Another week with three central bank meetings. Fed, BOE and RBA will all meet and all three meetings are considered to be live. Additionally, we will get NFP coupled with employment data from Canada and New Zealand.
USD
Advance reading of Q3 GDP came in at 2% vs 2.7% as expected. Personal consumption recorded the biggest drop and came in at 1.6%, down from 12% in Q2. However, expectations were for it to come at just 0.9% so it managed to beat them. The mainly culprit for the drop in personal consumption was slowdown in motor vehicle purchases. The biggest contributor to the reading were inventories which added 2.07pp. Investment and net trade were drags on the GDP as well as the auto sector which took 2.7pp from the GDP. Delta variant and supply chain disruptions led to the weak reading, but as Delta is subsiding we can expect a decent rebound in Q4. PCE, Fed’s preferred inflation measure, for October came in at 4.4% y/y, up from 4.2% y/y in September while core reading stayed at 3.6% y/y for the fourth consecutive month.
This week we will have ISM PMI data, Fed meeting and NFP on Friday. Fed should start to taper at a pace of $15bn/month, with $10bn in Treasuries and $5bn in Agency MBS and thus finish tapering in June of 2022. Headline NFP number is expected to come at 300k with the unemployment rate staying unchanged at 4.8%.
Important news for USD:
Monday:
ISM Manufacturing PMI
Wednesday:
ISM Non-Manufacturing PMI
Fed Interest Rate Decision
Friday:
Nonfarm Payrolls
Unemployment Change
EUR
German Ifo data for October showed business climate continuing to decline for the fourth consecutive month and coming in at 97.7, down from 98.8 in September. Outlook component dropped to 95.4 from 97.3 the previous month indicating that supply chain disruptions and rising energy and commodity prices will be here for a foreseeable future. Ifo economist Klaus Wohlrabe stated that German GDP is expected to grow by about 0.5% in Q4. Potential Q4 GDP is too close to 0 so concerns about stagnation or possible negative reading are mounting.
ECB has left rates unchanged at their October meeting as expected. APP program will continue at €20bn/month while net PEPP purchases are continuing at “moderately lower pace”. ECB President Lagarde stated that recovery after the start of pandemic is continuing, but at a moderate pace. On the inflation front, expectations are for it to continue to rise due to rising energy prices, demand being higher than supply and base effects, namely reintroduction of German VAT, but then to decline in 2022. Economy is expected to exceed pre-pandemic level by the end of the year. Inflation will be staying for bit longer than previously thought, but it is still characterized as transitory. Preliminary inflation for October showed headline number at 4.1% y/y, up from 3.4% y/y in September for a 13-year high reading. Core inflation rose above the 2% level (2.1% y/y vs 1.9% y/y the previous month). December meeting is gaining in importance for potential tapering of asset purchase program amidst rising prices.
GBP
New UK budget was presented and general government gross debt equalled 103.6 percent of national GDP. The pound was basically a non mover for the week with GBPUSD posting yet another doji weekly candle as markets are preparing for the BOE decision. Indecision among the investors is palpable with GBPJPY failing to reach new highs.
This week we will have BOE meeting. Markets are giving around 60% chance of a 15bp rate hike which would push interest rate to 0.25%.
Important news for GBP:
Thursday:
BOE Interest Rate Decision
AUD
Headline inflation for Q3 came in unchanged at 0.8% q/q as expected while yearly figure came a tad softer (3% y/y vs 3.1% y/y as expected and down from 3.8% y/y in Q2). On the other hand, core inflation reading came in at 0.7% q/q vs 0.5% q/q as expected and 2.1% y/y vs 1.8% y/y as expected. Not only did the core reading come above expectations, but it is no within the RBA inflation target range (2-3%). RBA should characterize this jump in core reading as “transitory” and stick to its mantra of inflation not sustainably being within 2-3% range until 2024. One quarterly readings is certainly not enough for any changes in the policy but if Q4 inflation stays within central bank’s range we could see a shift in the monetary policy.
This week we will have RBA meeting and trade balance data from China. This week RBA has left yield on 3-year bond rise above their 0.10% target, it went above 0.50%, so we may see abandoning of yield curve control.
Important news for AUD:
Tuesday:
RBA Interest Rate Decision
Sunday:
Trade Balance (China)
NZD
Trade balance deficit has posted a record high in September by coming in at -NZD2171m. Record high imports show both the impact of high prices and a strong demand for capital goods. RBNZ Governor Orr stated that monetary easing policies have run their course globally and has done as much as it can. He added that we are now entering new environment for rates and inflation.
This week we will have employment data.
Important news for NZD:
Tuesday:
Employment Change
Unemployment Rate
CAD
BOC gave markets what they expected and then added some! Expectations were for QE to be reduced from CAD2bn/week to CAD1bn/week but instead they have completely terminated QE program. Additionally, they now see output gap closing in “middle quarters” of 2022, while it was seen at H2 of 2022. This leaves room for earlier rate hikes with March and April meetings looking like the most likely contenders. Inflation for 2022 is now seen at 3.4%, a huge jump from 2.4% seen in July. Governor Macklem expressed his astonishment with how well the economy has rebounded since the start of the pandemic.
This week we will have employment data.
Important news for CAD:
Friday:
Employment Change
Unemployment Rate
JPY
BOJ meeting went on as was widely expected. There were no changes to the rate, yield curve control or monetary policy while growth and inflation projections were revised down. Core CPI is now seen flat for fiscal 2021/22, down from 0.6% in July. Projections for core CPI for fiscal 2022/23 and 2023/24 were unchanged at 0.9% and 1% respectively. GDP for 2021/22 was downgraded to 3.4% while for 2022/23 it was upgraded to 2.9% from 2.7% from July. BOJ Quarterly report shows that economy is in severe state but picking pace with consumption showing signs of improvement along with inflation expectations. Exports and output will slow down temporarily due to supply constraints while the signs of improvement are likely to spread from corporate to household sector. Inflation in October for the Tokyo area started moving toward the BOJ’s projected level coming in at 0.1% y/y vs 0.5% y/y as expected. Ex fresh food category, the core reading, was unchanged at 0.1% y/y.
CHF
Total sight deposits for the week ending in October 22 came in at CHF715.3bn vs CHF714.3bn the previous week. With EURCHF spending the majority of the week below the 1.07 level SNB felt compelled to act in the markets and buy EUR.
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