Daily Market Outlook by Kate Curtis from Trader's Way

katetrades

Master Trader
Feb 11, 2013
2,444
8
84
Dominica
www.tradersway.com
Forex Major Currencies Outlook (Sep 13 – Sep 17)

US inflation and consumption data coupled with Chinese production and consumption data will be the highlights of the week ahead of us.​

USD

Unemployment benefits have expired on September 6, affecting around 9 million people. This may have adverse impact on the spending. On the other hand, this should lead to rise in participation rate and NFP numbers for September as more and more people return into the work force. JOLTS job openings came in at astonishing 10.934 million, representing a seventh consecutive month of rising job openings, new record number and indicates increasing demand for workers. While jobs are aplenty there seems to be a growing need for the rise in wages in order for slots to be filled. It can then turn the wage-push inflation spiral where companies transfer high labor costs to consumers who in turn then demand still higher wages to stay afloat with rising prices. If this is to happen, then inflation will have a hard time dropping back to 2% as some Fed members suggest.

This week we will have inflation and consumption data.

Important news for USD:

Tuesday:
  • CPI
Thursday:
  • Retail Sales
EUR

ZEW survey in September saw German current situation improve from 29.3 to 31 while expectations plunged to 26.5 from 40.4 in August. Uncertainty regarding Q4 growth amid Delta concerns and ongoing supply chain disruptions is intensifying as the reading fell for the fourth consecutive month from the high of 84.4. European expectations showed similar drop to the German reading (31.1 from 42.7). Final Q2 GDP reading was improved to 2.2% q/q and 14.3% y/y from the second reading of 2% y/y and 13.6% y/y respectively.

ECB has left key interest rates unchanged as expected. Accompanying statement showed that “the Governing Council judges that favorable financing conditions can be maintained with a moderately lower pace of net asset purchases under the PEPP than in the previous two quarters.” ECB President Lagarde stated that price increases are largely temporary, due to rising energy costs, reintroduction of German VAT and overall low price levels in the past year because of the pandemic. She stated that economic activity should return at pre-pandemic level by the year-end and labour market showing rapid improvements. Decision on PEPP was unanimous and she characterized it as “re-calibrating”. Growth forecast was boosted to 5% from 4.6% for 2021 and slightly lowered to 4.6% from previously expected 4.7% for 2022. Inflation has been revised upward and is now seen at 2.2% for 2021 vs 1.9% previously. Inflation in 2022 is expected to be at 1.7% vs 1.5% as seen in June and 1.5% in 2023. With inflation expectations below targeted 2% it I reasonable to assume that monetary policy will remain accommodative for a long period. October meeting will be uneventful but more easing should occur at the December meeting.

GBP

BOE Governor Bailey stated that short-term leveling off is seen in the economy. Central view of bank members is that inflation will not be persistent and that it is unlikely that commodity prices will continue to rise. Expectations are for supply chain bottlenecks to resolve themselves. MPC members were split in August 4-4 on whether the minimum conditions were met. Bailey stated that according to him minimum conditions for a rate hike were met, but they are not sufficient to raise interest rates.

UK Prime Minister Boris Johnson introduced a tax rise – to pay for health and social care and thus break a pledge made before the elections by his Conservative Party. He stated that while raising taxes was not mentioned in the election campaign, there was also no mention of Covid and its devastating effect on the economy.

This week we will have employment and inflation data.

Important news for GBP:

Tuesday:
  • Claimant Count Change
  • Unemployment Rate
Wednesday:
  • CPI
AUD

RBA has left both the cash rate and targeted yield on 3-year bonds unchanged at 0.10% as widely expected. Bank members have decided to maintain tapering plans while extending bond purchases of AUD4bn/week until at least February of 2022. They have struck rather optimistic picture about the economy stating that setback is only temporary, virus will only delay the recovery and that economy will continue to grow in Q4 with expectations for return to pre-pandemic growth path somewhere in the H2 of 2022. Conditions necessary for a rate hike will not be met before 2024. It was a dovish leaning message from the RBA indicating that they will wait for health situation to resolve before taking further measures and expecting economy to rebound once restrictions are lifted.

