RBA and RBNZ meetings followed by potential NFP data, Canadian employment, ISM PMI and Swiss inflation will highlight the week ahead of us.
USD
Minneapolis Fed president Neel Kashkari published an essay in which he stated that there is a 60% chance of a soft landing with a 40% chance the Fed will have to continue hiking, possibly “significantly higher”. He expects that Fed will hold rates steady during 2024. USD has strengthened throughout the week and his words have provided a nice support for the dollar.
Durable goods for the month of August came in at 0.2% m/m vs -0.5% m/m as expected helped by downward revision to July reading. Core durable goods came in at 0.9% m/m vs 0.1% m/m as expected but there was also a revision down to July reading. Atlanta Fed GDP now remained unchanged at 4.9%. Final reading of Q3 GDP saw it come in unchanged at 2.1% annualised. However, the details are more concerning. Personal consumption was revised down to 0.8% from 1.8% thus making its contribution to 0.55pp from 1.14pp in second reading. With student loan repayments and government shutdown incoming this GDP component can fall further in Q4. Fixed investment was revised up and contributed 0.9pp while net exports were also revised up and contributed 0.04pp to the GDP reading.
PCE data for the month of August showed headline number ticking up to 3.5% y/y from 3.4% y/y in July. Core PCE has continued to decline coming in at 3.9% y/y, down from 4.3% y/y the previous month. Fed will be happy with the incoming data. Personal consumption and spending both came in at 0.4% m/m.
The yield on a 10y Treasury started the week and year at around 4.44%, rose to 4.65% and finished the week at around 4.52%. The yield on 2y Treasury reached the high of 5.15%. Spread between 2y and 10y Treasuries started the week at -68bp then tightened to -50bp as bear steepening of the curve continues. The 2y10y is has now been inverted for over a year. FedWatchTool sees the probability of a 25bp hike at November meeting at around 17% while probability of no change is at around 83%.
This week we will get ISM PMI data and should get NFP data on Friday. Headline number is expected to come at around 150k with the unemployment rate staying at 3.8%.
Important news for USD:
Monday:
ISM Manufacturing PMI
Wednesday:
ISM Services PMI
Friday:
NFP
Unemployment Rate
Average Hourly Earnings
EUR
German Ifo survey for the month of September showed decline in current assessment, basically no change in business climate and improvement in expectations category. Business climate is at five year lows hinting at standstill for the economy.
Member of the ECB’s Governing Council Villeroy stated that risks of doing too much and too little on rates are now balanced. He added that oil prices need to be monitored as they can influence rising inflation expectations. He reiterated the message that rates should stay at this level (4% currently) for sufficiently long period of time. Positive growth is expected in 2024-25 and inflation should go down to 2% target by 2025.
Preliminary Eurozone inflation reading for the month of September saw a bigger than expected decline for the headline number as it printed 4.3% y/y, down from 5.2% y/y in August. A very encouraging sign for the ECB can be seen in core inflation reading which dropped to 4.5% y/y from 5.3% y/y the previous month. Preliminary inflation data from Spain came in at 3.5% y/y as expected, jumping almost a full percentage point from 2.6% y/y the previous month. Core inflation has declined to 5.8% y/y from 6.1% y/y making it the lowest print in last fifteen months. German CPI dropped to 4.5% y/y from 6.1% y/y in July. Base effects were the biggest reason for a drop. French CPI was unchanged at 4.9% y/y while expectations were for it to rise to 5.1% y/y.
GBP
Final reading of Q2 GDP saw economy growing by 0.2% q/q and 0.6% y/y. Q1 GDP was revised up to 0.3% q/q and 0.5% y/y from 0.1% q/q and 0.2% y/y. Services sector showed no growth while production sector increased by 1.2%. Household consumption in Q2 was revised down to show 0.5% growth from 0.7% as preliminary reported. Business investment jumped 4.1% while government consumption rose by 2.5%. Business confidence for September has slid to 36 from 41 in August.
AUD
Australian monthly inflation data for the month of August came in at 5.2% y/y as expected and up from 4.9% y/y in July. Headline monthly figure rose almost 0.7% while core rose 0.3% indicating that fight against inflation is not over which may prompt RBA to deliver more rate hikes. Rising oil prices (9.1% m/m) were the biggest contributor to the inflation. Rent increases continue to be strong rising 0.7% m/m.
This week we will have RBA meeting. Rising price pressures are turning RBA toward more tightening but we think that they will wait for official Q3 inflation data before deciding to make a move. Q3 CPI comes out late in October so we do not expect any change to monetary policy at this meeting.
Important news for AUD:
Tuesday:
RBA Interest Rate Decision
NZD
September activity data published by ANZ showed continued improvement in business confidence to 1.5 from -3.7 in August. This is the first time that business confidence is in positive territory since May of 2021. Wage expectations continue to increase and are followed with increases in pricing intentions. Profit expectations are rising while inflation expectations are declining which is a great boon for the economy. On the negative side, export intentions and commercial construction are declining faster. Consumer confidence has also improved according to the ANZ survey.
This week we will have RBNZ meeting. No change in rate is expected but since we had some positive data we can expect a more hawkish message.
Important news for NZD:
Wednesday:
RBNZ Interest Rate Decision
CAD
July GDP reading came in flat after increase of 0.2% m/m in June. Advanced reading for August is seen at 0.1%. Lackluster growth prospects caused CAD to be a laggard this week and make smaller gains compared to its peers. CAD rebounded a bit on Friday but still growth prospects are weighing it down.
This week we will have employment data.
Important news for CAD:
Friday:
Employment Change
Unemployment Rate
JPY
BoJ Governor Ueda stated in his speech in Osaka that they will continue to patiently maintain easing policy. He stated that current stance has big stimulative effect on the economy but it can cause some unwanted side-effects. He emphasized uncertainty surrounding their base outlook and added that stable achievement of 2% inflation target is not yet in sight. Additionally, he clarified that they will not directly target forex in guiding monetary policy.
Tokyo CPI for September showed declines across the measures, but they remain elevated. Headline number came in at 2.8% y/y down from 2.9% y/y in August while ex fresh food category dropped to 2.5% y/y from 2.8% y/y the previous month. Ex fresh food, energy category, so-called core-core, slid to 3.8% y/y from 4% y/y in August. BoJ remains adamant that inflation will start falling from September/October period. The yield on a 10y JGB reached 0.77% which is the highest level in last ten years and BoJ will conduct unscheduled bond purchases starting next week.
CHF
SNB total sight deposits for the week ending September 22 came in at CHF475.1bn vs CHF473bn the previous week. Total sight deposits have been slowly rising for the entire month of September and with SNB leaving rates unchanged at 1.75% it seems that Swissy weakening is back on the table.
This week we will have inflation data.
Important news for CHF:
Tuesday:
CPI
