Forex-novosti i prognoze od 16-10-2019

Major US stock indices fell slightly, as weak retail sales data, combined with continued fears of a trade war between the US and China, offset the solid quarterly results.

A report from the Ministry of Commerce showed that retail sales fell 0.3% in September as households cut spending on cars, building materials, hobbies, and online shopping. It was the first and biggest fall since February. August data was revised to show that retail sales were up 0.6% instead of 0.4%, as previously reported. Economists had forecast retail sales to rise 0.3% in September. Compared to September last year, retail sales grew by 4.1%.

Weak retail sales data reinforced concerns about the likelihood of a recession. It should be noted, however, that not all data were gloomy. A report prepared by the National Association of Home Builders and Wells Fargo showed that homeowners' confidence rose to their highest level in almost two years. According to the data, the housing market index jumped three points in October to 71 points. This is the highest level since February 2018. The index was expected to remain at 68 points. Recall that in October 2018, the index was 68 points. The value of the indicator above the level of 50 points indicates favorable sales prospects.

On Tuesday, the U.S. House of Representatives passed a bill aimed at protecting the civil rights of Hong Kong residents. China expressed "strong indignation" about the bill and warned that if it is passed, it could harm bilateral relations.

Nevertheless, US President Donald Trump said that the trade agreement with China is now being documented in paper form, and it is likely to be signed after his meeting with Chinese President Xi Jinping in Chile. He also added that China has already begun to purchase US agricultural products.

However, The Wall Street Journal reported that there are questions about how much American agricultural products China will actually buy and for how long. Meanwhile, Bloomberg News said that China wants U.S. tariffs on Chinese goods to be canceled before continuing with purchases.

The Fed’s Beige Book also attracted some market attention, which reported that US companies lowered their expectations for their own prospects for the next 6-12 months, as they continue to face the negative consequences of a slowdown in global economic growth and uncertainty in international trade. Until early October, inclusive, the US economy grew from small to moderate, which is slightly worse than the estimate proposed in the September Beige Book. This report is compiled on the basis of data received from companies in all regions of the country.

Most of the DOW components completed trading in the red (19 of 30). Outsiders were shares of Exxon Mobil Corporation (XOM; -1.65%). The biggest gainers were Johnson & Johnson (JNJ; + 1.77%).

Most S&P sectors recorded an increase. The services sector grew the most (+ 0.4%). The largest decline was shown by the technology sector (-0.6%).

At the time of closing:

Dow 27,001.98  -22.82 -0.08%

S&P 500 2,989.69 -5.99 -0.20%

Nasdaq 100 8,124.18 -24.52 0.30%

Analysts at Wells Fargo note that data released today showed that retail sales dropped 0.3% in September, against expectations of a modest increase. Amid the ongoing trade war and worries about a potential recession, the strength of consumer spending has been a needed counterweight, they add. 

• “The first decline in seven months for retail sales follows on the heels of an upward revision to August which softens the blow somewhat. Still, with the recent deterioration in consumer confidence and broad-based declines across various types of merchants, this report is the first hard data to indicate cracks in one of the key pillars of the economy that, so far, had been holding up rather well.
• Today’s report is right in line with our forecast for the annualized pace of PCE growth to slow to about 2½% in the third quarter before settling to a 2% pace in the further out quarters.”

• Says the deal probably won't be signed until he meets Chinese President Xi in Chile
• Adds China has already started buying agricultural goods

Nathan Janzen, the senior economist at the Royal Bank of Canada (RBC), notes that Canada’s CPI inflation slipped to 1.9% from a year ago, but the BoC’s preferred ‘core’ measures inched up to 2.1%, on average.

• “The headline inflation rate was a touch below market expectations in September, but in large part due to big month-over-month price changes in some of the more volatile subcomponents.
• Airfares were expected to fall month-over-month due to ‘normal’ seasonal patterns but the 20% September plunge was still larger than anticipated.
• But other details were firmer and left underlying inflation trends looking still solidly planted around the Bank of Canada’s 2% inflation target. The BoC’s three preferred ‘core’ inflation measures edged up to 2.1%, on average, from 2.0% in August.
• By our count, almost 60% of the CPI basket was growing at or above a 2% rate relative to a year ago in September.
• For now, stable underlying price-growth trends leave room for monetary policy flexibility – the lack of upward inflation pressure gives the Bank of Canada room to respond with lower interest rates if needed, while the absence of downward pressure also means there’s no need to rush to make that decision.”

