This week we will have a packed week with Q3 GDP data from China as well as consumption data from the US, the UK, Canada and China, on top of inflation data from the UK, Canada and New Zealand and employment data from the UK and Australia.
USD
FOMC minutes from the September meeting saw members express their opinion thusly: “Participants generally judged that, with the stance of monetary policy in restrictive territory, risks to the achievement of the Committee’s goals had become more two-sided.” Additionally, minutes show that all members agreed that policy should remain restrictive until they are confident that inflation is sustainably moving to their target. GDP for the Q4 should be restricted somewhat by strikes.
Fed Vice Chair Jefferson and President of Dallas Fed Logan stated the increases in long-end Treasury yields could potentially be doing tightening of monetary conditions that the Fed had been trying to achieve. These comments can be seen as dovish as they indicate that Fed will not need to hike as much as anticipated now that markets are actively assisting them in conducting monetary policy. San Francisco Fed President Mary Daly also stated that high yields have impact on future monetary policy decisions. She added that neutral rate may be higher than 2.5% as previously expected. Philly Fed President Harker stated that they are likely to be done with rate hikes.
Headline CPI for the month of September came in at 3.7% y/y, unchanged from August but a tick higher than expected at 3.6% y/y. Monthly increase was 0.4% vs 0.3% as expected. The report showed that energy component was the biggest contributor to the increase as oil prices rose significantly in September. Food continued to increase at 0.2% m/m pace. Used vehicles were the biggest drag on inflation falling 2.5% m/m followed by apparel which fell 0.1% m/m. Core rate came in at 0.3% m/m and 4.1% y/y as was expected. Shelter component came in hot at 0.6% m/m. Super core (services, ex-shelter and ex-energy) also continued to run hot and also rose by 0.6% m/m. USD was bid and Treasuries were sold as markets started pricing in a greater chance of a final rate hike in 2023.
The yield on a 10y Treasury started the week and year at around 4.64%, rose to 4.68% and finished the week at around 4.32%. The yield on 2y Treasury reached the high of 5.08%. Spread between 2y and 10y Treasuries started the week at -29bp then widened to -37bp as curve starts to flatten again. The 2y10y is has now been inverted for over a year. FedWatchTool sees the probability of a 25bp hike at November meeting at around 9% while probability of no change is at around 91%.
This week we will have consumption data.
Important news for USD:
Tuesday:
Retail Sales
EUR
ECB policymaker Kazaks, Governor of Central Bank of Latvia, stated that ECB is done with rapid rate hikes and added that any possible future rate hikes will be relatively small. ECB Vice President de Guindos stated that inflation is expected to continue falling in the coming months, but there is a risk of higher oil prices tempering with orderly decline and added that current level of rates should contribute to price stabilisation. French Central Bank President Villeroy stated that rates are on a good level and added that at this stage, further rate hikes are not the right thing to do. New projection for 12-month CPI by ECB has been raised to 3.5% from 3.4% as seen in July. Projection from 3-year was raised to 2.5% from 2.4% as was projected three months ago.
GBP
August GDP number came in at 0.2% m/m as expected and presented a nice rebound from -0.6% m/m seen in July. The services sector grew by 0.4% while both production and construction sectors contracted. BoE Chief Economist Pill stated that it is now a matter of fine balancing whether they need to raise rates higher adding that there is a lot of tightening from rate hikes yet to be felt in the markets. BoE Governor Bailey commented on how tight the previous voting was and that future votes on rate hikes will be tight as well. He added that rates are restrictive as it is needed for the current inflationary environment.
This week we will have employment, inflation and consumption data.
Important news for GBP:
Tuesday:
Claimant Count Change
Unemployment Rate
Wednesday:
CPI
Friday:
AUD
RBA Assistant Governor Kent reiterated that further tightening may be required adding that already done monetary policy tightening is bringing growth, demand and inflation down. Lags in the transmission of monetary policy are problematic. He added that pause gives them chance to assess effects of current tightening on the economy and that if they do decide to sell bonds they will do it in such a way as to not disturb the market.
September inflation data from China saw it increase 0.2% m/m vs 0.3% m/m as expected and thus stay flat for the year vs expected increase of 0.2% y/y. Food prices declined 3.2% and were the biggest drag on inflation. PPI continued to improve for the third straight month and printed -2.5% y/y vs -3% y/y the previous month. Trade balance data saw surplus widen to $77.7bn from $68.3bn in August with both exports and imports coming in at -6.2% y/y which represents improvement from falling by -8.8% y/y and -7.3% y/y the previous month respectively.
This week we will have employment data from Australia as well as Q3 GDP data, production and consumption data from China.
Important news for AUD:
Wednesday:
GDP (China)
Industrial Production (China)
Retail Sales (China)
Thursday:
Employment Change
Unemployment Rate
NZD
RBNZ Governor Orr reiterated bank’s stance that rates will need to stay at restrictive levels for foreseeable future. He stated that it is necessary to keep them there in order for bank to reach its inflation target of 1-3%. Electronic card retail sales, a good proxy to the official quarterly retail sales, fell in September 0.8% m/m. Yearly number is still positive with a 1.6% y/y print, but much weaker than 4.2% y/y print in August.
This week we will have Q3 inflation data.
Important news for NZD:
Monday:
CPI
CAD
Building permits rebounded in August and came in at 3.4% m/m vs 0.5% m/m as expected after a drop of 3.8% m/m in July. CAD has suffered from risk off mode in markets and gave up most of its gains against USD. BoC Governor Macklem stated that they do not expect recession and added that “Higher long-term bond yields are not a substitute for down what needs to be done to get inflation back down to target”. His message has differed from Fed’s and it was clearly hawkish giving CAD some new strength as markets start to price in bigger chance of further 25bp rate hike.
This week we will have inflation and consumption data.
Important news for CAD:
Tuesday:
CPI
Retail Sales
JPY
Japanese media reports that BoJ is considering moving its inflation outlook for the current fiscal year to 3% from 2.5% that was projected in July. The report states that main reason for such a move would be rising oil prices and weak JPY. There are also reports that government is considering fuel subsidies to help its citizens with escalating energy prices. Core machinery orders, a good proxy for Capex spending, continued to decline in August and missed expectations. The numbers came in at -0.5% m/m vs 0.4% m/m as expected and -7.7% y/y vs -7.3% y/y as expected.
CHF
SNB total sight deposits for the week ending October 6 came in at CHF479.9bn vs CHF476.3bn the previous week. Another week of rising sight deposits indicates that SNB is buying EUR and USD.