Trade balance surplus from China continued to widen and for the month of August it came in at $58.3bn vs $56.58bn in July. Highlight of the report is imports rising 33.1% y/y from 28.1% y/y in July. Rising imports indicate healthy domestic demand that was not seen in recently reported retail sales from China. Inflation data for the same period saw CPI come in at 0.8% y/y vs 1% in July while PPI rose to a 13-year high with 9.5% y/y, up from 9% y/y the previous month. Economic theory suggests that rising producer prices will eventually be transferred to the consumer, however that transition is still missing in China. Inability to pass rising prices to consumers has led to fall in company profits.

This week we will have employment data from Australia as well as production and consumption data from China.

Important news for AUD:

Wednesday:
  • Retail Sales (China)
  • Industrial Production (China)
Thursday:
  • Employment Change
  • Unemployment Rate
NZD

GDT auction in the first full week of September came in at 4%. This is first decent jump in prices since the first auction in March. Additionally, after eighth consecutive auctions of falling prices we now get a second auction in a row with rising prices. Another positive input for the New Zealand economy. RBNZ is expected to hike rates at their first meeting after lockdown is removed.

This week we will have Q2 GDP data.

Important news for NZD:

Thursday:
  • GDP
CAD

BOC has left the overnight rate unchanged at 0.25% and let the purchase program continue at a pace of CAD2bn/week. Considering the surprising fall in Q2 GDP and the fact that elections are scheduled for September 20 the bank decided not to take any action but rather strike cautiously optimistic tone. They still expect economy to strengthen in the H2 of 2021 and close the output gap in H2 of 2022. With forward guidance being unchanged we expect BOC to continue with tapering of the purchase program to CAD1bn/week at their October meeting.

Employment report for August showed that the economy added 90.2k jobs vs 67.2k as expected. Majority of the jobs were full-time (68.5k). The highlight of the report was the unemployment rate. It dropped to 7.1% while expectations were for it to come at 7.3%. It was 7.5% in July. The caveat is a small drop in the participation rate to 65.1% from 65.2%. A good employment report that will not make BOC stray from the taper road.

This week we will have inflation data.

Important news for CAD:

Wednesday:
  • CPI
JPY

Average cash earnings in July rose 1% y/y vs 0.8% y/y as expected and with upward revision to June reading to 0.1% y/y this now marks a fifth consecutive month of rising wages. The rise in wages was not fully translated into consumption with household consumption rising 0.7% y/y vs 2.9% y/y as expected. Final Q2 GDP was revised up to 0.5 q/q and 1.9% y/y from 0.3% q/q and 1.3% y/y as preliminary reported. Private consumption, business investment as well as government spending contributed to the upward revision. State of emergency has been extended until September 30. It will last at least until the end of the quarter so we can expect a weak Q3 GDP reading.

CHF

SNB total sight deposits for the week ending September 3 came in at CHF714.9bn vs CHF715.2bn the previous week. The central bank is sitting idly on the side as markets are doing its work, pushing EURCHF toward the 1.09 level.
 

katetrades

Master Trader
Feb 11, 2013
2,444
8
84
Dominica
www.tradersway.com
Forex Major Currencies Outlook (Oct 4 – Oct 8)

RBA and RBNZ meetings as well as NFP on Friday headline the big week ahead of us.​

USD

Consumer confidence as measured by The Conference Board dropped to 109.3 in September from 115.2 in August. This is the lowest reading since February and shows a deterioration in both future expectations and present situations. Labor market assessment by consumers showed that jobs are more “hard to get” than in August. PCE headline number for August ticked up to 4.3% y/y from 4.2% y/y in July while core PCE stayed at 3.6% y/y for the third straight month. Personal spending has gone up while personal income declined when compared to the previous month.

US President Biden has signed a stopgap funding bill thus preventing a government shutdown. The bill secures government funding until December 3. The question of the debt ceiling still lingers as October 18 is the deadline. There are miniscule chances that it will not be raised since it would lead to the US defaulting on its debt, but markets are jittery.