The Commerce Department announced on Wednesday that business inventories were flat m-o-m in August, following a revised 0.3 m-o-m advance in July (originally a gain of 0.4 percent m-o-m).

That was below economists’ forecast of a 0.2 percent m-o-m increase.

According to the report, inventories at wholesalers increased 0.2 percent m-o-m in August, while retail inventories dropped 0.1 percent m-o-m and stocks at manufacturers were unchanged m-o-m.

Retail inventories excluding autos, which go into the calculation of GDP, decreased 0.2 percent m-o-m, following a 0.3 percent gain in the previous month.

In y-o-y terms, business inventories climbed 4.2 percent in August.

The National Association of Homebuilders (NAHB) announced on Wednesday its housing market index (HMI) rose three points to 71 in October from an unrevised September reading of 6. That was the highest level since February 2018.

Economists had forecast the HMI to stay at 68.

A reading over 50 indicates more builders view conditions as good than poor.

All the HMI indices were higher this month. The indicator gauging current sales conditions increased three points to 78, while the component measuring traffic of prospective buyers surge four points to 54 and the measure charting sales expectations in the next six months climbed six points to 76.

NAHB Chairman Greg Ugalde said: “The housing rebound that began in the spring continues, supported by low mortgage rates, solid job growth and a reduction in new home inventory.”

Meanwhile, NAHB Chief Economist Robert Dietz noted: “The second half of 2019 has seen steady gains in single-family construction, and this is mirrored by the gradual uptick in builder sentiment over the past few months. However, builders continue to remain cautious due to ongoing supply side constraints and concerns about a slowing economy.”

Aline Schuiling, the senior economist at ABN AMRO, notes that Germany’s ZEW economic expectations indicator edged down in October, falling to -22.8, down from -22.5 in September while the current conditions component moved more significantly lower, to -25.3 from -19.9.

• “The expectations component tends to be the part of the survey that tracks changes in economic growth relatively well. At its current level it signals ongoing modest contraction in Germany’s GDP until the end of this year.
• The drop in the ZEW expectations indicator in recent months has largely been driven by deterioration in the outlook for global growth and world trade and uncertainties surrounding Brexit.
• Indeed, the ZEW survey shows that the expectations about the US and UK economies are the worst, with a majority of the participants to the survey expecting deterioration in the coming two quarters. With regard to the expectations for the eurozone economy, most participants expect economic conditions to remain unchanged at current weak levels.
• Looking forward, we do not expect a deep or long recession in Germany as private consumption, government spending and construction output are expected to continue to grow solidly in the coming quarters, which will buffer the negative impact of exports and manufacturing output. Indeed, we have penciled in another contraction of GDP in Q3 and stabilization in Q4.”

Analysts at TD Securities note that this morning's UK CPI report was a touch weaker than expected, with headline CPI at 1.7% YoY (Mkt 1.8%), although in line with the BoE's forecast from the August IR.

“Core CPI was in line with consensus though at 1.7% y/y.

• Brexit developments are, of course, the main driver of the day. While last night held reports that a draft deal could be presented this morning, talks reportedly broke down at around 10 am BST.
• Bloomberg reported that the negotiations collapsed amid DUP resistance to the deal, and that the EU now sees a Brexit deal as impossible unless the UK shifts its position further. While this doesn't mean that a deal before the end of the month is impossible, it does mean that having a deal before tomorrows' EU Leaders' Summit begins is now essentially off the table (barring a miraculous turnaround). This means that the Benn Act comes into play this weekend, with PM Johnson mandated to write a letter to the EU, requesting an Article 50 extension.”

U.S. stock-index futures fell on Wednesday, amid fresh fears about the protracted trade war between the U.S. and China, which, however, were somewhat offset by strong quarterly results of the U.S. companies. 

