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Market News Financial Breakfast on November 1st: Non-agricultural and Fed’s decision hits heavily, the U.S. dollar hits the biggest increase in nearly five months

Financial Breakfast on November 1st: Non-agricultural and Fed’s decision hits heavily, the U.S. dollar hits the biggest increase in nearly five months

From November 1st to November 7th, the market will welcome multiple heavy data and economic events, including China, the Eurozone, the U.K. and U.S. October PMI, the U.S. October ADP and non-agricultural employment, and the Eurozone 9. The monthly unemployment rate, and the 22nd OPEC and non-OPEC ministerial meetings, the central bank, the Federal Reserve, the Reserve Bank of Australia, and the Bank of England will announce interest rate resolutions. The market generally expects the Fed’s FOMC meeting to announce the specific details of reducing debt purchases. The Reserve Bank of Australia and the Bank of England are expected to keep their policies unchanged at the November meeting.

TOPONE Markets Analyst
2021-11-01
11574

This week (the week of November 1st-November 7th) the market will welcome a number of heavy data and economic events, including China, the Eurozone, the United Kingdom and the United States October PMI, the United States October ADP and non-agricultural employment , Eurozone unemployment rate in September, and the 22nd OPEC and non-OPEC ministerial meetings. In terms of central banks, the three major central banks of the Federal Reserve, the Reserve Bank of Australia and the Bank of England will announce interest rate resolutions. details.


Fed side


The market generally expects that the Fed's FOMC meeting this week will announce the specific details of reducing debt purchases. The Federal Reserve is expected to start debt reduction in mid-December, with a monthly rate of US$10 billion in Treasury bonds and US$5 billion in MBS, and the reduction will be completed in June 2022. It is expected that the wording of the pace of debt reduction in the monetary policy statement will be conditional, that is, the plan is not "pre-set" (similar to the wording of the debt reduction plan announced in 2013), or can be adjusted according to changes in economic conditions. The statement stressed that despite the reduction in asset purchases, there will still be a lot of monetary easing because the Fed is still buying assets.

After the FOMC meeting, the US Department of Labor will release October non-agricultural data on Friday. Although this report may not affect Thursday’s decision, it will still affect the Fed’s future interest rate hike expectations. If the non-agricultural employment data in October is stronger than expected, it may make the Fed reach the conditions for raising interest rates sooner.

Energy


The 22nd OPEC and non-OPEC ministerial meeting will be held on Thursday. US WTI crude oil rose by more than 10% this month. Whether OPEC+ will increase production will affect the nerves of the energy market.

Europe and North America begin to implement winter time


From October 31, many European countries began to implement winter time, which will end on March 26, 2022. During winter time, the trading hours of European financial markets will be delayed by one hour from daylight saving time, that is, starting from Monday (November 1), European stock markets will open at GMT+8 16:00 and close at 00:30 the next day; The release of economic data in European countries will also be delayed by one hour from daylight saving time.

From November 7, winter time will be implemented in North America. Specifically, the clock will be set back one hour at 02:00 Eastern Time, and it will end on March 13, 2022 (02:00 Eastern Time). The trading hours of the financial markets in the United States and Canada will be delayed by one hour from daylight saving time.

Market hotspots this week


① Monday (November 1st) October PMI of China, the Eurozone and the United States.
② On Tuesday (November 2), the Bank of Japan and the Reserve Bank of Australia announced interest rate resolutions.
③Wednesday (November 3) New Zealand's third quarter unemployment rate, China's October Caixin service industry PMI, UK October Markit service industry PMI, Eurozone unemployment rate in September, and US ADP employment numbers in October.
④ On Thursday (November 4) the Federal Reserve announced the interest rate resolution, and then Fed Chairman Powell held a press conference, the 22nd OPEC and non-OPEC ministerial meetings, the Bank of England announced interest rate resolutions, and announced the minutes of the meeting. Garder and executive committee Schnabel delivered speeches.
⑤ Friday (November 5) Germany's September seasonally adjusted monthly rate of industrial output, September monthly retail sales rate in the Eurozone, after seasonally adjusted changes in the non-agricultural employment population in October in the United States, unemployment rate in October in the United States, October in Canada unemployment rate.

Holiday reminder this week


This Monday (November 1), France will be closed for one day due to All Saints’ Day;
Wednesday (November 3, Japan will be closed for one day due to cultural festivals;
Singapore is closed for Diwali on Thursday (November 4).

