BoJ meeting, NFP, Q3 GDP data from the US and Eurozone, inflation data from the US, Australia and Switzerland as well as Autumn Budget from the UK will lead the jam packed data week ahead of us.
USD
The yield on a 10y Treasury started the week at 4.08%, rose to 4.26% and finished the week at around 4.2444%. The yield on 2y Treasury started the week at 3.97%, reached the high of 4.11%. Spread between 2y and 10y Treasuries started the week at 13bp and finished the week at 14bp 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 95%, while probability of a no rate cut is around 5%. Markets are fully pricing in December rate cut.
This week we will have preliminary Q3 GDP reading, Fed’s preferred inflation metric PCE and NFP data on Friday. Headline NFP number is seen coming at around 140k, but the number may be very distorted by the impact of hurricane. The unemployment rate is seen ticking up to 4.2%.
Important news for USD:
Wednesday:
GDP
Thursday:
PCE
Friday:
NFP
Unemployment Rate
ISM Manufacturing PMI
EUR
Preliminary PMI data for the month of October showed manufacturing improve to 45.9 from 48 in September on the back of improvement in German reading. Services ticked down to 51.2 from 51.4 the previous month while composite ticked to 49.7 from 49.6 in September. The report shows declines in new orders for both manufacturing and services and increase in price pressures in the services sector which will keep services inflation elevated. While all three German readings improved France is in a post-Olympic blues as all three of their readings declined on the month. This report indicates week growth potential and is consistent with another 25bp rate cut in December.
Majority of ECB members that spoke at the IMF annual meeting suggested that further rate cuts are warranted to fight declining growth figures and markets are now pricing even a 50bp rate cut in December. Doves in the ECB think that policy rate should go below neutral. Hawks, on the other hand, do not feel the need for a 50bp rate cut if the economy does not deteriorate significantly.
This week we will have preliminary Q3 GDP and preliminary October CPI data. Good data from July and August may cause upside surprise to growth while inflation is expected to stay unchanged.
Important news for EUR:
Wednesday:
GDP
Thursday:
CPI
GBP
PMI data for the month of October showed misses on expectations and further deterioration of the economy. Still, all three readings were above 50 with manufacturing at 50.3 vs 51.5 in September, services with 51.8 vs 52.4 the previous month and composite at 51.7 vs 52.4 in September. The report shows that numbers are indicating weak growth in Q4 as business activity, spending and demand decline across both manufacturing and services sectors.
AUD
PBoC has delivered 25bp cuts to both their 1-year and 5-year Loan Prime Rates (LPR). The new 1-year LPR is at 3.10% while new 5-year LPR is at 3.60%. New measures aimed at relaxing of credit conditions are intended to stimulate the economy through credit creation.
This week we will have Q3 inflation data from Australia expected to show further declines and we will have official PMI data from China.
Important news for AUD:
Wednesday:
CPI
Thursday:
Manufacturing PMI (China)
Services PMI (China)
Composite PMI (China)
NZD
Trade balance improved in September showing smaller deficit as exports increased while imports decreased. This was a hard week for the Kiwi as broad USD strength, due to proximity of NFP, elections and FOMC meeting, led to more risk off mood in the markets which caused NZD to weaken.
CAD
BoC has delivered a 50bp rate cut as was widely expected and brought rate down to 3.75%. GDP is expected to grow by 1.75% in the H2 of 2024, it will be supported by lower rates. Consumption, business investment, particularly residential investment and exports are all expected to continue growing. GDP is seen at 1.2% for 2024, 2.1% for 2025 and 2.3% for 2026. Wage growth outpacing the productivity growth as economy finds itself in excess supply. Inflation has come down significantly with shelter inflation remaining elevated but starting to ease. Excess supply is helping inflation down as well as drop in oil prices. Labor market has been characterized as soft. The statement shows that Ii the economy evolves broadly in line with our latest forecast, members expect to reduce the policy rate further and concludes with “…the timing and pace of further reductions in the policy rate will be guided by incoming information and our assessment of its implications for the inflation outlook. We will take decisions one meeting at a time.”
BoC Governor Macklem stated in an opening statement that expectations are for further cuts to the rate and that risks to inflation outlook are more broadly balanced. During the press conference Macklem clarified that 50bp was a “clear consensus”. BoC is focused on bringing inflation down to the target and sticking to the landing. Markets are pricing another 50bp rate cut at the December meeting.
JPY
Preliminary October PMI showed declines across the board. Manufacturing PMI dropped deeper into contraction with a 49 print vs 49.7 in September. Much deeper fall was seen in services which descended into contraction for the second time this year and after three months of nice expansionary prints. Services printed 49.3 after 53.1 print the previous month and thus dragged composite also into contraction with a 49.4 print after 52 in September. Weak domestic and demand from abroad caused both new orders and new export orders to decline. All three numbers for the October Tokyo area CPI printed 1.8% y/y, below the targeted 2%, with headline and ex fresh food inflation declining while ex fresh food, energy component jumped from 1.2% y/y in September.
General election will be held on October 27 and polls suggest that ruling LDP party will not manage to win majority and will thus need to go into coalition in order to form the government. There are rumors among analysts that BoJ may intervene to strengthen the currency if JPY weakens post election.
This week we will have BoJ meeting. Markets are pricing no change to the rate as they are seeing BoJ hiking in December. We will also get quarterly outlook that will provide more information regarding BoJ’s thinking.
Important news for JPY:
Thursday:
BoJ Interest Rate Decision
CHF
SNB total sight deposits for the week ending October 18 came in at CHF462.3bn vs CHF467.1bn the previous week. Still within a well-established rage that has narrowed to around 21bn in the last three months.
This week we will have inflation data that is expected to remain unchanged.
Important news for CHF:
Friday:
CPI
