The week of central banks, no less than 4 central banks will decide on interest rates and future monetary policy actions with FED leading the way as most important and most watched risk event of the week.
USD
August CPI came in at 1.7% y/y vs 1.8% y/y as expected but core CPI came in at 2.4% y/y vs 2.3% y/y as expected. Average weekly earnings also added to the shine of the report coming in at 1.2% y/y vs 0.9% y/y as expected with real hourly earnings coming in at 1.5% y/y vs 1.4% y/y as expected. Advanced retail sales came in at 0.4% m/m vs 0.2% m/m as expected. Control group came in at 0.3% m/m as expected. US consumer continues to be the main driving force of the US economy giving the FED reason to be more bullish.
President Trump stated that planned increase in tariffs from 25% to 30% on $250bn worth of Chinese goods will be delayed for 2 weeks from October 1 to October 15. He stated that this was done as a sign of goodwill. In response China said that it may allow companies to resume purchases of US farm products ahead of the October talks indicating that relationship begins to improve and markets liked it with risk on mover, AUD up and JPY down.
This week we will have industrial production and housing data. FOMC rate decision is the highlight of the week. Markets are expecting 25bp cut with almost 100% certainty. Economic projections, dot plot, will give us more insight regarding expected future moves by FOMC. FED’s view on trade war will also be scrutinized.
Important news for USD:
Tuesday:
Industrial Production
Wednesday:
Housing Starts
Building Permits
FOMC Interest Rate Decision
FOMC Statement
FOMC Economic Projections
FOMC Press Conferece
Thursday:
Existing Home Sales
EUR
Ifo has cut the German GDP growth for 2019 to 0.5% from 0.6% and to 1.2% from 1.7% for the year 2020. They expect Q3 GDP to fall to -0.1% q/q with possible slight recovery in Q4. This would mark second consecutive quarter of negative GDP, thus indicating a technical recession. They also noted that weakness from the industrial sector is starting to spread to other sectors which is particularly worrisome. Industrial production for the Eurozone in July came in at -0.4% m/m vs -0.1% m/m as expected with all the major economies showing a decline in industrial activity. Trade balance came in at EUR19 bn vs EUR17.5 bn as expected. Exports were up 0.6% m/m while imports were flat.
ECB has decided to cut the deposit facility rate by additional 10bp thus putting it at -0.50%. Reintroduction of QE in the amount of EUR20 bn starting from November 1. There is no time frame regarding duration of purchases, they will stop them shortly before raising rates. Tiering system will be introduced. ECB president Draghi stated that risks are tilted to the downside and urged for a looser fiscal policy. Global uncertainties are hitting the eurozone manufacturing hard while services show resilience. Both GDP and inflation forecasts were lowered with former now seen at 1.1% for 2019 and 1.2% for 2020 and the latter at 1.2% for 2019 and 1% for 2020. The baseline scenario does not take into account the escalation of trade tensions. All measures ECB takes are intended to raise inflation close to but below 2%. The fact that QE does not have a perceived end date gives dovish note to the decision although the amount is far lower than feared, EUR60 bn.
This week we will get ZEW reading, final inflation data for August as well as preliminary consumer confidence data for September.
Important news for EUR:
Tuesday:
ZEW Economic Sentiment Indicator (Germany and EU)
Wednesday:
CPI
Friday:
Consumer Confidence Index
GBP
GDP in July came in at 0.3% m/m vs 0.1% m/m as expected and thus surprised to the upside with services output being the biggest contributor. The headline number shows a good start for the Q3, at least there is a great possibility of avoiding the recession, but ONS states that weakening growth is still present. Factory data also beat the expectations with manufacturing coming in at 0.3% m/m vs -0.3% m/m as expected, industrial production at 0.1% m/m vs -0.3% m/m as expected and construction at 0.5% m/m vs 0.2% m/m as expected. Very strong month for the UK economy.
July employment report showed wages continuing their rise to 4% 3m/y vs 3.7% 3m/y as expected for the highest reading since June 2008. Real total wages increased by 2.1% y/y which is the fastest pace since Q3 of 2015. The unemployment rate dropped to 3.8% from 3.9% the previous month. The employment change came in at 31k vs 55k and claimant count rate rose to 3.3% to put some shade on the report, but wage rise is the highlight. BOE will be satisfied with the reading, however Brexit dominates the UK so all data plays second fiddle to it.
