Can US Growth Decouple from the World?

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Market Drivers October 31, 2018
BOJ lowers inflation forecast
AU CPI misses
Nikkei 2.16% Dax 1.52%
Oil $67/bbl
Gold $1216/oz.
Bitcoin $6350

Europe and Asia:
AUD AU CPI 1.8% vs. 1.9%
EUR EU CPI 1.3% vs. 1.2%

North America:
USD ADP 8:15
CAD GDP 8:30

Another quiet and choppy night of trade in FX with USDJPY the only pair showing a discernable trend as it cleared the 113.00 figure and manage to hold above it through Asian and early European trade.

The move higher was aided by lower BOJ forecasts for inflation which the central bank reduced to 1.4% from 1.5% earlier. Inflation target of 2% still remains a distant challenge for BOJ and most economies in Asia showing a marked decline in growth it is unlikely that price levels will come anywhere near that goal.

The slowdown in Asia was evident throughout the region as China, Korea, Taiwan, and Japan all posted weaker than expected data with Chinese PMI Manufacturing barely staying above the 50 boom/bust level at 50.2. The Trade War tariffs are clearly taking their toll on economic activity and the situation is likely to deteriorate further unless Trump and Xi could come to some sort of a truce at their summit.

In the meantime, the market remains range bound awaiting some of a catalyst for the next macro move. For now US economy has remained above the fray, continuing to post strong growth even as the rest of the world slowed down dramatically. However, as many analysts have pointed out certain sectors in the US such as housing and tech are already starting to roll over. Still, the US economy does not appear to be in any imminent danger unless labor data starts to deteriorate.

To that end today’s ADP report due 12:15 GMT could be the canary in the coal mine if it shows any serious downside surprise. The markets are already anticipating a drop to 189K from 230K the month prior, but if the print is significantly worse at 150K or less, the overnight rally in USDJPY could unwind quickly, especially if the positive risk flows from equities turn negative once again,.

Boris Schlossberg
Managing Director

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