Market opening on Monday




Last week review


[St. Louis Federal Reserve Economist: The scope of high inflation is expanding] An economist at the St. Louis Federal Reserve in the United States used a variety of methods to study inflation trends, including eliminating the maximum value of change and the prices of service commodities during the epidemic. The impact of some larger outliers (such as second-hand cars) on high overall inflation is waning, indicating that the scope of this year's inflation spike seems to be broader. Fed Chairman Powell admitted last week that inflation lasted longer than Fed officials expected, and pointed out the risk that price increases will continue. The market expects that the FOMC meeting next week will announce the reduction of the current monthly asset purchase scale of 120 billion US dollars, and move towards the cancellation of monetary support measures during the epidemic.

[EU Energy Ministers hold a special meeting to discuss energy issues] The EU Energy Ministers held a special meeting in Luxembourg on October 26 to exchange views on the issue of rising energy prices and discuss the response measures of member states and the EU. Regarding short-term measures, the EU Energy Minister unanimously believes that member states should take urgent measures to protect the interests of disadvantaged consumers. The "toolbox" developed by the European Commission provides a framework for coordinating the actions of various countries. Ministers also discussed medium- and long-term measures, including electricity market reforms, voluntary joint gas purchase programs, and EU energy storage programs. The meeting agreed to continue to evaluate changes in energy prices and the implementation of the measures in the European Commission's "toolbox". In December, EU leaders will discuss the energy issue again. (Xinhua News Agency)

[The Bank of Canada announces the end of QE, and the possibility of future interest rate hikes increases] The Bank of Canada resolution stated: End QE and switch to reinvestment. The economic output gap is expected to close in the second quarter of 2022 at the earliest, and was previously expected to be in the second half of 2022. Inflation is expected to rise in 2022 and fall back in the latter part of 22 years. Lowering potential GDP growth expectations, due to supply chain disorder.

[Russia will increase natural gas supply to Europe on November 8. Natural gas prices may fall] Russian President Vladimir Putin said on Wednesday that once Russia’s domestic natural gas reserves are full, Gazprom will fill the natural gas storage in Germany and Austria. It is expected that this additional supply may drive down natural gas prices. Gazprom CEO stated that the end of domestic natural gas injection is one week longer than originally scheduled on November 1. So far, the company has only injected a very small amount of natural gas into its European storage facilities. Russia's focus on restoring domestic natural gas storage, coupled with the low inventory levels of some of the company's sites in the European Union, has made the supply of natural gas in the European market a cause for concern.

[The European Central Bank's October decision to maintain interest rates and the total amount of bond purchases unchanged] The European Central Bank stated that the market's bets on raising interest rates do not match the central bank's forward guidance; the conditions for raising interest rates are obviously not met. The rising period of inflation will last longer than expected, but it is the correct view to believe that "inflation is temporary". The Eurozone continues to recover strongly, and economic risks are roughly balanced. Slowing down the pace of PEPP purchases is not a reduction in debt. Tight supply and energy prices pose risks to the near-term economic outlook.

[The European Central Bank expects the inflation rate to be higher than 2% in 2022, and there is still disagreement on the outlook for 2023] European Central Bank policymakers expect the inflation rate to exceed the 2% target in 2022, but there are still questions about whether it will remain at this level in 2023. Disagreement. Philip Lane, chief economist of the European Central Bank, insists that consumer price increases will fall below the target after 2022, and that core price pressures will not be strong enough. A few people retorted that the inflation rate may exceed the target and mentioned the risk of the second-round effect. All policymakers believe that the market’s expectations for a rate hike next year are unfounded. Francois Villeroy de Galhau, President of the Bank of France, said that unless the forecast shows that the inflation rate will reach the 2% target in 12-18 months, officials will not consider raising interest rates.

[Supply chain bottlenecks restrain consumption and investment. The US economy decelerates sharply in the third quarter] The US real GDP in the third quarter increased by 2% from the initial quarter, and is expected to be 2.6%. The slowdown in economic growth exceeded expectations and fell from the epidemic The lowest level since the start of the recovery, due to supply chain turmoil and the increase in confirmed cases of new coronary pneumonia, which curbed spending and investment. The data highlights that unprecedented supply chain pressure is suppressing the US economy. Due to the shortage of production merchants and the lack of necessary materials, it is difficult to meet the needs of consumers. Service companies are also facing similar pressures, and they are also exacerbated by the spread of the delta strain of the new crown virus.

[The US September core PCE price index recorded a monthly rate of 0.2% and an annual rate of 3.6%] Analysts said that US consumer spending increased strongly in September, but this was also partly driven by rising prices due to the face of global supply Tensions, shortages of cars and other commodities, and inflation remains high. Except for the suspension of work in the spring of 2020, the third quarter is the worst period for automobile production since the beginning of 2009 due to a global shortage of semiconductors. The index is the Fed’s preferred inflation indicator for its 2% target. The Fed is expected to announce at its policy meeting next week that it will begin to reduce the amount of money injected into the economy through monthly bond purchases.