This week we will have ISM Non-Manufacturing PMI and NFP. Headline NFP number is expected to come at 500k, more than double that of August. If the number is reached it will all but seal the November taper. The unemployment rate should tick down to 5.1% with wages also ticking down to 0.4% m/m.

Important news for USD:

Tuesday:
  • ISM Non-Manufacturing PMI
Friday:
  • Nonfarm Payrolls
  • Unemployment Rate
EUR

Preliminary CPI data for September for the Eurozone show headline number at 3.4% y/y vs 3.3% y/y as expected while core CPI came in at 1.9% y/y as expected. Both numbers came in higher than in August when they were at 3% y/y and 1.6% y/y respectively. Headline inflation is at a 13-year high spurred higher by raging energy prices (17.4% y/y). The trend of high inflation will persist in the coming months with the ongoing supply bottlenecks and no signs of slowdown in energy prices.

Germany has a new Chancellor after 15 years. Olaf Scholz from the SDP party will succeed Angela Merkel. Although SDP has received the most votes it will not be enough to form a new Government. The most probable coalition, named “Traffic light”, should include SDP (Red), FDP (Yellow) and Greens (Green). It will be a central-left government and the presence of business-friendly FDP should be enough for markets to remain calm. The second possible coalition is dubbed “Jamaica”, as it includes CDU/CSU (Black), FDP (Yellow) and Greens (Green) and is considered to be even more market friendly. Until the new Government is formed, Angela Merkel will remain the Chancellor and some analyst see her reign extending until Christmas with a small possibility of her staying at her present position upon entering 2022.

GBP

The pound has suffered a terrible week. GBPUSD pummelled down more than 300 pips, dropping below the 1.35 level, due to rising concerns regarding petrol shortages. Fuel is aplenty, but due to the Brexit related issues with lorry drivers, there is a shortage of drivers available to deliver petrol. The British army is prepared to step in and deliver it to the petrol stations. Meanwhile, lines are forming at the petrol stations with citizens filling their tanks as much as possible. Transport disruptions stemming from the inability to normally tank gases could have a negative impact on the economy. The furlough scheme ended on September 30, so there is a high dose of uncertainty regarding the future employment figures.

AUD

Chinese industrial profits in August rose 10.1% y/y vs 16.4% y/y in July. Rising input costs as well as company’s inability to pass the costs to consumers are putting downward pressures on profits. Evergrande saga continues with Fitch downgrading it to C from CC citing that the company most likely missed interest payment and entered a 30-day grace period. If the company does not settle interest payments within the grace period it will result in a default. Official PMI data for September showed manufacturing drop to 49.6 from 50.1 in August. This is the first time since February 2020 that the reading is in contraction territory - then caused by the pandemic outbreak. Services PMI, on the other hand, returned to expansion with 53.2 reading, thus pushing composite to 51.7. Caixin manufacturing PMI came in at 50 due to growth in new orders. New export orders decreased indicating slowing of global demand while employment index continued with contraction, this time at a faster pace.

This week we will have RBA meeting. No changes in rate are expected and monetary policy should remain on course for a reduction in bond purchases.

Important news for AUD:

Tuesday:
  • RBA Interest Rate Decision
NZD

It was a tough week for Kiwi as USD strength combined with quarter-end portfolio rebalancing pushed the pair down more than 150 pips. A sudden jump in daily covid cases also contributed to Kiwi weakness.

This week we will have RBNZ meeting. We should see and markets are expecting a 25bp rate hike, thus making RBNZ the first major central bank to raise rates. There is a possibility of a dovish hike with New Zealand recently having their biggest daily increase in covid cases.

Important news for NZD:

Wednesday:
  • RBNZ Interest Rate Decision
CAD

Rising energy prices have helped CAD fight off USD strength and the pair was down around 80 pips during the week. WTICrude has made a “double top” matching the highest price of the year that was reached at the beginning of July. Still, the charts point to a possible breakout toward new highs for oil in the coming weeks.

This week we will have employment data.

