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G10 Macro Rates Market Analysis – Weekly Review – 21st Oct 2019

Monday, October 21, 2019

With the Pacific G10 Macro Rates Team

Global Macro Overview
Global markets have been waiting for some clarity on the positive headlines that were delivered last week, hence volatility remained relatively subdued especially across non-GBP interest rates (US, Canada and Japan were on holiday on Monday as well). 

Saturday was key for the financial markets as the UK parliament voted on a new deal. The level of implied volatility in GBP market should remain high, with GBPUSD 1-day volatility trading at post-2016 highs, as uncertainty over the final outcome is still in the balance.

Little detail has been released about the US-China trade deal agreed last week and markets remained sceptical. However, positive headlines turn risk-on mood back on with S&P finishing the week higher, G10 yields were pushed higher and generally steeper.

North America
US: Manufacturing data from regional surveys (Empire and Philadelphia) has been strong this week, but recent divergence between regional and national indicators makes it unreliable. Retail sales data came in weaker than expected but with strong revisions to the past data, while alternative consumer spending indicators continue to point at stronger retail sales ahead. Housing data remains strong and labour markets stable.

Industrial production came in weak, but again strong revisions smooth the picture. A number of Fed speakers have been on the wires this week; there seems to be consensus for at least one more cut this year in line with our expectations.

Canada: Inflation in Canada continues to stay around the 2% target according to the three core measures used by BoC. Manufacturing Sales in August were slightly stronger than expected.

Expectations in the ZEW index (Indicator of Economic Sentiment) were again stronger than forecasted, however current conditions were weak. New car registrations spiked higher purely on base effects. Finally YoY inflation was revised slightly down for September.

Scandinavia: The unemployment rate in Sweden stayed at 7.1% vs. 6.7% expectations, making some economists speculate that Riksbank can make a dovish shift at next week's meeting. Scandinavian currencies have been talked about this week, as EURNOK cross breached all-time highs.

Markets have been following global developments with close to none domestic drivers and data. CPI printed at 0.2% YoY, with core stable inflation around 0.5%.

Labour data continues to stay strong with low jobless claims and 4% wage growth, however employment growth turned negative. CPI came in weaker than expected with only 0.1% MoM increase and 1.7% YoY. Strong retail sales for September with 3% YoY increase continue to point at consumer resilience, despite the political uncertainty. GBP finished the week 1.6% higher on a trade-weighted basis, following on from the strength last week.

Unemployment rates in Australia went back lower to 5.2%, reversing some of the recent increase. CPI in New Zealand came in slightly above market and RBNZ forecast.

For further information on the Pacific G10 Macro Rates team, their experience and strategy please see below 

Read the Strategy Information Sheet

IMPORTANT INFORMATION: Issued and approved by Pacific Capital Partners Limited, a limited company registered in England and Wales, authorised and regulated by the Financial Conduct Authority . The information contained herein is not approved for use by the public and is only intended for recipients who would be generally classified as investment professionals. Information or opinions contained in this article do not constitute an offer to sell or a solicitation, or offer to buy, any securities or financial instruments or investment advice or any advice or recommendation in respect of such securities or other financial instruments. Where past performance is shown it refers to the past and should not be seen as an indication of future performance.

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