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ECB’s Asset Reduction of €40B Starting This October


On October 26, the European Central Bank is scheduled to reduce their monthly asset purchases to 40 billion euros from 60 billion euros as reported from the poll of Reuters. The results were divided on whether it will last for six or nine months following the program.


The E.U. is undergoing the “best” momentum in growth for a decade yet, the inflation is kept at 1.5 percent and it is still lower than the target of ECB at almost 2 percent. The anticipated figure is hoped to be maintained until at least 2019.


The central bank is put under pressure by some members of the ECB’s Governing Council to send some signal with the intention to take it easy and put an end to their quantitative easing program since the general economic situation in the eurozone has already improved.


Moreover, a more impactful action of the ECB is putting a limit on the amount of debt which is about to be attained by the central bank despite more than two years of purchases worth greater than 2 trillion euros consisting mainly of government bonds. The set limit on the allowed debt is permitted in some countries. This implies that the central bank would not augment the guideline and does not have much of a choice but to trim its purchases and strive to oversee the objective as much as possible.


The chief economist of ING described the October meeting to be one of the “greatest balancing act” since. The ECB needs to cut its bond purchases as a solution to the shortage problem but at the same time, they have to maintain a loose inflation target. Moreover, he said that they have to make an effort in publishing the report and to prevent from the misconception of being overly hawkish which makes easing a problem in this stance.


A survey in a much larger stand including more than 100 economists last October 11 to 17 has indicated growth in comparison to the former polls. Although, it has been forecasted that the eurozone growth will be sluggish next year and keep the inflation forecasts the same or lowered.

A total of 45 economists mentioned as an additional question on its most recent poll saying that the ECB will push through the reduction program in the October meeting. The target amount of reduction for January is assumed to be at a bigger value ranging from 5 billion euros to 40 billion. The median was lessened up to 20 billion euros.

Forecasts


The predicted growth for the eurozone economy is 0.5 percent in the previous quarter similar to the present whilst there was 0.6 percent in the second quarter. Overall, the Average whole year growth was predicted to be at 2.2 percent for this year from 2.1 percent forecast in September.

On the other hand. the predicted inflation rate was an average of 1.5 percent for the year and 1.4 percent the year after which has been kept the same from the survey in the previous month.


As for the forecasts for big countries, they were all revised higher according to the most recent survey. The biggest economy in Europe, Germany, is anticipated to grow 2.1 percent this year and 1.9 percent the following year. This was revised up compared to the July poll estimates of 1.8 percent in 2017 and 1.7 percent and 2018. Moving to France, the prediction was also revised from the previous one with an average forecast of 1.7 percent until 2018. Nevertheless, this is still on the track of Macron’s government projections.

 

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Unemployment Rate in France Drop in September


The total unemployment figures of France reduce in September based on the records from the Labour Ministry issued on Tuesday. This encourages French President Emmanuel Macron to execute further efforts to improve the job market.

The number of unemployed individuals in the mainland France was lowered down by 64,800 last month, this is the largest decrease since 1996.

The 1.8 percent drop after a month and 0.5 percent within a year resulted in a total of 3,475,600 jobless people which is the lowest level from the month of April.

The improvement was achieved due to reform efforts by Macron’s leadership that created more jobs and increased growth.


President Macron is considering the reduction of unemployment in the country down to 10 percent for years, overhauling the rules of labor industry last month. This could be followed by some changes in unemployment benefits and professional training subsequently.

The business confidence of France also perked up since Macron’s victory in May elections. The French politician pro-business reform agenda tend to shift company’s activities upwards in order to manage robust demand, according to a survey published on Tuesday morning.

Moreover, the emergence of new businesses led companies to hire additional workers in October which could regulate rising backlogs, hence, this is the fastest pace recorded in a decade based on the monthly purchasing managers survey.


On the other hand, industrial firms reported that their efficiency is moving towards the highest levels prior the outset of 2008-2009 global financial crisis indicated in a quarterly survey by the INSEE statistics agency on Tuesday. The expanding number of companies seems struggling to keep up with the demand. There are 32 percent of managers who admitted facing some congestion in the production system. This could be a positive indicator for the job markets considering that companies are forced to take more laborers in order to cope the demands of the client, therefore, reducing the unemployment rate.

 

Possible Deflation Period of Japan to End Before the Tax Rate Hike in 2019


The government could conclude that the economy has been a steady growth to end the deflation period prior to a tax rate hike in October 2019, according to the government authorities.

