It’s the U.S Mid-Terms! Is Trump About to Lose his Mojo?

Earlier in the Day:

Economic data released through the Asian session was limited to household spending figures out of Japan, while on the monetary policy front, there was the RBA’s November monetary policy decision and release of its rate statement.

For the Japanese Yen, household spending tumbled by 4.5%, month-on-month, in September, coming in far worse than a forecasted 1.8% decline, while also reversing August’s 3.5% jump in spending. Year-on-year, spending fell by 1.6%, which was worse than a forecasted 1.6% rise and August’s 2.8% increase.

  • Contributing to the slide in household spending year-on-year were: a 7.4% slide in spending on medical care, a 3.3% fall in spending on housing, a 3% decline in spending on culture & recreation and a 2.8% fall in spending on education.
  • There were also falls in spending on food (-1.8%); fuel, light & water charges (-0.7%); on furniture & household utensils (-1.1%) and transportation and communication (-0.8%).
  • The only rise in household spending, year-on-year, was on clothing & footwear, which increased by 0.9%.
  • According to the latest figures, income fell by 1.5%, with disposable income falling by 1.8%.

The Japanese Yen moved from ¥113.211 to ¥113.243, against the U.S Dollar, upon release of the figures, before falling to ¥113.31 at the time of writing, down 0.11% for the session, with direction through the rest of the day likely to be driven by market risk sentiment ahead of today’s U.S midterms.

For the Aussie Dollar, the RBA held rates unchanged at 1.5% this morning, which was in line with market expectations. Salient points from the RBA rate statement included:

  • The Australian economy is doing well, the GDP increasing by 3.4%, with unemployment at a 6-year low.
  • Economic growth forecasts for 2018 and 2019 have been revised upwards to average around 3.5% over the 2-years, before slowing in 2020.
  • Business conditions are positive and non-mining business investment is expected to rise.
  • Household consumption remains an uncertainty, with household income growth subdued, debt levels on the higher side and some asset prices in decline.
  • Trade terms have increased and stronger than previously expected, boosting national income.
  • Outlook for labour market remains positive and the unemployment rate is expected to fall to around 4.75% in 2020, which should support wage growth over time, albeit gradual.
  • Inflation remains low and stable and in line with Bank forecasts, influenced by changes in government policies and is expected to pick up over the next couple of years.
  • Housing sector conditions have continued to ease and rent inflation remains low, while growth in owner-occupiers remains robust, in spite of some easing.

The Aussie Dollar moved from $0.72102 to $0.72154 upon release of the statement, the hold on rates expected, while an optimistic on economic growth prospects provided support.

Elsewhere, the Kiwi Dollar continued to struggle, down 0.15% to $0.6647 at the time of writing, with uncertainty over a near-term resolution to the U.S China trade war weighing ahead of this week’s RBNZ monetary policy decision on Thursday, where the lack of a resolution to the trade war will likely be reason enough to remain in its current holding pattern.

The Day Ahead:

For the EUR, economic data scheduled for release is on the heavier side, with key stats through the day including finalized October service sector PMI numbers out of France, Germany and the Eurozone that are released with PMI numbers out of Spain and Italy and, of greater significance, September factory orders out of Germany.

With the U.S mid-term elections taking centre stage, the Italian coalition government continues to stand strong against the European Commission on the rejected budget proposal. Italy has until 13th November to deliver a revised budget and, with Italy’s debt already downgraded by Moody’s, rising borrowing costs, ballooning debt, a high unemployment rate and a slowing economy spells trouble, not just for Italy but for the Eurozone and the EUR.

At the time of writing, the EUR was down 0.01% to $1.1387, Germany’s factory orders, forecasted to be EUR negative, and geo-political risk the key drivers through the day.

For the Pound, economic data was limited to October’s BRC Retail Sales Monitor figures that were released in the early part of the Asian session.

The BRC retail sales monitor rose by 1.3% in October, coming in well ahead of a forecasted 0.6%, while also reversing September’s 0.2% decline.

While the numbers were on the positive side, providing support to the Pound, Brexit continues to be the key driver, the recent upward momentum coming off the back of hopes of a deal at the final hour. With the Irish Prime Minister looking to lay down the law on the Irish border issue and with Theresa May scheduled to update her cabinet on where things stand later today, it may not be all plane sailing for the Pound.

The Pound moved from $1.30564 to $1.30602 upon release of the figures, before easing to $1.3049 at the time of writing, up 0.05% for the session.

Across the Pond, with economic data limited to September’s JOLTs job openings, we can expect the Dollar to be in the hands of the mid-term elections, with weakness coming in anticipation of the Democrats taking over the House of Representatives, which would bring to an end the U.S President’s free reign on policy and the Obama reversal plan.

At the time of writing, the Dollar Spot Index was up 0.12% to 96.399, with the mid-terms and noise from the Oval Office the key drivers through the day.

For the Loonie, material stats are limited to September building permit figures that are unlikely to have a material impact on the Loonie that has failed to make up ground against the U.S Dollar in spite of some hawkish policy talk from BoC Governor Poloz and a U.S Dollar pullback going into today’s mid-terms.

The Loonie was down 0.03% to C$1.3114 against the U.S Dollar at the time of writing, with crude oil prices to provide direction through the day, the slide in China’s private sector PMIs in October having added further downward pressure on the demand outlook at the start of the week.