Global Stocks:

Amazon (AMZN) target raised to $2400 from $2225 at Credit Suisse

(company / ticker / price / change ($/%) / volume)

Statistics Canada reported on Wednesday the country’s consumer price index (CPI) fell 0.4 percent m-o-m in September, following a 0.1 percent m-o-m decline in the previous month.

On the y-o-y basis, Canada’s inflation rate increased 1.9 percent last month, matching the gain in August.

Economists had predicted inflation would decrease 0.2 percent m-o-m but advance 2.1 percent y-o-y in September.

According to the report, prices for goods (+1.3 percent y-o-y) rose at a faster rate in September than in the previous month, while prices for services (+2.2 percent y-o-y) increased at a slower pace compared with August. 

The cost of gasoline tumbled 10.0 percent y-o-y in September, following a 10.2 percent y-o-y decline in August. Excluding gasoline, the CPI rose 2.4 percent y-o-y, matching the increase in July.

Meanwhile, the closely watched the Bank of Canada's core index rose 1.9 percent y-o-y in September, the same pace as in the previous month. Economists had forecast an advance of 1.9 percent y-o-y.

AT&T (T) initiated with a Market Perform at Bernstein

Verizon (VZ) initiated with a Market Perform at Bernstein

Johnson & Johnson (JNJ) upgraded to Neutral from Underweight at Atlantic Equities

The Commerce Department announced on Wednesday the sales at U.S. retailers dropped 0.3 percent m-o-m in September, following a revised 0.6 percent m-o-m advance in August (originally a gain of 0.4 percent m-o-m), primarily due to lower households’ spending on motor vehicles, building materials, hobbies, and online purchases. That marked was the first decline in retail sales since February.

Economists had expected total sales would increase 0.3 percent m-o-m in September.

Excluding auto, retail sales edged down 0.1 percent m-o-m in September after an upwardly revised 0.2 percent m-o-m advance in the previous month, matching economists’ forecast for a 0.2 percent m-o-m gain.

Meanwhile, closely watched core retail sales, which exclude automobiles, gasoline, building materials and food services, and are used in GDP calculations, were unchanged m-o-m in September after an unrevised 0.3 percent m-o-m rise in August.

In y-o-y terms, the U.S. retail sales rose 4.1 percent in September, the same pace as in the previous month.

Nick Kounis, the head of financial markets research at ABN AMRO, notes that the IMF has revised its global growth estimates lower and said that "the global economy is in a synchronized slowdown, with growth for 2019 downgraded again – to 3 percent – its slowest pace since the global financial crisis."

• “It explained the weakness as being related to "rising trade barriers; elevated uncertainty surrounding trade and geopolitics; idiosyncratic factors causing macroeconomic strain in several emerging market economies; and structural factors, such as low productivity growth and aging demographics in advanced economies".
• Despite the downgrades, the IMF continues to expect a modest improvement in global growth next year – to 3.4% – though it does admit that the recovery is "precarious" and that risks are skewed to the downside.
• Our own forecasts are 0.8% for this year and 0.6% for next. For the US, the IMF expects 2.4% in 2019 and 2.1% in 2020, while we  expect economic growth to slow from 2.2% this year to 1.3% next."

Analysts at TD Securities are expecting another firm 0.4% advance in the U.S. retail sales for September on the back of an also solid gain in sales for the key control group, as consumer fundamentals remain sound.

• “A steady rise in core sales coupled with another solid gain in auto purchases should more than offset a decline in sales at gasoline stations, which reflects a new drop in gasoline prices in September."

Danske Bank's analysts note that unlike Theresa May, UK’s Prime Minister Boris Johnson wants both the hard-core Brexiteers from the European Research Group (ERG) group and the Democratic Unionist Party (DUP) on board before signing a deal with the EU.