MPs have voted against a motion to hold elections prior to the October 31 and Parliament was prorogued at the end of the day according to the Queen’s decision. They will continue with their sessions on October 14. Reports state that UK and the EU could agree to maintain Northern Ireland under the European customs regime thus avoiding the backstop issue which gave GBP a boost.
This week we will get inflation and consumption data for August as well as BOE rate decision. Due to the Brexit uncertainties BOE has its hands tied but their input on the economy will be highly valuable. No change in interest rate is expected.
Important news for GBP:
Wednesday:
CPI
Thursday:
Retail Sales
BOE Interest Rate Decision
BOE MPC Meeting Minutes
AUD
Trade balance data from China in August missed expectations coming in at CNY299.3 bn vs CNY310.26 bn as expected. Exports were up 2.6% y/y vs 6.3% y/y as expected and down from 10.3% y/y the previous month. Exports to the US were down 16% y/y. Global slowdown and US tariffs combined to put a heavy toll on Chinese exporters. Imports came in at -2.6% y/y vs -3.1% y/y as expected. A drop in imports indicating slower domestic demand will be feared by all exporting countries who have China as their main market, namely Germany. CPI came in at 2.8% y/y while PPI plunged deeper into negative territory coming in at -0.8% y/y. Low PPI reading will impact business profits which will in turn lead to halts in employment and business investment. China has already cut their reserve ratio rate in order to stimulate economy and will evaluate if further stimulus is still needed but with such low PPI reading, we can expect more stimulus in the future.
This week we will get RBA meeting minutes and employment data from Australia as well as consumption, industrial production and investment data from China.
Important news for AUD:
Monday:
Retail Sales (China)
Industrial Production (China)
Fixed Asset Investment (China)
Tuesday:
RBA Meeting Minutes
Thursday:
Employment Change
Unemployment Rate
NZD
Manufacturing sales and activity were both down in Q2 coming in at -0.7% q/q vs 1% q/q the previous quarter and -2.7% q/q vs 2% q/q the previous quarter respectively. Drops in meat and dairy manufacturing were the main drags and concerns. Analysts are lowering their projections for Q2 GDP. Electronic card retail sales and spending overall came in better than expected at 1.1% m/m and 1.3% m/m respectively. Positive impact on private consumption.
This week we will have bi-monthly GDT auction as well as Q2 GDP data.
Important news for NZD:
Tuesday:
GDT Price Index
Thursday:
GDP
CAD
Housing starts in August came in at 226.6k vs 212.5k as expected and building permits rose to 3% m/m vs 2% m/m as expected and up from -3.1% m/m the previous month indicating improving conditions in the housing market.
This week we will have manufacturing sales, inflation and consumption data.
Important news for CAD:
Tuesday:
Manufacturing Sales
Wednesday:
CPI
Friday:
Retail Sales
JPY
Final Q2 GDP came in at 1.3% y/y and 0.3% q/q as expected but down from preliminary readings of 1.8% y/y and 0.4% q/q. The number was revised down due to lower business investment. Private consumption is still the main driver of GDP and it came at 0.6% q/q. Core machinery orders, a good proxy for capex six to nine months in the future, came in for the month of July at -6.6% m/m vs -8% m/m as expected and 0.3% y/y vs -3.7% y/y as expected. Although the data was weaker than the previous month and it is very volatile in its nature it beat the expectations. The final industrial production data for July came in line with preliminary readings at 1.3% m/m and 0.7% y/y for a good start of Q3.
This week we will have trade balance and national inflation data along with BOJ rate decision. According to Reuters survey most economists expect BOJ to ease further with their next move due to JPY strength caused by global slowdown, but they are not in agreement whether the move will be at this meeting.
Important news for JPY:
Wednesday:
Trade Balance
Exports
Imports
Thursday:
BOJ Interest Rate Decision
BOJ Monetary Policy Statement
Friday:
CPI
CHF
Seasonally adjusted unemployment rate in August came in at 2.3% as expected. The unemployment rate continues to be at the lows but it still does not influence inflation pressures so talks about more easing from SNB at their meeting in two weeks are intensifying.
This week we will have trade balance data and SNB rate decision. CHF has strengthened a lot during the past month and with ECB easing further we can see SNB taking further easing measures.
Important news for CHF:
Thursday:
Trade Balance
Exports
Imports
SNB Interest Rate Decision
SNB Monetary Policy Statement
Please note that there will be no reports for the following two weeks and we will return for the second week of October.
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