Important news for CAD:

Friday:
  • Employment Change
  • Unemployment Rate
JPY

Ongoing Prime Minister Suga stated that all prefectures will end the state of emergency on September 30. LDP leadership went into a runoff and ended with Fumio Kushida as the new leader and de facto the next Prime Minister. Kishida was Japan's longest serving minister of foreign affairs and is seen as Abe’s successor, so he should not deviate from the Abenomics. He announced a new fiscal stimulus worth around 10 trillion yen to be applied by the end of the year.

CHF

SNB total sight deposits for the week ending September 24 came in at CHF714.5bn vs CHF714.7bn the previous week. The bank is monitoring movements in the markets without interfering.
 

katetrades

Master Trader
Feb 11, 2013
2,444
8
84
Dominica
www.tradersway.com
Forex Major Currencies Outlook (Oct 11 – Oct 15)

US inflation and consumption data will be the highlights of the slow week, from the standpoint of economic news, ahead of us. US markets will be closed on Monday due to Columbus Day so liquidity will be lower than usual.​

USD

The employment report disappointed with the headline NFP number coming in at 194k vs 500k as expected. Previous month’s reading was revised up to 366k. The unemployment rate has dropped to 4.8% from 5.2% in August but participation rate ticked down to 61.6% which is particularly concerning as it shows that more and more people are leaving the work force. Wages showed a 0.6% m/m and 4.6% y/y rise giving some positives to the report. The report now opens the question how will Fed proceed further with the planned taper since the theory of people hurling back to work once the school begins did not materialize. Is the report good enough for them to continue with the planned taper, or will they delay it, prolonging it with smaller monthly amounts, $15 bn vs $20bn as expected? Looking at report's details we see a good deal of positives which leads us to think that taper will proceed as planned.

US Senators have voted 50-48 in favour of new debt bill intended to extend the debt limit until December. With Democrats having a majority in the House, the bill should go unobstructed to President Biden for signing. December is less than two months away, so we will see the similar charade play out in the second part of November.

This week we will have inflation and consumption data. Inflation is expected to remain stable at the elevated levels while retail sales should continue to grow, however at a slower pace.

Important news for USD:

Wednesday:
  • CPI
Friday:
  • Retail Sales
EUR

Final services PMI for September in the Eurozone were slightly upgraded to 56.4 from 56.2 as preliminary reported. Both German and French readings saw small improvements indicating that demand is slowing at a slower pace than anticipated. Supply shortages are hampering the growth of the economies around Europe. Composite PMI ticked up to 56.2 from 56.1 as preliminary reported. Retail sales in August came in at 0.3% m/m vs 0.8% m/m, thus rebounding less than expected from -2.6% m/m reading in July. August reading leaves concerns about consumption growth in Q3 and with the furlough scheme ending combined with rising energy prices, outlook for consumption in Q4 is less than rosy.

GBP

Chancellor of the Exchequer is expected to announce a new jobs initiative intended to replace the furlough program that ended last month. Pound managed to stop last week’s bleeding and GBPUSD profited more than 50 pips on the week. However, rising energy prices and unresolved Brexit issues could lead to a continuation of the downtrend for the pair.

This week we will have employment data as well as GDP data for the month of August.

Important news for GBP:

Tuesday:
  • Claimant Count Change
  • Unemployment Rate
Wednesday:
  • GDP
AUD

RBA meeting was a non-event. The rate was left at 0.10% with targeted yield on 3-year government bond also at 0.10%. QE program will continue at a rate of AUD4bn/week until at least mid-February of 2022. Bank members confirmed that conditions for a rate hike will not be met until 2024. They see virus induced setback to be only temporary and expect growth to pick up in Q4, with many firms seeking to hire workers ahead of the expected reopening in October and November. We should get a confirmation of that next week when the new employment report is published. Australia recorded its largest ever trade surplus of AUD15077m in the month of August. Exports of coal and LNG were the biggest contributors and with energy crisis looming it is likely that we will see a growth in value for these exports.

This week we will have employment data from Australia as well as trade and inflation data from China.

