The week began with a broad greenback retreat, but with varying intensity, from weak to moderate. Industrial output and retail sales in China slowed less than expected, dampening risk aversion somewhat on fears of a slowdown in the Chinese economy.
Despite the weak dollar at the beginning of the week, there is potential for strengthening, especially in light of the Fed's as yet unclear reaction to the strong positive inflation shock in October. There is a risk that the Fed may respond by accelerating the pace of the QE rollback or bringing the rate hike closer. Among the reports for the United States, it is worth paying attention to October retail sales and industrial output.
The Fed's speech calendar this week includes Williams, Evans, Bostic, and Clarida. Investors are waiting for their reaction to the controversial inflation report, which may well lead to a rise in the US currency, as inflation becomes more difficult to deny.
The cost of living in the United States is snowballing, so consumer confidence shows an increasingly depressing trend. The consumer confidence index from W. Michigan fell to 66.8 points; data showed on Friday. However, the relationship between consumer sentiment and spending has been weak over the past few years, and the fall in the index primarily reflects concerns about inflation.
The report showed that only 36% of the surveyed households believe that income will grow faster than inflation over the next five years. This share has been steadily declining over the past few months. Most of them felt that now was not the time for high-value purchases such as homes, cars, and real estate.
The JOLTS report on the US labor market showed that the share of layoffs rose to 3.4% of the workforce in the private sector. In comparison, in the hospitality and entertainment sector, it was 6.4%, 4.4% in retail, and 3.6% in trade and the industry of passenger transportation. This is further evidence that companies have to fight for workers by raising wages.
At the same time, the NFIB, in its latest report, pointed to a record number of companies that are going to raise salaries in the coming months.
The number of job openings remains very high at 10.4 million, and based on the job growth we saw in October, it will take 20 months to fill these vacancies. Particular attention should be paid to labor "reserves" - if the level of labor force participation continues to recover as slowly as now, the pressure on wages will persist. Therefore, the risks of inflation will also remain high.
The third quarter of the Japanese economy was very disappointing, which leaves no chance that the Bank of Japan (BoJ) will switch to hawkish rhetoric. The GDP contracted by 3% in the third quarter, with a forecast of -0.8%, and investments in fixed assets also suffered a lot, declining by 3.8% (forecast -0.6%).
It is clear that firms are reluctant to increase production volumes, or they cannot do so due to shortages of components, supply chain disruptions, high prices for raw materials and labor, etc. USD/JPY reacted mildly positively to the data, as with such data it is increasingly difficult for the Bank of Japan to move to lower monetary stimulus level.