IC Trading Asia Fundamental Forecast | 24 October 2024 | IC Trading

IC Trading Asia Fundamental Forecast | 24 October 2024

What happened in the U.S. session?

As highly anticipated, the Bank of Canada (BoC) moved ahead with a fourth consecutive rate cut on Tuesday with a 50-basis point (bps) cut to bring the overnight rate down to 3.75%. After reducing rates by 25 bps at each of the previous last three meeting, this latest decision to increase the pace of reduction aligns with the recent sharp slowdown in consumer inflation – headline CPI fell under the target of 2% for the first time in three years as it moderated to 1.6% YoY in September. The Governing Council also noted consumption slowed on a per capita basis and the labour market continued to soften as unemployment rose to over 6.5% for the first time in over two years.

During his press conference, Governor Tiff Macklem stated there was “clear consensus” among the Governing Council that it was appropriate to take a larger step in cutting rates while communicating a pretty dovish tone and outlook with the following statements:

“It’s been a long fight against inflation but it has worked. We’re coming out the other side, and I think Canadians can breathe a sigh of relief. It’s a good news story.”

“We’re back to low inflation, now we need to keep it there… With inflation staying close to two per cent, Canadians don’t have to worry about big changes in their cost of living.”

What does it mean for the Asia Session?

Composite PMI activity in Australia has swung between expansion and contraction since June with the most recent reading falling into contraction in September. Services activity has pulled up overall output but the pace of expansion has slowed in recent months. If the services sector disappoints in October, the flash Composite PMI could register a second successive month of contraction and place the Aussie under overhead pressures.

Japan’s Composite PMI has expanded over the last three months with a robust services sector pulling up overall output as the manufacturing sector contracted over the same period. The flash readings for October are expected to indicate another month of expansion, albeit at a slower pace. The yen has weakened considerably since mid-September driving USD/JPY beyond 152 – a level last seen since the end of July.

The Dollar Index (DXY)

Key news events today

Unemployment Claims (12:30 pm GMT)

Composite PMI (1:45 pm GMT)

What can we expect from DXY today?

Following hurricane-related events in the Gulf of Mexico, unemployment claims have spiked higher over the last couple of weeks, averaging 250K over this period while the 4-week average currently stands at 236K. The latest estimate of 243K claims points to another week of elevated readings and should the result exceed this forecast, it could create near-term headwinds for the dollar.

Meanwhile, PMI activity has been robust since May with the services sector doing all the heavy lifting while manufacturing has contracted since July. The flash estimates for October point to a relatively unchanged output from the previous month and could continue to keep the dollar elevated later today.

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 Bearish

Gold (XAU)

Key news events today

Unemployment Claims (12:30 pm GMT)

Composite PMI (1:45 pm GMT)

What can we expect from Gold today?

Next 24 Hours Bias

Weak Bullish

The Australian Dollar (AUD)

Key news events today

Composite PMI (10:00 pm GMT 23rd October)

What can we expect from AUD today?

Composite PMI activity has swung between expansion and contraction since June with the most recent reading falling into contraction in September. Services activity has pulled up overall output but the pace of expansion has slowed in recent months. If the services sector disappoints in October, the flash Composite PMI could register a second successive month of contraction and place the Aussie under overhead pressures.

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 remains under intense overhead pressures as it dropped as low as 0.5991 overnight. This currency pair stabilized at the beginning of the Asia session to climb above the threshold of 0.6000 – these are the support and resistance levels for today.

Support: 0.5980

Resistance: 0.6025

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

Composite PMI (12:30 am GMT)

What can we expect from JPY today?

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

Composite PMI (8:00 am GMT)

What can we expect from EUR today?

After six months of expansion, the Composite PMI fell into contraction with a reading of 49.6 in September as the manufacturing sector deepened further into deflation. The flash readings for October are expected to show overall PMI activity contract for a second consecutive month – a result that could build further overheard pressures on the Euro before the start of the European trading hours.

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

Weak Bullish

The Swiss Franc (CHF)

Key news events today

No major news events.

What can we expect from CHF today?

