- Eurozone CPI fell sharply, according to the flash estimate, to 3.2% yoy in October from 3.6% September and the 4.0% peak in June/July. In November, the large base effect from the spike in oil prices last year will probably push the headline rate to below 3.0%. At current oil prices,
headline inflation could trough at no more than 1% in mid-2009, providing the ECB cover for aggressive rate cuts. Market expects a 50bp cut in November and a further 50bp of easing within the two months thereafter. Separately, the Eurozone unemployment rate held steady at
7.5%, as expected, but the number of unemployed rose by 52k after a 101k increase in August. Since March, unemployment is now up by 568k, with weakness in Spain and - more recently - France and Italy offsetting the still ongoing gains in Germany. As German labor market will
probably turn south sharply next year, unemployment for the Eurozone looks set to go up considerably during 2009, likely pushing the rate from the current level of 7.5% to at least 8.5% in late 2009. Meanwhile, German retail sales fell by -2.3% mom in September from a downwardly revised +1.9% (from +3.1%) in August, despite the drop in oil prices and the still resilient labor market. This was well below market expectations of -1.0% mom. - Norway Credit growth continued to slow in September, falling to 12.0% yoy from 12.3% in August. The details show that much of the slowdown came from the fall in credit growth to households. In contrast, credit growth to non-financial corporations was relatively unchanged at the robust pace of 18.8% from 18.9% in August. Credit expansion looks set to slow more sharply in the months ahead amid the slowdown of the domestic economy and the global credit
crunch. The Norges Bank is expected to cut rates by 25bp at its December meeting, with the deposit rate likely reaching 3.00% in 2H 2009. - Japan Although the Bank of Japan (BoJ) cut the overnight rate target by a smaller-than-expected 20bp to 0.30%, market expects another 20bp rate cut in December. The accompanying statement suggested an easing bias, and Governor Shirakawa revealed that three out of the four dissenters on the 20bp policy rate cut actually insisted on a 25bp cut. Only one member insisted on no change in the overnight rate target. The new 0.30% overnight rate target means room for another cut without introducing zero interest rate policy. Japan’s recession is likely to deepen with a high likelihood of three consecutive quarters of a real GDP contraction (in 2Q-4Q 2008). Therefore, market expects another 20bp cut in the overnight rate target to 0.10%, perhaps on December 19, just after the December 15 BoJ Tankan release, which should show deterioration of business conditions, and the December 16 US FOMC meeting, which is expected to lead to another Fed funds rate cut posing a downside risk to USD/JPY. The BoJ also lowered the Lombard rate (the marginal lending rate) by 25bp to 0.50%. In addition, the BoJ will introduce a 0.10% interest on excess bank reserves during November 16-April 15, 2009,
the period of seasonally strong funding pressure. - Australia September private credit rose by a stronger-than-consensus 0.7% mom, but yoy growth slowed to 10.1% from August’s 10.5%. RBA Assistant Governor Debelle stated that the RBA’s intervention on Friday and Monday was to provide liquidity rather than defend any particular level of the AUD exchange rate. AUD/USD held the 23.6% retracement of the
downward move from the July high to October low at 0.6916 and dropped.
FX Morning Call - October 31 2008
October 31st, 2008 · No Comments
Tags: FOREX Market Update
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