Cautious optimism over US-China trade
The overall rhetoric from US and Chinese officials indicated that the phase-1 trade deal remained on track, although plans for signing in November were disrupted by Chile’s decision to cancel the APAC Summit.
Domestically, the House of Representatives moved ahead with the next stage of potential impeachment proceedings against President Trump.
The Federal Reserve cut interest rates by 0.25% to 1.75% which was in line with consensus forecasts and the third successive cut. Two members again dissented as they wanted to leave rates at 2.0%
There were mixed comments from Fed Chair Powell. He hinted that there would be no further cuts in the short term given that the economy was still performing well. Potential dollar support was offset by his comments that any rate hike was unlikely, especially given the low inflation rate.
There were comments from Fed officials which suggested that support for the latest rate cuts were dependent on an extended pause. Markets still priced in a 25% chance that rates would be cut again at the December meeting.
The labour-market report was mixed with a larger than expected headline increase in non-farm payrolls of 128,000. Given that the GM strike had cut the total by over 40,000, the data suggested a solid employment increase and there was a strong upward revision to September’s total.
Unemployment increased to 3.6% from 3.5% with wages increasing 3.0% over the year. The jobs report overall lessened immediate concerns over current conditions in the economy and stemmed dollar selling.
In contrast, the ISM manufacturing business confidence index remained in contraction for the third successive month within orders and employment also continuing to decline. Weakness in manufacturing maintained concerns that the overall economy would falter.
The government decided against pushing ahead with the Brexit withdrawal deal and made another attempt at securing a General Election.
The House of Commons eventually approved an election for December 12th. There was some confidence that the Conservative Party would be able to secure a majority in the House of Commons and then move to pass the Brexit deal by the end of 2019.
Economic data had little impact with a slight improvement for the PMI manufacturing business confidence data as companies again increased inventories to prepare for an EU exit.
Euro-zone CPI inflation declined to 0.7% from 0.8% previously while the core rate increased to 1.1% from 1.0%. German yields moved higher over the week which provided an element of Euro support.
The currency overall was influenced mainly by the degree of confidence in other major currencies.
The Bank of Japan left policy unchanged at the latest policy meeting but reiterated that policy would be eased further if there was any evidence of the economy weakening.
The Bank of Canada held interest rates at 1.75% following the latest policy meeting. The bank did express increased reservations over the growth outlook given the impact of trade disputes.
Given cautious rhetoric over the outlook, the Canadian dollar lost ground.
Chinese PMI data was mixed, although the influential Caixin manufacturing index strengthened to the highest level since February 2017 which boosted confidence in the outlook and supported the Australian dollar.