As demand for the greenback eased overnight, USD/CHF retreated away from Wednesday’s high of 0.8686. This currency pair fell towards 0.8650 as Asian markets came online before stabilizing around this level to rebound slightly higher – these are the support and resistance levels for today.

Support: 0.8635

Resistance: 0.8710

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

Composite PMI (8:30 am GMT)

BoE Gov Bailey Speaks (7:45 pm GMT)

What can we expect from GBP today?

The flash Composite PMI for the month of October is expected to show this index registering a 12th successive month of expansion. Overall activity has been robust in the U.K. with the manufacturing sector expanding over the past five months while services have done so for 11 consecutive months. Should the flash readings surpass market expectations, it could function as a much-needed bullish catalyst for the Pound before the start of the European trading hours.

Following which, Bank of England (BoE) Governor Andrew Bailey will be speaking at the Mike Gill Memorial Lecture hosted by the Commodity Futures Trading Commission in Washington DC – an event that could create some volatility for the Pound.

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%, on 19th 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 Bullish

The Canadian Dollar (CAD)

Key news events today

No major news events.

What can we expect from CAD today?

The Loonie depreciated quite sharply in the immediate aftermath of the rate cut announcement causing USD/CAD to rally nearly 31 pips to hit an overnight high of 1.3862 before fizzling out – it settled around 1.3840 by the end of the U.S. session. This currency pair is likely to remain elevated as the day progresses – these are the support and resistance levels for today.

Support: 1.3800

Resistance: 1.3860

Central Bank Notes:

The Bank of Canada reduced its target for the overnight rate by 50 basis points bringing it down to 3.75% while continuing its policy of balance sheet normalization on 23rd September; this marked the fourth consecutive meeting where rates were reduced.
Canada’s economy grew at around 2% in the first half of the year and growth of 1.75% is expected in the second half; consumption has continued to grow but is declining on a per person basis while exports have been boosted by the opening of the Trans Mountain Expansion pipeline.
Overall, the Bank forecasts GDP growth of 1.2% in 2024, 2.1% in 2025, and 2.3% in 2026 – as the economy strengthens, excess supply is gradually absorbed.
The labour market remains soft with unemployment at 6.5% in September while wage growth remains elevated relative to productivity growth. Overall, the economy continues to be in excess supply
Headline CPI has declined significantly from 2.7% in June to 1.6% in September while shelter costs inflation remains elevated but has begun to ease; the preferred measures of core inflation are now below 2.5%
Excess supply elsewhere in the economy has reduced inflation in the prices of many goods and services while the drop in global oil prices has led to lower gasoline prices – these factors have all combined to bring inflation down.
The Bank expects inflation to remain close to the target over the projection horizon, with the upward and downward pressures on inflation roughly balancing out; the upward pressure from shelter and other services gradually diminishes, and the downward pressure on inflation recedes as excess supply in the economy is absorbed.
With inflation now back around the 2% target, the Governing Council decided to reduce the policy rate by 50 basis points to support economic growth and keep inflation close to the middle of the 1% to 3% range.
If the economy evolves broadly in line with the latest forecast, further reduction of the policy rate can be expected but the timing and pace of additional reductions in the policy rate will be guided by incoming information and assessment of its implications for the inflation outlook.
The Bank is committed to maintaining price stability for Canadians by keeping inflation close to the 2% target.
Next meeting is on 11 December 2024.

Next 24 Hours Bias

Weak Bearish

Oil

Key news events today

No major news events.

What can we expect from Oil today?

Following a surprise build in the API stockpiles on Tuesday, the EIA inventories also followed suit by adding 5.5M barrels of crude to storage – much higher than the forecast of 0.8M – to hold back oil prices overnight. WTI oil reversed sharply from $71.50 to fall under the $71 mark before finding a floor around $70.40 per barrel – the much larger-than-anticipated build raised concerns of softer U.S. demand for crude. However, this benchmark rose strongly as Asian markets came online to climb above $71.50 but volatility continues to remain elevated.

Next 24 Hours Bias

Weak Bullish

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