BoC meeting and preliminary PMI data from Eurozone, UK and Japan will dominate the news along with continuation of earnings season.
USD
Retail sales for September showed increase of 0.4% m/m vs 0.3% m/m as expected. Control group, which excludes volatile categories, jumped by 0.7% m/m vs 0.3% m/m as expected. Ex autos and ex gas and autos components also rose giving more shine to this report. The biggest increase was seen in miscellaneous store retailers which rose 4% m/m followed by clothing & clothing accessories stores 1.5% m/m. The biggest losses were seen in electronic stores -3.3% m/m and gasoline stations -1.6% m/m. It is yet another strong performance by the consumer which will keep GDP print elevated and will allow Fed to take slower path of rate cuts.
The yield on a 10y Treasury started the week at 4.10%, rose to 4.12% and finished the week at around 4.08%. The yield on 2y Treasury started the week at 3.93%, reached the high of 4.05%. Spread between 2y and 10y Treasuries started the week at 14bp and finished the week at 13bp as curve remained upward slopping. The 2y10y was inverted for over two years. FedWatchTool sees the probability of a 25bp rate cut at November meeting at around 91%, while probability of a no rate cut is around 9%. Markets are fully pricing in December rate cut.
EUR
Final September CPI reading showed headline number tick down to 1.7% y/y from 1.8% y/y as preliminary reported while core remained at 2.7% y/y. There was a slight drop in French reading 1.1% y/y vs 1.2% y/y preliminary while other readings remained unchanged with Germany at 1.6% y/y, Italian at 0.7% y/y and Spain at 1.5% y/y.
ECB has delivered a widely expected 25bp and stated “…its updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission” as main reasons for their action. Inflation is expected to increase in the coming months but then it will fall to the 2% target during 2025. Wages are still rising at an elevated pace but are also expected to gradually come down. ECB will continue their meeting-by-meeting and data dependent approach and it will be based on inflation outlook as well as financial and economic data.
ECB President Lagarde started the press conference by stating that economic activity was somewhat weaker than expected. She emphasized that disinflation process is well on track and clarified that expected increases in inflation are due to energy related base effects. Lagarde cautioned that balance of risks to growth is tilted to the downside. In the Q&A section Lagarde stated that this decision was an example of data dependence and clarified that only 25bp rate cut was on the table and that it was a unanimous decision. Growth was emphasized as the main concern and with the weak incoming PMI data and more weakness to come next week markets are fully pricing in another 25bp rate cut in December.
This week we will have preliminary October PMI data expected to show slight improvement.
Important news for EUR:
Thursday:
Manufacturing PMI (Eurozone, Germany, France)
Services PMI (Eurozone, Germany, France)
Composite PMI (Eurozone, Germany, France)
GBP
Payrolls fell again in September printing -15k after a -35k print the previous month. August ILO unemployment rate ticked down to 4% with employment change showing increase of 373k vs 250k as expected. Wage growth continued to decline for the fourth straight month printing 3.8% 3m/y for average weekly earnings and 4.9% 3m/y for ex bonus. The report is all over the place due to recent methodology changes in gathering data. BoE will welcome slowdown in wage growth.
September CPI print saw further declines in inflation as headline number printed 1.7% y/y vs 1.9% y/y as expected, down from 2.2% y/y in August. Inflation is finally below 2%, for the first time since April of 2021. Core CPI printed 3.2% y/y vs 3.4% y/y as expected and down from 3.6% y/y the previous month. Services inflation fell to 4.9% y/y while BoE projected it to be at 5.5% y/y. Faster than expected inflation drop increased chances of a 25bp November rate cut to the point that it is almost fully priced in.
This week we will have preliminary October PMI data that are expected to show slight improvement.
Important news for GBP:
Thursday:
Manufacturing PMI
Services PMI
Composite PMI
AUD
We had a stellar employment report for the month of September. Employment change came in at 64.1k vs 25k as expected making this a sixth consecutive month of more than 35k jobs added. Details are painting even brighter picture as the unemployment rate ticked down to 4.1% while participation rate ticked up to 67.2%. Majority of jobs (51.6k) were full-time jobs. Labour market remains incredibly tight making RBA stay with higher rates for longer in order to tame the inflation down.
September inflation report saw further declines as CPI came in at 0.4% y/y vs 0.6% y/y in August and PPI printed -2.8% y/y after -1.8% y/y print the previous month. Absence of inflation leaves room for additional monetary and fiscal stimulus from the Chinese authorities but so far they are failing to deliver. Over the weekend new stimulus measures were announced by the Ministry of Finance but they were vague, lacking details and concrete steps.
Trade balance saw lower surplus in September compared to the month before due to lower exports as it printed $81.7bn. Exports rose by 2.4% y/y while imports increased by 0.3% y/y. Ship exports saw the biggest increase followed by auto and semiconductor exports. Imports growth remains sluggish indicating weak domestic demand and in combination with slowdown in exports it gives additional reasons for another round of stimulus.
Q3 GDP data saw growth increases of 0.9% q/q and 4.6% y/y. September economic data, all three major categories beat the expectations, helped push GDP closer to the 5% target. Fixed Asset Investments and industrial production printed 3.4% y/y and 5.4% y/y increases vs 3.3% y/y and 4.6% y/y in August respectively and thus broke a downward trend that was lasting for five months. Industrial production growth was led by semiconductors, computer, communications and electric equipment as well as auto production. Retail sales came in at 3.2% y/y up from 2.5% y/y the previous month with increase in auto sales and especially in household appliances which rose by astounding 20.5% y/y.
NZD
Inflation data for the third quarter saw headline number increase by 0.6% q/q vs 0.7% q/q as expected and 2.2% y/y vs 3.3% y/y in Q2. This is the first time inflation is back in RBNZ’s 1-3% targeted range since Q1 of 2021. Non-tradable inflation remains high at 4.9% y/y but inflation trend is clearly to the downside. Additionally, RBNZ’s preferred inflation measure, their sectoral factor model, rose by 3.4% y/y, lower than 3.6% y/y in the second quarter. RBNZ will stay firm on the rate cutting cycle and could deliver another 50bp rate cut at their next meeting.
CAD
Inflation report for the month of September came in at 1.6% y/y vs 1.8% y/y, down from 2% in August. Inflation returning below the 2% target for the first time since February of 2021. Monthly print was negative at -0.4%. Core numbers were mixed but all three measures printed below 2.5%. BoC will be happy with this reading and we should see another 50bp rate cut at their next week’s meeting. USDCAD has been going straight up with ten days of green candles.
This week we will have BoC meeting. Markets and economists see a 50bp rate cut as base case which may open doors for CAD strength if BoC delivers a 25bp rate cut.
Important news for CAD:
Wednesday:
BoC Interest Rate Decision
JPY
National inflation data for the month of September saw headline number come in at 2.5% y/y as expected, down from 3% y/y in August. Food component saw a 2.4% y/y print vs 2.3% y/y as expected, down from 2.8% y/y the previous month. Ex fresh food, energy component of CPI, the so-called core core, came in at 2.1% y/y, a tick up from 2% y/y in August. Despite drops in headline and ex fresh food inflation, all three numbers remain above BoJ 2% target.
CHF
SNB total sight deposits for the week ending October 11 came in at CHF467.1bn vs CHF471.4bn the previous week. Still within a well-established range that seems to tighten as time passes by.
