Inflation data from the UK and Canada as well as preliminary PMI data from the Eurozone, the UK and Japan will highlight the week ahead of us.
USD
October CPI report showed headline number at 2.6% y/y as expected, up from 2.4% y/y in September. Core has remained at 3.3% y/y. Monthly figures show headline growing at 0.2% m/m (0.2441% unrounded vs 0.1799% in September) with core at 0.3% m/m (0.2800% unrounded vs 0.3124% the previous month). Headline reading rose due to increases in energy services. Among components of core CPI used cars and trucks jumped 2.7% m/m, although they are down 3.4% y/y. Shelter again rose 0.4% m/m and printed 4.9% y/y increase. Core services ex shelter rose by 0.3% m/m after rising 0.554% m/m in September. Increase in inflation added more fuel to broad USD strength after election and EURUSD fell to new lows for the week while USDCAD crossed the 1.40 level for the first time since 2020.
Powell spoke during the week and sounded much more hawkish than at FOMC press conference stating that after recent batch of data there is no rush on rate cuts. It has been officially confirmed that Republicans won the House thus gaining control of both parts of Congress. This will see them implement decisions more easily as gridlock is avoided.
October retail sales printed another month of growth coming in at 0.4% m/m vs 0.3% m/m as expected. Control group, excludes volatile items and is a better measure of consumption, came in at -0.1% m/m vs 0.3% m/m as expected indicating weakness is creeping in with consumer. One positive is that there was a huge positive revision to September control group reading as it now shows a growth of 1.2% m/m vs 0.7% m/m as previously reported and equally big revision to headline number which showed a print of 0.8% m/m vs 0.4% m/m as previously reported. Electronics and appliance stores showed the biggest growth with 2.3% m/m increase followed by auto & motor vehicle dealers. On the other hand, miscellaneous store retailers were the biggest drag on the reading by declining 1.6% m/m.
The yield on a 10y Treasury started the week at 4.31%, rose to 4.49% and finished the week at around 4.43%. The yield on 2y Treasury started the week at 4.29%, reached the high of 4.37%. Spread between 2y and 10y Treasuries started the week at 5bp and finished the week at 12bp as curve steepened further. The 2y10y was inverted for over two years. FedWatchTool sees the probability of a 25bp rate cut at December meeting at around 55%, while probability of a no cut is around 45%. Bitcoin has breached $93 000 in the aggressive move up after Trump won his second term.
EUR
ECB policymaker Holzmann, one of the biggest hawks, stated that current data does not warrant against rate cut in December but warned that rate cut is not certain as they will make accurate decisions after the latest batch of data in December. When a hawk indicates a cut markets pay close attention. ECB policymaker Nagel, head of the Bundesbank and well known hawk, stated that core inflation remains quite high and warned that there are still price pressures, particularly in the services sector. European Commission sees Eurozone growth at 0.8% in 2024, 1.3% in 2025 and 1.6% in 2026. They see inflation coming below ECB’s 2% target in 2026.
German Prime Minister Scholz stated his willingness to call parliament vote of no confidence before Christmas. He is almost certain to lose that vote which will lead to snap elections that are already planned around middle of February. German ZEW survey showed current condition in November plunge to -91.4 from – 86.9 the previous month. This is the lowest level since May of 2020, in the middle of pandemic. Combination of political uncertainty and potential Trump tariffs is spooking German investors.
This week we will have preliminary PMI readings expected to show slight improvements.
Important news for EUR:
Friday:
Manufacturing PMI (EU, Germany, France)
Services PMI (EU, Germany, France)
Composite PMI (EU, Germany, France)
GBP
October payrolls change saw a loss of 5k jobs which follows upwardly revised loss of 9k jobs in September. The unemployment rate for September jumped to 4.3% from 4% in August while markets were expecting a 4.1% print. Average weekly wages broke the downward trend and rose for the first time after March printing 4.3% 3m/y vs 3.9% 3m/y increase as expected. The data suggests that jump in wages was due to one-off payments to civil servants and it will go out of calculation in the coming months. Ex bonus component of wages, on the other hand, continued to decline and dropped to 4.3% 3m/y from 4.9% 3m/y in August while 4.7% 3m/y reading was expected. ONS notes that there are still issues with methodology used for calculating employment data, but a combination of higher unemployment and lower payrolls should push BoE in more dovish direction.
BoE Chief Economist Huw Pill stated that further rate cuts will likely follow a gradual process and clarified that question now is how far and how fast will they proceed. BoE member Catherine Mann, the most hawkish member of the BoE and the only voter for no change at last week’s meeting, stated that inflation has definitely not been vanquished as services inflation remains sticky. And energy inflation is more likely to go up than down. She added that when inflation risks are gone she will be prepared to vote for rate cuts.