Important news for AUD:

Wednesday:
  • Trade Balance (China)
Thursday:
  • Employment Change
  • Unemployment Rate
  • CPI (China)
NZD

RBNZ delivered on its promise and raised the interest rate by 0.25% thus making it the first major central bank to do so. Bank members concluded that it is appropriate to reduce the level of monetary stimulus and that the stimulus will be removed further over time. They see inflation reaching 4% in the near-term but returning toward 2% in the mid-term. Bank’s future moves are contingent on the medium-term outlook for inflation and employment. RBNZ has put itself firmly on the path of a rate hike cycle as many analysts agree that we will see rate hikes at November and most likely February meeting. NZDUSD was propelled up after the announcement but was subsequently dragged down by the overwhelming USD strength. Still, based on the interest rate differential and central bank policies NZD should strengthen in the coming weeks.

CAD

September employment report showed employment reaching pre-pandemic levels. Employment change came in at 157k vs 60k as expected. Internal data paint even brighter picture of the report. The unemployment rate fell to 6.9% from 7.1% in August and it was achieved on the back of surging rise in the participation rate (65.5% from 65.1% in August). All of the jobs added were full-time (193.6k) with part-time jobs showing a decline of -36.5k. CAD was already on the strong foot with WTICrude approaching the $80 level and this report will only underpin that strength. BOC will stay on the course to raise interest rates during the next year.

JPY

Headline CPI for the Tokyo area in September came in at 0.3% y/y vs -0.4% y/y the previous month. Rising energy prices have managed to push inflation numbers back into positive territory for the first time after July of 2020, but when we exclude energy and fresh food inflation is still negative (-0.1% y/y) and it is at zero or below zero for the sixth consecutive month. BOJ’s target of 2% is still miles away. Labor cash earnings for August came in at 0.7% y/y vs 0.6% y/y in July while household consumption plunged -3% y/y for the same period.

CHF

SNB total sight deposits continued to decline and came in for the week ending October 1 at CHF714.2bn vs CHF714.5bn the previous week. Inflation data for September showed headline number at 0.9%y/y, same as in August, vs 1.1% y/y as expected and core at 0.5% y/y, up from 0.4% y/y in August. With headline inflation remaining unchanged SNB is not prompted to take any action. Seasonally adjusted unemployment rate for the month of August ticked down to 2.8% from 2.9% in July indicating tightening of the labor market conditions in Q3.
 

katetrades

Master Trader
Feb 11, 2013
2,444
8
84
Dominica
www.tradersway.com
Forex Major Currencies Outlook (Oct 18 – Oct 22)

GDP data from China, inflation data from the UK and Canada as well as preliminary PMI numbers from the EU and the UK will dominate headlines in the week ahead of us.​

USD

September CPI numbers came in line with expectations with headline number at 5.4% y/y and core number at 4% y/y. Rising energy and food prices were the biggest contributor to the headline number. Highlight of the report were real weekly wages which rose 0.8% vs 0.2% in August indicating that inflation is coming from the demand side as well. Fed wants to see rising wages. One concerning thing about the wage rise is that it can also be attributed to low-wage workers being out of the market due to the virus-related issues, think about the food services. So far, markets are acting as the numbers strengthen the case for a November taper.

Retail sales for September came in at 0.7% m/m vs -0.2% m/m as expected. The US consumer is going strong. Control group, used for GDP calculation, came in at 0.8% m/m, same as the ex-autos category while ex-autos, gas came in at 0.7% m/m. Positive inputs for Q3 GDP and strength should continue into Q4 and should keep Fed undeterred from November taper.

EUR

ZEW survey showed a break in the trend of German current situation. It has snapped a streak of seven consecutive months of improvements. The reading came in at 21.6, a big drop from 31.9 in September. Rising energy prices are negatively impacting investors spirits. Expectations survey continued to decline and came in at 22.3, down from 26.5 in September. German investors do not see supply chain disruptions improving in the short-term and survey displays their pessimism. German economic institute has lowered German 2021 GDP to 2.4% from 3.7% as previously expected. They have raised their projection for 2022 GDP to 4.8% from 3.9%.