This report would support Prime Minister Shinzo Abe, who just won the ruling Liberal Democratic Party in Sunday’s election. At the same time, this is in-line of the “Abenomics” stimulus policies implying that it is executed accordingly.


The government is yet to determine when it can be declared that the deflation has officially ended. Hence, the announcement of the government in ending the deflation was put aside, considering the feeble state of the economy and its recovery with the risk of price depreciating again. This can be publicized when the consumer inflation rises to levels around 1 to 15 percent while maintaining the gross domestic product (GDP) deflator, which is another measure of prices, more than 1 percent at a steady pace, stated by one of the officials.


The Core consumer prices increase by 0.7 percent in August since 2016 considering the increase for eight consecutive months. At the same time, this shows positive signs of growth in the economy.


The GDP deflator declined by 0.4 percent for three months until June in the same period from last year and an overall decline for four succeeding quarters.


Japan has been in a difficult pace for 15 years in the process of deflation since the bubble burst in inflation of assets in the late 1990s. It has been Abe’s top priority since he seated as the prime minister since 2012.


Abe mandated to halt the deflation and the governor of Japan’s central bank, Haruhiko Kuroda vowed to attain the 2 percent inflation target of the central bank through aggressive easing of monetary policies.


On the other hand, ending the deflation would stimulate the private consumption by boosting the public sentiment. Also, this would give grounds to proceed with the planned sales tax hike from 8 percent to 10 percent in the next two years as mentioned by the government officials.


Another official has supported this statement saying that it would be favorable to continue with the hike. However, these statements would not induce the Bank of Japan to reverse its huge monetary program because inflation would still be insufficient to reach the two percent target which they also noted.

 

Economic Calendar


Know what will happen next in the financial markets with ForexMart's Forex Economic Calendar.


ForexMart's Forex Economic Calendar is a real-time, customizable, and multifunctional, forex tool that allows traders to be updated with the latest and most relevant market events. All information that could be potentially impact your trading will be listed and analyzed here.


A trader that knows more, profits more. Use ForexMart's Forex Economic Calendar and become a better trader today.

 

The current Money Fall contest has already started on October 30, 2017 and will end on November 3, 2017.


You can register for the next competition which will take place from November 6, 2017 to November 10, 2017 (Terminal time)


Note:
Registration for the next competition finishes 1 hour before the contest starts.

 

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Lebanese Pound Stabilized After PM’s Resignation


The central bank of Lebanon has assured that the Lebanese pound has been steadfast, according to the state-run National News Agency even after the unexpected resignation of the country’s prime minister Saad al-Hariri


The central bank along with the financial sector has executed financial operations in the assessment of Governor Riad Salameh. The Lebanese currency is set at an approximated value of 1,500 against the dollar.

 

PRC Besets with Bubble Risk Due to Excessive Reserves


The People's republic of China is confronted with bubble risk which was mainly due to higher money supply, as mentioned on Thursday by the deputy chairman of the economic and finance committee of the National People’s Congress.


Huang being the appointed deputy chairman is also considered as the top financial expert where he noted the necessity to change the reserve system of the country’s foreign exchange. At the same time, the central bank needs to be independent in implementing the monetary policy.

 

Increasing Japan Exports in October due to High Export Demand


The exports from Japan are anticipated to increase for eleven consecutive months in October which would be supported by a strong demand from cars and electronic manufacturing machinery since they are the third biggest economy which is in the path to recovery according to the survey from Reuters on Friday.

The gross domestic product of the Asian country improved for seven uninterrupted months until the third quarter because of high exports demand such as cars and electronic parts within Asia and to the United States. Economists forecast that the economy will improve at a moderate pace as exports maintain the solid trend. Although, Japan is facing problems as they aspire to raise low consumer spending and inflation.

Exports are predicted to increase by 15.8 percent in October compared last year based on the survey of 20 economists because of overseas demand for cars and increase in semiconductor manufacturing tools.

Imports increased 20.2 percent in October than last year. This has been the quickest pace since January 2014 with more expensive oil prices which also increased the imports costs according to the survey.

The trade balance would possibly be at 330.0 billion yen or $2.93 billion in October. A decline was seen from the 667.7 billion yen in September. Exports are forecasted to continuously increase since the external factors are kept unchanged in the fourth quarter as mentioned by the chief market economist at SMBC Nikko Securities.