List of major global markets



The US stock market rose last Friday, and along with concerns about inflation and currency tightening, traders are evaluating disappointing company performance and bond market turmoil. The S&P 500 index opened lower, and the performance of Amazon and Apple put pressure on the index. The S&P 500 index rose by 6.9% in October, the largest monthly increase since November last year.

Adam Phillips, managing director of portfolio strategy at EP Wealth Advisors, said that as Halloween approaches, investors seem to be a little excited. After the announcement of Apple and Amazon results, most of us are prepared for market turmoil. Fortunately, the strong performance reports of companies like ExxonMobil and Chevron have helped change market expectations.

In other respects, inflationary pressures and the prospect of interest rate hikes have triggered significant volatility in the U.S. bond market. The 10-year Treasury bond yield fell to 1.56%; positive company performance helped support global stock markets. However, the supply chain chaos and inflation risks brought about by rising raw material prices are raising expectations for interest rate hikes and weakening the economic outlook.

Precious metals and crude oil


As traders bet that the Federal Reserve will start raising interest rates earlier, the U.S. dollar and short-term bond yields have risen together. Spot gold on Friday refreshed its lowest point since October 20 to $1,772.07 per ounce. Data previously released by the United States showed the previous month. Inflation continues to rise, bringing the market's focus back to the Fed's policy meeting this week.

Consumer spending data intensified people's concerns that the Federal Reserve will adopt aggressive monetary policy to ease the sharp rise in prices, pushing the U.S. 10-year U.S. Treasury yield to 1.6190% and the U.S. dollar up 0.8%.

TD Securities analysts said in a report that global market traders have actively raised their expectations for policy tightening. Energy tightening and supply chain chaos have pushed up inflation, causing market participants to digest the risk of exiting support measures more quickly.

A strategist led by Bart Melek at TD Securities said in a report that investors focused on pricing the withdrawal of stimulus policies from global central banks, which dragged down the decline in gold. Traders in the global market have greatly increased their expectations of policy tightening, as energy tightening and supply chain chaos have led to rising inflation, prompting market participants to price the risk of a faster policy exit.

It is expected that the Fed will announce when it will begin to reduce the scale of asset purchases at the end of the monetary policy meeting on November 2-3.

In general, gold and silver rose by more than 1% and 7% respectively last month due to concerns about rising prices. In the physical market, Indian consumers paid a premium for buying physical gold from retailers last week due to increased demand before the major festivals this week.

U.S. crude oil rose nearly 11% last month, as there were signs that consumption exceeded supply and led to a decline in inventories. The continued short supply of natural gas boosted demand for petroleum products and also helped push oil prices higher last month. At the same time, rising refining profit margins indicate that crude oil consumption will remain strong, because refineries will continue to increase processing to meet demand, which also means that global oil inventories may continue to decrease in the coming months.

Traders are also continuing to evaluate the possibility of OPEC and its allies to further increase production. The OPEC+ Alliance will meet on November 4 to evaluate plans to gradually restore production that was suspended during the epidemic.

Ed Moya, senior market analyst at Oanda Corp., said that the gap in the oil market may be smaller than traders initially imagined, but it will not disappear soon. If OPEC+ continues to increase production gradually, crude oil prices may resume their upward momentum.

Foreign exchange


The U.S. dollar index continued to rebound from the previous day’s decline last Friday. Earlier, U.S. bond yields rose because the Fed’s preferred inflation indicator showed that prices continued to rise above the 2% target; the euro against the U.S. dollar, which is heavily weighted in the U.S. dollar index It fell sharply by 1.05%, the biggest drop in at least 6 months. Traders are trying to clarify inflation data and central bank statements to predict the path of interest rates in different currencies.

The U.S. dollar index rose by 0.84% in late trading to 94.15; the U.S. dollar index fell 0.1% in October and stopped rising for two consecutive months. U.S. Treasury yields rose. Earlier data showed that the core personal consumption expenditure (PCE) price index favored by the Fed rose 3.6% year-on-year for the fourth consecutive month. The U.S. Treasury yield curve flattened on Friday, reflecting the increased possibility that the Fed will address rising inflation expectations at this week's meeting.

Marc Chandler, chief market strategist at Bannockburn Global Forex, said that the difference between market expectations and the central bank’s statement may be one reason for market volatility; another reason for volatility is the rebalancing of the portfolio at the end of the month, and the last trading day of the week is often The worst day of market liquidity.