• “Remember the EU can always call an extraordinary EU summit if necessary , so negotiations are likely to continue, even if the EU summit on Thursday-Friday does not ratify a deal.
• Even if Johnson reaches an agreement with the EU, the big uncertainty is whether he has support at home.
• The head of the ERG group Steve Baker said the Conservative MPs should 'trust the PM ' after he met with Johnson yesterday. However, The Sun reveals that the ERG is split with some members stating they will reject Johnson's deal .
• The DUP's votes are still crucial but it said 'gaps remain ' after the leaders met with Johnson last night. The DUP continues to reject a border between Great Britain and Northern Ireland in the Irish Sea. The question is whether Johnson's pledge to give Northern Ireland money from London, EU and Dublin may persuade it.
• In our view, Pro-Brexit Labour MPs will probably still have reservations about voting in favour of a deal, as Johnson's version of Brexit is harder than Theresa May's. Pro-Brexit Labour MPs want safeguards on workers' rights and environmental and consumer standards. Labour MPs voting for Johnson's deal may be expelled from the party and get their whip withdrawn.”

Bank of America (BAC) reported Q3 FY 2019 earnings of $0.75 per share (versus $0.66 in Q3 FY 2018), beating analysts’ consensus estimate of $0.68.

The company’s quarterly revenues amounted to $22.955 bln (+0.3% y/y), generally in line with analysts’ consensus estimate of $22.730 bln.

BACrose to $30.15 (+1.41%) in pre-market trading.

The Mortgage Bankers Association (MBA) reported on Wednesday the mortgage application volume in the U.S. rose 0.5 percent in the week ended October 11, following a 5.4 percent gain in the previous week.

According to the report, refinance applications climbed 3.6 percent, while applications to purchase a home fell 4.1 percent.

Meanwhile, the average fixed 30-year mortgage rate increased to 3.92 percent from 3.90 percent.

“Purchase applications slowed for the second week in a row,” noted Joel Kan, the MBA’s associate vice president of economic and industry forecasting. “While near-term economic uncertainty is still a factor, other fundamental issues, such as a lack of housing inventory in many markets, is preventing purchase activity from meaningfully rising.”

Karen Jones, an analyst at Commerzbank, thinks that USD/JPY pair has eroded the 50% retracement at 108.43 (of the move down from April) and the mid-September high at 108.48.

• “It is approaching the 200-day ma at 109.07 - we would allow for this to hold the initial test. Beyond this consolidation, the market is well placed to try the topside once more. Above the market lies the 55 and 200-week moving averages at 109.85/110.18 and the 2015-2019 downtrend at 111.05.
• Failure at 106.47 will target 106.00, then 105.32/78.6% retracement which is the last defence for the 104.46 August low.”

• Says talks overnight were constructive
• the intention of cabinet today is to provide an update on progress in talks
• talks are ongoing
• Expects ongoing dialogue between PM, his team and the Democratic Unionist Party (DUP), and meetings with conservative lawmakers

• EU leaders may give a political agreement to the Brexit deal but they will not sign off on one this week

James Smith, a developed markets economist at ING, notes that at 1.7%, headline UK inflation was held back during September by a modest fall in fuel prices. 

• "But with energy stripped out, core CPI bounced back to 1.7% on favourable base effects, as well as some quirks in furniture and recreation costs. In the short-term, the outlook for inflation still looks relatively benign – headline CPI is likely to stay below 2% for the rest of the year.
• Now, inflation is clearly not the biggest game in town today. But all of this fits into a broader debate about how the economy will shape up depending on how Brexit pans out in the coming days.
• Over the past year, wage growth has picked up momentum as skill shortages have built up various sectors. Assuming this trend persists, then these higher wage costs could feasibly translate into a bit of upward pressure for consumer prices in the medium-term – particularly given that services make up a sizeable share of the inflation mix, and these tend to be labour-intensive.
• But while the trend in wage growth displays some structural origins – demographic factors for instance – concerns about labour demand are mounting. It’s early days, but the number of vacancies has slipped consistently through 2019, while employment is now falling on a 3-month basis – having only done so briefly on two other occasions since 2015. This follows increasingly negative PMI readings, some of which have pointed to a notable slowdown in hiring intentions given the lack of orders.
• If Brexit talks fail to yield a deal this month and trigger an election and Article 50 extension, then the resulting uncertainty will continue to cloud the outlook for hiring and investment. Following comments from Bank of England policymakers over the recent days, there is growing talk that this could trigger rate cuts in the not so distant future.
• We don’t think we’re there yet – after all with productivity growth minimal, the level of wage growth is currently more than sufficient (in theory) to keep core inflationary pressures rising. But even if there is a deal this week, the considerable uncertainty over the future relationship with the EU will persist. These concerns, coupled with growing worries about the global economy, will continue to weigh on UK growth in 2020."

