, and the acknowledgement that both actual inflation and market-based measures of inflation compensation have improved recently but still remain low. October’s ISM Manufacturing Index release was marginally better than expectations (51.9), edging higher from September’s 51.5 and continuing the recovery from August’s 49.4.
The underlying details were mixed. On one hand, employment turned expansionary for the first time in four months (52.9 versus 49.7) and production rose to its highest level (54.6) in three months. However, new orders (52.1) edged back from a strong September number (55.1). The reading should further alleviate concerns over the health of the US manufacturing sector. Meanwhile, October’s ISM Non-Manufacturing Index release (54.8) fell more than expected (56.0) from the 13-month high seen in September (57.1). However, the new orders subcomponent remained strong (57.7 versus 60.3 prior), while employment (53.1 versus 57.2 prior) remained firm at its second-strongest reading this year. Although this release dropped more than expected, it remains consistent with other evidence that activity continues to improve in Q4.


  • The first estimate of Q3 eurozone GDP came in at 0.3% qoq, unchanged from the previous quarter. Data already released for Spain (+0.7% qoq) and France (+0.2%) shows the former continues to outperform the eurozone average. Meanwhile, in line with expectations, eurozone headline CPI inflation accelerated by 0.1ppts to 0.5% yoy in October, predominantly driven by easing energy price deflation (-0.9% yoy following -3.0% in September). However, core inflation held steady at 0.8% yoy, reflecting the lack of underlying inflationary pressures in the region amid continuing slack in the labour market and strong competition between firms.
  • Given the recent resilience of UK activity data, not least robust Q3 GDP growth, the Bank of England kept policy on hold at its November meeting, in line with expectations. The minutes released following the meeting suggest the Monetary Policy Committee (MPC) has shifted from a dovish to neutral bias, stating “there are limits to the extent to which above-target inflation can be tolerated.” The MPC also said that previous guidance that the next move in the Bank Rate was likely to be lower “had expired” and that in future, rates “could respond in either direction to the economic outlook.” Meanwhile, the Bank’s latest Inflation Report slightly upgraded GDP growth forecasts for 2016 and 2017 (+0.2ppts to 2.2% and +0.6ppts to 1.4% respectively) and downgraded the outlook for 2018 (-0.3ppts to 1.5%). GDP growth in 2019 is expected at 1.6%. In terms of the inflation outlook, the further decline in sterling since the August report sees higher inflation numbers over the forecast horizon, peaking at 2.75% in mid-2018 and remaining above target by Q4 2019 (at 2.5%). Also on Thursday, the UK High Court ruled that the UK government does not have the power to trigger Article 50 of the Lisbon treaty – the formal mechanism for leaving the EU – without a parliamentary vote. The government has confirmed it will appeal the ruling at the UK’s Supreme Court between 5-8 December. Ultimately, the decision may mean that Article 50 is not triggered before the government’s intended target date of the end of March 2017, despite comments from Theresa May’s spokesperson yesterday to the contrary. The ruling could also imply that the probability of a Hard Brexit scenario is reduced amid parliamentary involvement in the withdrawal process.
  • As expected, in a 7-2 vote, the Bank of Japan (BoJ) decided to keep its policy unchanged. This decision came after the introduction of the yield curve control framework in September. The short-term policy interest rate was left at -0.1% and the target for 10-year Japanese government bond yields at about 0%. Meanwhile, the BoJ will continue to buy equity ETFs and real estate investment trusts at an annual pace of JPY6 trillion and JPY90 billion respectively. The BoJ also revised its inflation projections for 2016, 2017 and 2018 while keeping its GDP growth forecasts stable. CPI excluding fresh food is now expected to decline by 0.1% in the current fiscal year (+0.1% was foreseen in July), 1.5% in 2017 (+1.7% previously) and 1.7% in 2018 (+1.9% previously). Overall, BoJ officials see growth and inflation risks as still “skewed to the downside.”
  • China’s October official manufacturing PMI rose to 51.2, the highest in 27 months, from 50.4 in September, much stronger than consensus expectations of 50.3. The rise was mainly led by a big rebound in new orders (52.8 in October versus 50.9 in September), offsetting a decline in new export orders, pointing to improving domestic demand. The raw material inventory (48.1 versus 47.4) and production (53.3 versus 52.8) sub-indices also improved notably, while the purchasing price index jumped to 62.6 from 57.5, indicating PPI inflationary pressure. In addition, strong PMI readings in the high tech and high-end equipment manufacturing industries, as well as some resources industries, also showed material improvement in profit recovery amid rising commodity prices and excess capacity reduction. Meanwhile, the Caixin Manufacturing PMI also rose to 51.2 in October from 50.1 (consensus: 50.1). Overall, the two PMIs point to a growth rebound in industrial activity in October after some weakness in September, which was partly due to some temporary factors such as bad weather and factory shutdowns ahead of the G20 meeting in early September.
  • In Turkey, CPI inflation rose by 1.4% mom in October, below expectations of 1.7%, delivering an annual rate of 7.2% (7.3% in September). Annual core inflation (excluding food, energy, tobacco products and gold) came in lower than expectations, declining to 7.0% from 7.7%. Lower than expected inflation figures may encourage the central bank to cut the overnight lending rate at its November meeting, having paused in October. However, as in October’s case, lira performance is likely to determine the final outcome.




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