The euro fell 1.05% to 1.1558, the third consecutive month of decline; the stop-loss order below the key support level of 1.1590-1.1570 was triggered, and there was a sell-off during the London fixing session. After the European Central Bank's press conference last Thursday, the euro hit a high of 1.1692 against the dollar. The euro fell 0.28% against the pound and 0.64% against the Swiss franc.

Valentin Marinov of Crédit Agricole said that the widening of the external European debt spread and the weakening of the stock market may have put pressure on the euro last Friday.

Eurozone data show that in 19 countries in the region, inflation rose to 4.1% in October from 3.4% a month ago. The consensus forecast is 3.7%, putting the European Central Bank in a dilemma. German 10-year government bond yields rose by 8 basis points, reaching the highest since May 2019, and the yields of southern European countries' government bonds also rose sharply.

European Central Bank President Lagarde failed to lower the market’s expectations for interest rate hikes at the press conference last Thursday, driving bearish sentiment. Danske Bank strategists expect the euro to fall to $1.10 in the next 12 months.

The dollar to yen rose 0.34% to 113.97. The pound fell 0.78% against the dollar to 1.3682, and the Bank of England will hold a meeting this week.

The U.S. dollar rose 0.43% to 0.9157 against the Swiss franc, which is still close to the top of the recent fluctuation range; the volume of EUR/CHF options and spot exchange rates soared, and the turmoil in the EU fixed-income market pushed the exchange rate to 1.05699, the lowest since May 2020 Level; the key support level is 1.05050, the low of the past few years.

The Canadian dollar outperformed most G-10 currencies on Friday. The U.S. dollar rose 0.36% to 1.2390 against the Canadian dollar; the Canadian dollar rose earlier this week due to the unexpected hawkish performance of the Bank of Canada.

The Australian dollar fell 0.37% to 0.7516 against the US dollar; the 1-week implied volatility soared as the Reserve Bank of Australia withdrew from yield control before the policy meeting next week. The New Zealand dollar fell 0.42% to 0.7171 against the US dollar.

International Financial Information


[The Minister of Petroleum of Angola: OPEC+'s plan to increase production by 400,000 barrels per day is working well. There is no need to deviate from the current plan at the next meeting. 】

[CEO of Saudi Aramco: There are still some headwinds in the global economy, partly due to supply chain bottlenecks, but we are optimistic that energy demand will remain healthy in the foreseeable future. The average crude oil production in the third quarter was 9.5 million barrels per day. The total oil and gas production in the third quarter was 12.9 million barrels of oil equivalent per day. The outstanding performance in the third quarter was an increase in economic activity in major markets. Looking ahead, we will maintain a long-term investment strategy. 】

[Nanbo International Bank: If the Federal Reserve announced at its meeting on November 3 that it would start to reduce debt purchases and clearly indicated that its focus will shift to raising interest rates, the dollar may go higher. 】

[Voting in the Japanese House of Representatives election is underway, and the turnout rate is lower than the previous one]
According to the Japan Broadcasting Association (NHK), as of 10:00 local time on October 31, the turnout rate for the 49th House of Representatives election in Japan was 6.32%, a decrease of 0.83% from the previous House of Representatives election. (CCTV News)

Domestic financial information


[National Bureau of Statistics: In October, China's Manufacturing Purchasing Managers Index (PMI) was 49.2%]
The data dropped by 0.4 percentage points from the previous month, and continued to be below the threshold. The manufacturing industry's prosperity has weakened. The non-manufacturing business activity index was 52.4%, down 0.8 percentage points from the previous month, but it was still above the threshold, and the non-manufacturing sector continued to expand. (Official website)

[Interpretation of the National Bureau of Statistics of China's Purchasing Managers Index in October 2021]
In October, affected by factors such as still tight power supply and high prices of some raw materials, the manufacturing PMI fell to 49.2%. From the perspective of industry conditions, among the 21 industries surveyed, 9 were above the threshold, 3 less than the previous month, and the production and operation activity of manufacturing enterprises has weakened. Both ends of supply and demand slowed further. The production index and the new order index were 48.4% and 48.8%, down 1.1 and 0.5 percentage points from the previous month, and continued to stay in the contraction range. Manufacturing production and market demand have weakened. (Official website)

[On the morning of October 31, local time, during the sixteenth summit of the G20 leaders, State Councilor and Foreign Minister Wang Yi met with US Secretary of State Brinken in Rome, Italy. On the afternoon of the 31st, US Secretary of State Blincol arrived at the meeting place between China and the United States. The meeting between the two parties lasted about 50 minutes. (CCTV News)]

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