The finance ministry will publish the trade data at 8:50 a.m. Tokyo time on Monday (23.50 GMT Sunday). The latest economic data saying that Japan could get free from deflation which they were faced with for years according to the analysis from the government which was submitted to the advisory panel on Thursday.

The government of Japan is anticipated to publicized their economic schemes by end of the year with a goal to have a higher investment in skills training and more productivity.

 

VAT Returns of Small Firms Incorporates to UK GDP Calculation


The Office for National Statistics evaluates the British economy by overhauling its way which includes huge VAT amounts from smaller companies for the first time. In the previous survey, the gross domestic product of the country was mainly based on the turnover of 45,000 largest firms. Since December, the data from the third of Britain’s 1.8m VAT returns will also be included in the turnover for the calculation of official GDP results.

With this, assessing UK economic growth will have dramatic changes for this could provide further insights from particular areas and industries. A higher proportion of VAT returns involves small businesses with a total of 98pc of UK companies.


In the past estimates of GDP, pubs and restaurants sectors, particularly "food and beverage service activities" have high levels according to the 172 monthly poll and 28,000 tax returns.

According to the ONS, a much more detailed data will provide a comprehensive output of pubs, restaurants and takeaways and restaurants among various regions. The first new estimate encompasses VAT returns coming from small and medium businesses including 100 or fewer headcounts. While survey for large companies will remain to be part of the data gathering and ONS’s report. As there is only 20 percent of smaller firms in the UK economy, which means that the data accumulated by the national statistical institute will be more accurate but the overall GDP result could possibly be not altered despite its inclusion because major firms have a greater impact.


Based on the perspective of PwC’s Economist John Hawksworth, it would be better if the Statistics authority will release GDP forecast “ with and without (the) use of the new VAT data" respectively, in order for the public to understand the difference. On the other hand, ONS chief economist Nick Vaughan announced that including additional information will be a gradual process.

 

Record Low Drop of Aussie After RBA November Meeting


It is still unknown when will the Reserve Bank of Australia be able to return to sufficient wages which would lift weakened inflation. At the same time, commentaries from the board push the dollar to its lowest level in five months.

During the minutes of the Reserve Bank's Melbourne Cup day, it can be concluded that they are heedful that low unemployment rate could not be directly associated with the globalization and technology and put upward pressure on inflation.

The cash rate positioned at a historic low of 1.5 percent following the November meeting when board member expressed their uncertainty on wage growth. When the unemployment rate drops, the salaries are expected to have an incremental increase. This could have a cooldown effect on the diminishing surge of the mining sector. Although the board members expressed that uncertainty with the possibility of a wage pressure and the size of its effect on the inflationary pressure.

At the same time, tension coming from strong competition and a quicker rate in productivity pickup could hamper the push through of tighter labor market conditions to inflationary pressure.

Following the release of the meeting, the Aussie dollar dropped to 75.33 US cents from 75.58 US cents which have been the lowest level since June.

As mentioned, the board members see the competitive pressures effect on the outlook for inflation is predicted to decrease down to 2.25 percent but this is still within the target range of the central bank until the middle of 2019.

In effect, it seems that the food retailers and other enterprise adjusted their business models to able to cope with cost problems. It is anticipated that the pressure on retail margins and costs will remain for a while.

On the other hand, the board member also took notice that the wages growth weakened even though the supply in the labor market is declining. Hence, there is a chance that the current wage growth would not have a direct effect on the demand for labor and be less receptive to the changes in demands for labor.

The chief economist of Royal Bank of Canada Su-Lin Ong presumed that the wages growth will reach the lowest rate in 2017.

Considering the global trend, it cannot be clearly deduced whether the pace of wage growth could be maintained.

Ong mentioned that the RBA could hold the rates at a steady pace in 2018 and proceed with increasing their prices the year after and end with two percent cash rate. She noted other factors such as weak domestic demand and variability in housing that is still far from reaching its goals amid an excessive labor market would have a minimal effect to raise the cash rate from 1.5 percent in early 2019.

 

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Italian Economy Gradually Improves, says Dombrovskis


The economic situation in Italy is gradually improving, however, it is also important to cut down public debt, according to European Commission Vice-President Valdis Dombrovskis.


Dombrovskis is expecting that the economy will grow in 2018, otherwise, it will remain below the EU average. He mentioned that debt "remains a source of vulnerability" that holdbacks the GDP of the country by 3.8% for debt servicing.


