Robust Australian CPI
Inflationary pressures in Australia during Q3 were considerably higher than consensus expectations. The trimmed mean core reading came in at +2.4% y/y (cons. 2.2%) and the headline printed +2.0% y/y (cons. 1.6%). AUDUSD rallied 20 pips on the numbers, and got a second boost when a private sector flash PMI estimate for China registered a substantial improvement on the September reading. Our Australia economics team sticks to its view that another 25 bp cut from the RBA is likely in November, but they now acknowledge that it is a closer call. The rates market is currently pricing in 15 bp of easing for that meeting, down from 19.5bp before the CPI release. Earlier, Bank of England Governor King continued to sound dovish, noting that the MPC stands ready to “inject more money into the economy” should the recent positive growth signs fade. Today, a clutch of European PMIs is due, followed eventually by the FOMC’s latest policy decision. We do not expect any material changes to the policy statement and we are not alone – even the FX options market (which habitually overestimates the significance of such events) is pricing in very little chance of a market moving outcome. The subsequent meeting on Dec. 12 is likely to be a very different affair however, and our US economists anticipate the pace of Fed balance sheet expansion will accelerate at that point – but just not today. ECB President Draghi is scheduled to have a closed-door meeting with the German lawmakers specifically regarding the OMT, followed by a press conference. The BoC’s monetary policy report and BoC Governor Carney’s press conference will probably offer further insights into the decision not to drop the explicit tightening bias in Tuesday’s policy statement.
Click here to read the full report: UBS Morning Adviser Europe
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