This week is crucial for the Brexit negotiations since the EU ambassadors have set a deadline of October 11 for the two sides, US-China trade talks will resume on October 10 while Canadian employment report and US inflation will be most closely watched economic events.
USD
ISM manufacturing index for the September came in at 47.8 vs 50 as expected. This is a 10-year low reading, continuation of a downtrend and plunging deeper into contraction. Slowing global demand and trade war tensions have been labelled as main culprits for the disastrous reading. Employment subindex fell the most to 46.3 while new orders basically came unchanged with new export orders tumbling down to 41. ISM non-manufacturing index came in at 52.6 vs 55.0 as expected and down from 56.4 the previous month. The reading represents a new three-year low. Most visibly new orders category collapsed to 53.7 from 60.3 the previous month. Employment category came just above expansion level at 50.4, down from 53.1 the previous month for a five-year low. Poor ISM readings moved probability of an October rate cut to over 80% from 39% at the beginning of the week. Trade balance for August came in at -$54.9bn vs -$54.5bn as expected. Exports rose 0.2% m/m while imports rose 0.5% m/m. Deficit in trade with China was lowered by little more than $1bn which will make president happy ahead of all-important meeting on October 10. After abysmal ISM data rumours about possible interim deal intended to provide short-term economic relief to US economy are gaining more traction. However, interim deal could damage the chances of striking a “real” deal in the near future.
US treasury announced that it will impost new tariffs of 10% on EU aircraft and 25% on EU agricultural and industrial goods such as French wine and cheese, Spanish olive oil, Scotch whiskey and German knives, scissors and metalwork tools. These tariffs will take effect on October 18 and they have been imposed in retaliation to WTO Airbus aircraft subsidies case. There is a possibility for tariffs to be avoided if both sides can reach a deal, but so far there were no serious negotiations and both sides blame each other.
September NFP came in at 136k vs 145k as expected, up slightly from 130k the previous month but the number was revised up to 168k. The unemployment rate was the highlight of the report as it slipped down to 3.5% from 3.7% while the participation rate stayed the same at 63.2%. Additionally, the U6 underemployment level, which accounts for people who work part-time and seek a full-time job, has dropped to 6.9% from 7.2%. Wage data missed with average hourly earnings coming in flat vs 0.2% m/m as expected and 2.9% y/y vs 3.2% y/y as expected.
This week we will have minutes from the latest FOMC meeting and CPI inflation data.
Important news for USD:
Wednesday:
FOMC Minutes
Thursday:
CPI
EUR
The unemployment rate continues to shrink and it came in at 7.4% from 7.5% the previous month. Final manufacturing PMI for the September came in at 45.7 vs 45.6 preliminary with output and new orders subindexes falling further. Core CPI came in at 1% as expected showing that inflation still holds at the low levels. Final services PMI came in at 51.6 vs 53.5 the previous month which dragged down the composite to 50.1. Weakness from manufacturing sector is transferring to services sector. Retail sales in August came in at 0.3% m/m as expected, up from -0.5% m/m the previous month.
This week we will have manufacturing data from Germany.
Important news for EUR:
Monday:
Factory Orders (Germany)
Tuesday:
Industrial Production (Germany)
GBP
Q2 GDP came in at -0.2% q/q as expected with yearly number ticking up at 1.3% y/y vs 1.2% y/y as expected. Manufacturing PMI in September surprised to the upside by coming at 48.3 vs 47 as expected with “Stocks of purchases, input buying volumes rise as some UK manufacturers have restarted Brexit preparations”. Services PMI came in at 49.5 vs 50.3 as expected and brought down composite to 49.3, both readings back into contraction territory. Construction PMI continues to plunge coming in at 43.3 vs 45 the previous month. Data points to contraction of UK economy in Q3.
PM Johnson will have to ask for extension of Article 50 if a deal is not approved by October 19. His latest proposal that was dubbed “two borders, four years” because it would instate two borders, one on the side of Republic of Ireland and one on the side of Northern Ireland with time frame of four years received support from Brexit supporters and was not outright rejected by EU. However, EU remains unconvinced by the new plan which pushed the pound down after it shoot up on initial deal optimism. Finally, the EU has rejected the plan which dragged pound to new lows. PM Johnson seems to have a plan B which is based on time limit on the backstop.
This week we will have GDP, trade balance and production data.
Important news for GBP:
Thursday:
GDP
Trade Balance
Manufacturing Production
Industrial Production
Construction Output
AUD
RBA has once again cut the cash rate this year by 25 bp, this time down to 0.75%. They have stated that they will ease further if needed and that it is reasonable to expect extended periods of low rates., however they have added that “gentle turning point has been reached” thus leaving investors guessing. RBA governor Lowe stated that progress on employment and inflation goals is slower than liked and that rate cut should help in achieving those goals. Retail sales for August came in weaker than expected at 0.4% m/m vs 0.5% m/m as expected but much better than the previous reading of -0.1% m/m.
Official manufacturing PMI from China for September came in at 49.8 vs 49.5 the previous month. It is a small and welcomed bounce back but the reading still stays in the contraction territory, for the fifth consecutive month. Caixin manufacturing PMI showed a great jump to 51.4 vs 50.4 the previous month. New orders and output subindexes improved significantly while new export orders improved but stayed in the contraction territory indicating that demand for manufacturing products was driven by the domestic market.
This week we will have RBA report on financial stability and Caixin services PMI data from China.
Important news for AUD:
Tuesday:
Caixin Services PMI (China)
Friday:
RBA Financial Stability Review
NZD
ANZ business confidence continues to drop, now coming in at -53.5 vs -52 previously. There is also a drop in activity outlook to -1.8 which shows activity at its lowest levels since the crisis of 2008/09. Investment and profit expectations continue falling along with inflation expectations. Yet another data point weighing on kiwi increasing chances for additional rate cut by the end of the year. Talks about NZDUSD below 0.60 mark are also heating. GDT price index came in at 0.2% for some positive kiwi news.
This week we will have data on electronic card spending.
Important news for NZD:
Thursday:
Electric Card Retail Sales
CAD
GDP for July came in flat vs 0.1% m/m as expected and 1.3% y/y vs 1.4% y/y as expected. Wholesale trade was the biggest contributor to the GDP while oil and gas were the biggest drag with drop of -3.5% for a largest decline in more than 3 years. Trade balance deficit in August fell to -CAD0.96 bn vs -CAD1.2 bn as expected. Both exports and imports rose with former rising 1.8% m/m and latter 1% m/m indicating good conditions. Trade deficit with China was lowered by around CAD300 million.
This week we will have housing and employment data.
Important news for CAD:
Tuesday:
Building Permits
Housing Starts
Friday:
Employment Change
Unemployment Rate
JPY
Retail sales for August came in at 4.8% m/m vs 2.4% m/m and 2% y/y vs 0.7% y/y as expected thus smashing expectations. New sales tax, raising the rate to 10% from 8%, was introduced on October 1 so the increase most likely shows the purchases made to avoid additional taxes. Preliminary industrial production for August came in at -1.2% m/m vs -0.5% m/m as expected. Projections show that production will pick up in September. Jobless rate continues to impress and it fell to 2.2%.
Important news for JPY:
Tuesday:
Household Spending
Labour Cash Earnings
Thursday:
Core Machinery Orders
CHF
Retail sales in August reversed and came in at -1.4% y/y vs 1.4% y/y the previous month while CPI for September came in at -0.1% m/m vs 0.1% m/m as expected lowering inflation to meekly 0.1% y/y.
Important news for CHF:
Tuesday:
Unemployment Rate
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