The former Latvian prime minister stated that the Italian debt has a significant cost for the country as the current environment we are living has low-interest rates, however, changes in monetary policy upon an increase in inflation will heighten the costs which could further trigger instability. He also talks about the "structural problem" including stagnant growth and insufficient production which are the considerations with regards the reforms.


Moreover, the vice president added that there are some developments among the banks in Italy while the level of impaired credits suddenly declined this year. Due to the interposition of Banca Monte dei Paschi di Siena (MPS) and Veneto banks, there are more or less 44 billion euros to 13.5% of the overall stock of NPLs is withdrawing from Italy’s banking system.

 

Economic Calendar


Know what will happen next in the financial markets with ForexMart's Forex Economic Calendar.


ForexMart's Forex Economic Calendar is a real-time, customizable, and multifunctional, forex tool that allows traders to be updated with the latest and most relevant market events. All information that could be potentially impact your trading will be listed and analyzed here.


A trader that knows more, profits more. Use ForexMart's Forex Economic Calendar and become a better trader today.

 

Post-Brexit Economy Plan of UK to be Launch


The plan of the government in expanding the British industry prior the EU exit is scheduled to be launched later. According to official forecasts, the purpose of the industrial strategy is to revised growth which has the tendency to slow down because of UK’s low economic performance. As mentioned by Greg Clark, Secretary of State for Business, Energy and Industrial Strategy, Brexit indicates that the strategy could be considered as "even more important".


Moreover, an agreement with the MSD (Merck Sharp & Dohme) to start a UK research centre is included in the strategy. The investment cost more than £1bn with an expectation to generate 950 jobs. Based on the government’s announcement, there was a significant vote of confidence within the strategy in boosting the UK economic performance after the EU exit.


The launch of the strategy followed some days after the Office for Budget Responsibility (OBR) reported about the productivity outlook and the aggressive reduction of growth in Britain. While political allies and corporate groups believe that the solution is to acquire improved productivity and higher compensation is regarded as greater investments.

 

Good US Economy to be Passed to Powell


Jerome Powell is officially getting closer to becoming the next Fed Reserve Chairman. The Fed Governor said that he is not worried about another financial crisis in the banking system. Powell was asked during the Senate hearing on Tuesday if banks remain too big to fail, and he answered “No”. He noted that regulators were able to conduct positive negotiations and there could be nobody to have an idea about the previous situation in case that a run on occurred on one of these giant financial institutions.


The incoming Fed head described that regulators were left with “no practical choice” and decided to let these huge banks to fail since the entire financial system resulted in a breakdown. In 2008, the Fed together with Treasury Department organized programs that could bring liquidity to American banks during the crunch which includes Bank of America (BAC), Citigroup and JPMorgan (JPM). Moreover, some were unable to survive like Lehman Brothers while Bear Stearns was bought by JPM at an extremely discounted price.


At the same time, the US economy is seated in a better position compared during the Great Recession. The next Fed chair stated that the country may expand nearly at 2.5% in 2018 as reported this year. The 2 percent growth is regarded below the average level according to the majority of forecasters. Goldman Sachs also has the same prediction of 2.5% growth in the economic growth of the United States, and for the world economic outlook is expected at 4% increase.


When talking about the US labor market, J.Powell expressed that the decline in the labor force participation rate among prime-age men indicates a dull employment despite the 4.1% jobless rate, as the reduced wage growth shows slack labor market. Just like Yellen, Powell stated his fears regarding low inflation rates, stressing the importance of reaching the 2% annual target.

 

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U.K. Economy Forecasted to have a Moderate growth, CBI says


The tepid growth of the U.K. economy will remain for some time. This could weaken in the next years to come, as stated by the Confederation of British Industry.


The CCI current forecast says the development by 1.5 percent next year and 1.3 percent in 2019. This would be the worst annual operation since 2009 when the economy declined.


Yet, there is a drawback which will probably occur when the projections are high since they anticipate Brexit to proceed without a problem. The U.K. will most likely get to an agreement with the European Union regarding their transition deal early next year. This would take place when the Brexit leaves in March 2019.


The CBI also mentioned that the domestic demand will maintain its dovish stance in a definite time while there is economy support from net trade. This was based on the poll on Friday indicating that the U.K. manufacturing growth is strongest over four years time.