Preliminary Q3 GDP reading saw economy grow at 0.1% q/q vs 0.2% q/q as expected. Increases came from services sector (0.1%) and construction sector (0.8%) while the production sector fell by 0.2% .Household consumption increased 0.5%, much stronger than 0.2% in Q2. Business investment grew by 1.2% vs 1.4% in the previous quarter. Government spending increased by 0.6%, smaller increase than 1.1% in Q2. Net trade deducted from the reading.
This week we will have inflation data expected to print higher and preliminary PMI readings expected to show slight improvements.
Important news for GBP:
Wednesday:
CPI
Friday:
Manufacturing PMI
Services PMI
Composite PMI
AUD
October employment report saw economy add 15.9k jobs, a decline after very strong 64.1k in September. The unemployment rate remained at 4.1% while participation rate ticked down to 67.1%. Composition of jobs saw 9.7k full-time jobs added with 6.2k part-time jobs added. The report was weaker than previous but it still shows job gains and tight labor market. RBA Governor Bullock stated that rates are restrictive enough and will stay that way until members are confident that inflation is coming down to their 2-3% target, thus reaffirming their hawkish stance.
Over the weekend we got October inflation data from China showing 0.3% y/y print, down from 0.4% y/y in September and as was expected with outright deflation on a monthly reading (-0.3%) . PPI showed a continued decline as it printed -2.9% y/y vs -2.5% y/y as expected. Consumer confidence is plunging and it translates into weaker demand which keeps downward pressure on prices. It is yet to be seen how much of an impact will stimulus have on demand.
Industrial production slid slightly in September after a small improvement in August as it printed a 5.3% y/y vs 5.4% y/y the previous month. On the other hand, much more encouraging is increase in retail sales. Retail sales printed 4.8% y/y after 3.2% y/y the previous month. This is second consecutive month of rising retail sales as well as eighth-month-high and although they are still subdued data shows that stimulus measures are improving sentiment among consumers. Additional hint that stimulus is giving effect can be seen from the signs of stabilization of housing prices.
NZD
RBNZ survey of inflation expectations now sees inflation in 2 years at 2.12% vs 2.03% in the previous survey. On the other hand, 1 year is seen at 2.05% after it was seen at 2.4% in the previous survey. Electronic retail card sales bounced back a little in October as they rose 0.6% m/m. Yearly figure is still down, but it showed smaller decline than in September (-1.1% vs -5.6%). Electronic card spending accounts for roughly 70% of total retail sales. This combination of lower inflation expectations and weak consumer will add to the certainty of RBNZ rate cut on November 27.
CAD
Building permits rebounded in September and rose by 11.7% after declining by 6.3% in August. Manufacturing sales dropped further in September printing -0.5% m/m after a -0.8% m/m decline the previous month while wholesale trade improved and rose by 0.8% m/m after falling -0.9% m/m in August. CAD was a victim of USD strength this week with it breaking the 1.40 level, but on the crosses it fared much better gaining against EUR and GBP.
This week we will have inflation data and inflation is expected to pick up.
Important news for CAD:
Tuesday:
CPI
JPY
BoJ published Summary of Opinions from their October meeting and it showed economy continuing to recover moderately while private consumption is stumbling. It is expected that wage growth that is already trending higher will help with consumption. Inflation pressures are expected to continue increasing gradually leading to achievement of bank’s 2% target. Yen depreciation is described as having significant impact on businesses and household sentiment and Yen appreciation is generally viewed in the positive light.
Q3 GDP printed 0.2% q/q as expected, down from 0.5% q/q in Q2. Annualized number came in at 0.9% vs 0.7% as expected. Typhoons and earthquake alert slowed down the economy. Looking into the details of report we can see private consumption printing 0.9%, same as in the previous quarter and much better than 0.2% as expected. Rising wages are the main culprit for the increase in consumption. There was a big drop in business investment as it printed -0.2% after a strong increase of 0.9% in the previous quarter. Additionally, net trade was a drag on the reading reducing GDP by 0.4pp due to imports being higher than exports (2.1% and 0.4% respectively).
CHF
SNB total sight deposits for the week ending November 8 came in at CHF463.5bn vs CHF456.6bn the previous week. Just a small move towards the higher end of the range, nothing out of the ordinary. SNB Vice Chairman Martin warned markets not to be so certain regarding a rate cut in December as bank members are not predetermined to delivering it, they have made “absolutely no commitment” to it. They will remain dependent on data and their assessment of the economic conditions.