This week we will get preliminary PMI readings for October. Small drops are expected but readings will stay at elevated levels as we begin getting data from Q4.

Important news for EUR:

Friday:
  • Markit Manufacturing PMI (EU, Germany, France)
  • Markit Services PMI (EU, Germany, France)
  • Markit Composite PMI (EU, Germany, France)
GBP

The employment report showed claimant counts in September continuing to drop coming in at -51.1k. The ILO unemployment rate for August also continued to decline and came in at 4.5% with wages surprising and coming in at 7.2% 3m/m vs 7% 3m/m as expected. The furlough scheme ended in September so these numbers are still influenced by it and we can expect to get a clearer picture of the UK labour market with the next report.

BOE Governor Bailey stated its concern about the rising inflation while MPC member Saunders stated that because of the raging inflation interest rates could be raised before the year-end. Markets are now pricing around 36% chance for a rate hike in November. For the December meeting markets imply a rate hike of 15bp and see further rate hikes incoming in 2022.

This week we will have inflation and consumption data as well as preliminary PMI readings for October. Inflation data from the UK will be closely scrutinized as a hint for the incoming 2022 rate hikes.

Important news for GBP:

Wednesday:
  • CPI
Friday:
  • Retail Sales
  • Markit Manufacturing PMI
  • Markit Services PMI
  • Markit Composite PMI
AUD

The employment report for September showed another month of declines impacted by the lockdown. Employment change came in at -138k. The unemployment rate ticked higher for the first time since October of 2020 and came at 4.6%. However, the biggest concern from the report is that participation dropped to 64.5%. It was at 65.2% in August and 66% in July. Dwindling participation helped the unemployment rate to stay below 5%. All of the jobs lost were part-time (-164.7k) while full-time jobs improved 26.7k. As lockdowns ease we will see better employment figures, but improving the participation will take much longer.

Trade balance data from China showed another surge in trade balance surplus. Trade surplus in September was at $66.73bn, up almost $10bn from August reading ($58.3bn). Exports continued to increase and came in at 28.1% y/y while imports plunged from 33.6% y/y in August to 17.6% y/y in September. Imports are still at elevated levels, however they show signs that domestic demand for foreign products is dwindling, which can have devastating effect on other exporting nations. September inflation data saw CPI at 0.7% y/y while PPI rose on the back of energy prices 10.7% y/y for the biggest rise in almost three decades. The transfer of costs from producers to consumers is still missing.

This week get Q3 GDP reading from China, expected at around 5.2% q/q, along with production and consumption data.

Important news for AUD:

Monday:
  • GDP (China)
  • Retail Sales (China)
  • Industrial Production (China)
NZD

Preliminary ANZ business confidence for the month of October cam in at -8.6, down from -7.2 in September. Inflation expectations were the main reason why the reading came weaker than a month ago as other details show a more encouraging picture. The report notes that most forward-looking activity indicators held up or improved with a decent jump in investment intentions. Capacity utilization, has a positive correlation with GDP, came in higher at 20% vs 17% in September.

CAD

Manufacturing sales in August came in at 0.5% m/m vs -1.2% m/m in July. An increase was led by sales of petroleum and coal, chemicals and primary metals On the other hand, significant declines were seen in wood products motor vehicles and motor vehicle parts. CAD was dominating the week with USDCAD dropping more than 150 pips while CADJPY jumped almost 300 pips and is now at levels not seen since December of 2015.

This week we will have inflation and consumption data

Important news for CAD:

Wednesday:
  • CPI
Friday:
  • Retail Sales
JPY

Core machinery orders, a proxy for CAPEX in six-months time, in August were weaker than expected, coming in at -2.4% m/m vs 1.4% m/m as expected. The weakness came from manufacturers' orders (-13.4% m/m after rising 6.7% m/m the previous month). Supply-chain issues, plaguing the entire world, most likely led to weak steel, vehicles, and production equipment orders. Predominating JPY weakness continues as USDJPY crossed the 1.14 level for the first time since November of 2018.