The U.S. dollar will remain the world's leading reserve currency over the next 25 years, with the euro and renminbi expected to further increase their share of total central bank reserves, according to UBS' survey of sovereign institutions including major central banks.

Global reserves are assets of central banks held in different currencies primarily used to back their liabilities. Central banks have bought and sold international reserves to influence exchange rates. The dollar currently represents about 60%-65% of global currency reserves reported by central banks to the International Monetary Fund.

That share may come down a bit over the next two decades, only because central bank managers would want to raise their holdings of other reserve currencies such as the euro and renminbi, said Massimiliano Castelli, head of strategy and advice, global sovereign markets, at UBS Asset Management and one of the authors of the report.

The euro and renminbi are likely to boost their share of global reserves, but at a gradual pace, UBS said. The euro's share was around 20% at the end of the second quarter, IMF data showed, while the renminbi was at roughly 2%.

The UBS report noted that the dollar remains the "ultimate safe-haven currency" and during periods of intense global risk, investors flock to U.S. Treasuries.

The fall in U.S. equity volatility to a three-month low is being taken as a positive sign for stocks by market watchers, rather than one of complacency.

The Cboe Volatility Index slid a fifth straight day Tuesday to 13.54, the lowest since July 29. In the three times this year Wall Street’s so-called fear gauge dropped below 14 after spending a few weeks above it, shares rallied further twice, according to Sundial Capital Research Inc. founder Jason Goepfert.

“Historically, it has been more of a positive than a negative,” he wrote about the VIX’s move. “It’s not so low that it has proven to be a sign of complacency.”

Looking back further, among about 30 instances since 1990 when the VIX declined below 14 for the first time in more than three weeks, only one of the signals preceded a loss over the next six to 12 months, he said.

According to Brian Martin, analyst at ANZ, the deepening downturn in the European Union’s economy is a source of significant concern for global growth as EU accounts for 15% of world import volumes.

“Services account for 75% of EU GDP and jobs. Emerging evidence of persistent weakness in that sector has negative implications for employment growth and domestic demand. Adding to uncertainty is the recent rise in EU-US trade tension. Whilst the EU wants to settle the Airbus dispute, there is a risk that tension could spill over. President Trump will decide about auto tariffs in mid-November. Europe is deeply integrated in the world economy and global value chains. A slowdown in European manufacturing and domestic demand would have negative repercussions for import partners.”

Reuters reports, adding to the earlier story by Bloomberg. The report is citing EU diplomats on the matter. 

• Says that negotiators have reached an impasse in talks on the issues related to future trade deal post-Brexit and fair competition clauses

• Says that Johnson-DUP talks are also a factor in the standstill

According to the report from Eurostat, the euro area annual inflation rate was 0.8% in September 2019, down from 1.0% in August. Economists had expected a 0.9% increase. A year earlier the rate was 2.1%. European Union annual inflation was 1.2% in September 2019, down from 1.4% in August. A year earlier, the rate was 2.2%. 

The lowest annual rates were registered in Cyprus (-0.5%), Portugal (-0.3%), Greece, Spain and Italy (all 0.2%). The highest annual rates were recorded in Romania (3.5%), Slovakia (3.0%) and Hungary (2.9%). Compared with August, annual inflation fell in twenty Member States, remained stable in five and rose in two.

In September, the highest contribution to the annual euro area inflation rate came from services (+0.66 percentage points, pp), followed by food, alcohol & tobacco (+0.29 pp), non-energy industrial goods (+0.06 pp) and energy (-0.18 pp).

Office for National Statistics said, the Consumer Prices Index (CPI) 12-month inflation rate was 1.7% in September 2019, unchanged from August 2019. Economists had expected a 1.8% increase.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month inflation rate was 1.7% in September 2019, unchanged from August 2019.  The largest downward contributions to change in the CPIH 12-month inflation rate, between August and September 2019, came from motor fuels, second-hand cars, and electricity, gas and other fuels. These downward movements were offset by upward movements from furniture, household appliances, hotel overnight stays, and from recreation and culture items.

ONS also said, the headline rate of output inflation for goods leaving the factory gate was 1.2% on the year to September 2019, down from 1.7% in August 2019. The growth rate of prices for materials and fuels used in the manufacturing process was negative 2.8% on the year to September 2019, down from negative 0.9% in August 2019. Clothing, textiles and leather products provided the largest upward contribution to the annual rate of output inflation. Crude oil provided the largest downward contribution to the annual rate of input inflation.

Europe's corporate recession is expected to deepen, the latest forecasts show, as companies struggle with uncertainties from Brexit, the protracted U.S.-China trade spat and Germany's manufacturing recession.

Companies listed on the STOXX 600 regional index are now expected to report a drop of as much as 3.7% in third-quarter earnings, worse than the 3% fall expected a week ago, I/B/E/S data from Refinitiv showed.

Earnings that grew by 14.4% in the same quarter a year earlier are seen posting their worst EPS since Q3 2016 when earnings fell 5%.

Consensus for revenue improved slightly with forecasts for flat growth, compared with a fall of 0.3% seen last week. Revenue rose 5.9% a year ago and grew by 3.3% in Q2.

Excluding the energy sector, Q3 earnings are expected to fall just 0.3% with revenue increasing 3.1%, the data showed.

Analysts at TD Securities are looking for UK’s September CPI to continue to sit above the BoE's forecasts from the August IR, coming in at 1.8% y/y (mkt 1.8%, BoE 1.7%).

“Beneath the headline, we look for core CPI to rebound to 1.7% y/y (mkt 1.7%), with risks skewed to the upside, and with headline CPI seeing a growing contribution from food prices after the depreciation of GBP over the summer. On the Brexit front, discussions are ongoing ahead of a provisionally scheduled meeting of EU Ambassadors at 2pm Brussels time, and PM Johnson will reportedly brief the UK Cabinet at 4pm BST.”

There’s an “uncomfortably high” chance that a recession could hit the global economy in the next 12-18 months — and policymakers may not be able to reverse that course, an economist said.

“I think risks are awfully high that if something doesn’t stick to script then we do have a recession,” said Mark Zandi, chief economist of Moody’s Analytics. “I’ll say this also: Even if we don’t have a recession over the next 12-18 months, I think it’s pretty clear that we’re going to have a much weaker economy.”

Avoiding a slowdown in economic activity requires many factors to “stick to script” at the same time, he said. That includes U.S. President Donald Trump not escalating the tariff war with China, the U.K. finding a resolution to Brexit and central banks continuing their monetary stimulus, Zandi explained.

“I think high, uncomfortably high,” he told CNBC when asked about the chances of a global economic recession.

Bloomberg with the headlines, citing a UK official on the matter says that DUP is holding up progress and that chances of a Brexit deal are low

Danske Bank analysts suggest that market’s focus is on Brexit negotiations, as today is the last day to reach an agreement ahead of the EU summit starting tomorrow.

“As obstacles remain, we think a deal is unlikely, but that is not the same as saying the negotiations are breaking down. Our base case remains, however, that we will get another extension followed by a snap election. Today's main data release is US retail sales for September. Retail sales have grown for six consecutive months, so we would not be surprised if retail sales disappoint after some strong months. The data release is going to be key for many FOMC members whether to support another cut later this month or not. Fed's Kaplan, Evans and Brainard all speak today. The question is whether they are supportive of another Fed cut or not. The Federal Reserve also releases its beige book at 20:00 CEST. ECB's Knot speaks at 14:30 CEST and Lane speaks at 16:00 CEST. UK CPI inflation for September is due out today at 10:30 CEST.”