CHF

SNB total sight deposits for the week ending October 8 came in at CHF714.1bn vs CHF714.2bn the previous week. It is a miniscule drop indicating that SNB wss selling EUR and USD and was quite comfortable with EURCHF averaging 1.0734 during the week.
 

katetrades

Master Trader
Feb 11, 2013
2,444
8
84
Dominica
www.tradersway.com
Forex Major Currencies Outlook (Oct 25 – Oct 29)

ECB, BOC and BOJ meetings as well as preliminary Q3 GDP readings from the US and the EU will highlight a busy week ahead of us.​

USD

Housing starts and building permits declined in September as a combination of high house prices and lack of supplies and workers proved too much. Housing starts came in at 1.555m vs 1.620m as expected while building permits came in at 1.589m vs 1.68m as expected. In August, the numbers were hefty 1.58m for starts and 1.721m for permits. Existing home sales painted a brighter picture and came in at 6.28m vs 6.09m as expected and up from 5.88m in August.

This week we will have GDP and PCE data. Recent stream of data, industrial production is one, led to scaling back of expectations for Q3 GDP. Both headline and core PCE are expected to tick higher to 4.4% and 3.7% respectively.

Important news for USD:

Thursday:
  • GDP
Friday:
  • PCE
EUR

Preliminary PMI data for Eurozone in October saw declines across the board. Manufacturing slipped to 58.5 vs 58.6 in September. Manufacturing output index fell to a 17-month low for France and a 16-month low for Germany, showing the growing difficulties that firms face due to supply constraints. Indications are that they will continue at least until the end of the year, thus making inflation pressures here to stay. Services reading also slipped to 54.7 from 56.4 in September, due to big drop in German reading, while the French reading improved a bit. Composite was seen at 54.3, down from 56.2 the previous month. Although the numbers are still elevated, they are distorted by the high prices paid index. Details reveal that Q4 started on a weaker note and pronounced weakness will continue in the coming months.

Bundesbank president Jens Weidmann will resign from his post at the end of the year due to personal reasons. Weidmann was president of German Central Bank since 2011. He is a staunch hawk and he will try to persuade ECB to reduce their asset purchase program at the December meeting, his last at the current position.

This will be a huge week for EUR in the terms of economic data as we will have ECB meeting coupled with preliminary October CPI and Q3 GDP readings. No changes in rate or policy are expected at this meeting as we expect bank members to continue with their “transitory inflation” narrative and push EUR lower.

Important news for EUR:

Thursday;
  • ECB Interest Rate Decision
Friday:
  • CPI
  • GDP
GBP

Inflation has eased a bit in September with headline number coming in at 3.1% y/y, down from 3.2% y/y in August. Core inflation came in at 2.9% y/y, also down from 3.1% y/y the previous month. Additionally, expectations were for a bigger rise in price levels. This was a point for “team transitory”, however inflation is still at an elevated level and will not deter BOE from their course. ONS notes that biggest contributor to price rises was transportation while biggest drag were restaurants and hotels. “Eat Out to Help Out” scheme, was introduced in August of 2020, rolled out of the calculation, thus leading to lower price levels at September’s reading. Preliminary October PMIs show a rebound in economic activity as manufacturing broke the streak of four consecutive falling months and came in at 57.7 vs 57.1 in September. Services posted a bigger gain coming in at 58 vs 55.4 the previous month and helped propel composite to 56.8 from 54.9 in September. Manufacturing output fell to 8-month low indicating supply issues, however underlying data show that the economy has entered Q4 on a stronger foot.

BOE Governor Bailey stated: "Monetary policy cannot solve supply-side problems - but it will have to act and must do so if we see a risk, particularly to medium-term inflation and to medium-term inflation expectations." Although he is sticking to the “transitory” inflation, his statement is a strong indication of BOE’s readiness to hike rates in the near future. Markets are now seeing November meeting as a 60/40 call in favour of rate hikes. Additionally, they see total of 3 rate hikes by the end of 2022, one 15bp and two 25bp, for a total of 0.75% rate by the year-end.