According to the report European Automobile Manufacturers' Association (ACEA), in September 2019, EU demand for new passenger cars increased by 14.5% to reach 1.2 million units registered in total. To a large extent, this strong year-on-year growth is the result of a low base of comparison, as registrations fell significantly in September 2018 (-23.5%) following the introduction of the WLTP testing regime.

Last month, all EU member states posted increases, except for Bulgaria. Four of the five major EU markets even recorded double-digit gains: Germany (+22.2%), Spain (+18.3%), France (+16.6%) and Italy (+13.4%). By contrast, in the United Kingdom market recovery was very limited (+1.3%), as Brexit-related uncertainties continued to affect consumer confidence.

Over the first nine months of 2019, new car registrations were down 1.6% compared to the same period the year before. Despite demand recovering across the European Union in September, Germany (+2.5%) was the only major market to post positive results so far this year. Spain (-7.4%) saw the strongest drop, followed by the United Kingdom (-2.5%), Italy (-1.6%) and France (-1.3%).

China’s central bank extended loans through its medium-term lending facility (MLF) on Wednesday while keeping the lending rate unchanged.

The People’s Bank of China (PBOC) said on its website the interest rate on one-year MLF loans remained at 3.3%, the same as the previous operations.

The PBOC also said it has injected 200 billion yuan ($28 billion) into financial institutions via the liquidity tool.

The central bank usually conducts MLF operations when there is a maturity coming due, but there are no loans maturing on Wednesday.

Some analysts believe that keeping the borrowing costs on medium-term loans unchanged reflects policymakers’ inclination to avoid loosening monetary policy too much lest it stokes a credit binge.

In view of analysts at TD Securities, New Zealand’s Q3 CPI at +0.7% q/q exceeded market expectations for +0.6% q/q and the RBNZ's +0.5% q/q forecast, to put annual inflation at 1.5% y/y, easing from 1.7% y/y.

“The Q3 q/q increase was largely driven by a rise in fruit/vegetables and meat/fish/poultry prices +1.9% and 3.4% q/q respectively. Tradeables inflation rose 0.1% q/q but remained negative in annual terms -0.7%. This can be explained away by weak global prices. However non-tradeables inflation accelerated, +3.2%/yr, well up on the RBNZ's 2.7% y/y forecast. THis rise is the fastest since Q2 2009 and suggests capacity constraints are building. We don't expect this outcome is likely to deter the RBNZ from cutting next month as the Bank is likely to place more significance on growth disappointing the Bank's Aug MPS forecasts.”

Citi discusses the USD tactical outlook and sees a scope for varied levels of weakness against other G10 and EMFX.

"(1) Fed rate cut coupled with US political tensions (Trump impeachment proceedings) - Tactical weakness in USD likely with JPY and Gold expected to be the key beneficiaries.

(2) Positive US – China trade developments - USD weakness likely against Commodity currencies (AUD, NZD & CAD) as well as Asia EM; Safe havens (JPY & Gold) to also likely weaken across the board (ex USD).

(3) Progress on Brexit - USD likely to weaken against EUR and GBP; safe haven CHF likely to decline against both EUR and GBP," Citi notes.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1156 (3953)

$1.1131 (2881)

$1.1100 (596)

Price at time of writing this review: $1.1031

Support levels (open interest**, contracts):

$1.0968 (3819)

$1.0931 (3508)

$1.0889 (3496)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date November, 8 is 68568 contracts (according to data from October, 15) with the maximum number of contracts with strike price $1,1100 (3953);

GBP/USD

Resistance levels (open interest**, contracts)

$1.2918 (1705)

$1.2889 (1113)

$1.2867 (697)

Price at time of writing this review: $1.2757

Support levels (open interest**, contracts):

$1.2580 (193)

$1.2522 (149)

$1.2456 (408)

Comments:

- Overall open interest on the CALL options with the expiration date November, 8 is 33989 contracts, with the maximum number of contracts with strike price $1,3200 (3634);

- Overall open interest on the PUT options with the expiration date November, 8 is 20294 contracts, with the maximum number of contracts with strike price $1,2000 (1692);

- The ratio of PUT/CALL was 0.60 versus 0.59 from the previous trading day according to data from October, 15

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.