AUD

China Q3 GDP was a miss, coming in at 0.2% q/q vs 0.5% q/q as expected and 4.9% y/y vs 5.2% y/y. Data from Q2 was much higher as well at 1.2% q/q and 7.9% y/y. A deadly combination of virus resurgence, followed by reimposed lockdowns, supply chain bottlenecks and tighter monetary policy had a detrimental effect on GDP. Industrial production in September came in at 3.1% y/y vs 5.3% y/y in August. This represents the seventh consecutive month of declines with steel production being the main culprit for the decline. On the other hand, retail sales surprised to the upside and came in at 4.4% y/y, thus breaking the trend of six consecutive declining months. Looking into details of the report we see that jewelry and gold spending were the biggest contributor. This is not a typical spending item for the majority of the population, therefore questions about the strength of domestic demand during covid outbreaks remain prevalent.

This week we will have Q3 inflation data from Australia where a slight moderation is expected as well as official PMI data for October from China.

Important news for AUD:

Wednesday:
  • CPI
Sunday:
  • Manufacturing PMI (China)
  • Non-manufacturing PMI (China)
  • Composite PMI (China)
NZD

Q3 CPI data showed headline inflation coming in at 2.2% q/q vs 1.4% q/q as expected and 4.9% y/y vs 4.1% y/y. Q2 inflation was at 1.3% q/q and 3.3% y/y. StatsNZ comments that quarterly price rises were widespread with 10 of the 11 main groups in the CPI basket increasing. Main drivers for price increases were housing-related costs. Core CPI, RBNZ targets this number to be in range from 1% y/y 3%, came in at 2.7% y/y. With prices rising this fast and across all groups we can see RBNZ continuing their rate hike cycle which should keep NZD supported. Some analysts speculate that we could even see a full 50bp rate hike at the November meeting.

CAD

Inflation data in September showed the continuation of an uptrend. Headline number came in at 4.4% y/y, up from 4.1% y/y in August and higher than 4.3% y/y as expected. Median and trim core inflation measures also continued to rise, coming in at 2.8% y/y and 3.4% y/y respectively, while common core inflation measure came in unchanged at 1.8% y/y. Heating inflation numbers should push BOC to take a more hawkish stance at their incoming meeting.

This week we will have BOC meeting. There will be no changes to the rate, but QE will be lowered from CAD2bn/week to CAD1bn/week with expectations for it to be completely removed in December. Markets are pricing first rate hike to come in April of 2022 and total of three rate hikes in the 2022. BOC stated that their path is to raise interest rates in H2 of 2022 as they expect output gap to close by mid-2022.

Important news for CAD:

Wednesday:
  • BOC Interest Rate Decision
JPY

Higher energy prices have managed to push headline inflation in September to 0.2% y/y from -0.4% y/y in August, thus making it first time that inflation is positive since August of 2020 when it was at 0.2%. Ex fresh food category also returned into positive territory with 0.1% y/y, while ex fresh food, energy came in at -0.5% y/y. The readings are still miles away from BOJ’s target of 2%, but when we take into consideration inflation in other countries, Japan’s reading shows how deep disinflationary impulses are entrenched in the economy.

Preliminary October PMI data showed improvements across the readings. Manufacturing climbed to 53 from 51.5 while services breached the 50 level for the first time since January of 2020 by coming in at 50.7. State of emergencies were lifted around the country which pushed sentiment indicating optimism in the services sector. Composite reading also came in at 50.7. It was a tough week for the yen. Japan is a large energy importer and with energy prices rising constantly, it took its toll on the currency. USDJPY has risen to the new four-year highs. General elections will be held on Sunday October 31.

This week we will have a BOJ policy meeting. There will be no changes to rate or policy but cuts to growth and inflation forecasts are expected.

Important news for JPY:

Thursday:
  • BOJ Interest Rate Decision
CHF

SNB total sight deposits for the week ending in October 15 came in at CHF714.3bn vs CHF714.1bn the previous week. There is a small increase in the reading as EURCHF dropped below the 1.07 level during the previous week, but it quickly recovered and stayed above that level.