Fed and BoC are expected to deliver a 25bp rate cuts while ECB and BoJ are seen making no changes to their rates, inflation data from the Eurozone and Australia as well as GDP from the Eurozone will highlight the massive week ahead of us. Government shutdown is entering fifth week and with Trump going on Asian tour chances of it ending are small.
USD
US managed to agree a deal with Australia regarding rare earths and thus improve its hand in negotiations with China. President Trump will visit Japan from Oct 27-29 before APEC summit, from October 31 to November 1, where he is to meet with Xi. Canada has chosen to significantly reduce quotas for imports of tariff-free General Motors and Stellantis cars in order to stimulate those companies to continue investing in Canada. All imported cars above the new quota will be hit with a retaliatory 25% tariff. Trump reacted to the announcement by stating that all trade talks with Canada are cancelled.
We finally got September CPI report and it showed us both headline number and core number print 3% y/y vs 3.1% y/y as expected. On a monthly basis headline number was unchanged at 0.3% (0.31% unrounded) vs 0.4% as expected while core print was 0.2% (0.227% unrounded) vs 0.3% as expected and in August. Super core came in at 0.4% m/m and 2.57% y/y while shelter came in at 0.2% m/m but still elevated 3.6% y/y. Softer than expected readings make next week’s rate cut a done deal. White House announced that there will be no inflation report next month.
The yield on a 10y Treasury started the week at 4.01%, rose to 4.03%, fell again below 4% and finished the week at around 4.02%. The yield on 2y Treasury started the week at 3.47%, rose to 3.49% and finished the week at around 3.48%. Spread between 2y and 10y Treasuries started the week at 54bp and finished the week at 54bp. FedWatchTool sees the probability of a 25bp rate cut at October meeting around 99%, while probability of a no cut is around 1%. Gold and silver had large corrections with former of almost 3.5% and later 6.6%, at the start of the week with gold managing to stay above the $4000 level while silver did not manage to hold $50 level and fell below it. Oil has crossed the $61 level as US imposed further sanctions on Russian oil thus limiting its supply.
This week we will have FOMC meeting where a 25bp rate cut is almost fully priced in.
Important news for USD:
Wednesday:
Fed Interest Rate Decision
EUR
ECB Governing Council member Schnabel stated that rates should remain at current level, this was echoed by Bundesbank president Nagel, due to upside risks to inflation. She emphasized the importance of strengthening the international role of the euro. Credit agency S&P surprised by downgrading France’s credit rating to A+ from AA-. France has now lost its double A credit rating at two of the three major credit rating agencies.
Start of Q4 saw all of preliminary October PMI numbers back in expansion. Manufacturing printed 50, up from 49.8 in September as improvements were seen in both German and French readings. Services rose to 52.6 from 51.3 the previous month with divergence between two largest economies as Germany smashed expectations with a surge in services to 54.5 while France dipped further into contraction with a 47.1 reading. Composite was lifted to 52.2 from 51.2 in September due to very strong performance of German services sector. The report says that inflation in the services sector remains moderate without any significant upside pressures.
This week we will have ECB meeting as well as first reading of Q3 GDP and preliminary October inflation reading. No change in rate is expected at ECB meeting.
Important news for EUR:
Thursday:
ECB Interest Rate Decision
GDP
Friday:
CPI
GBP
September CPI report saw headline number unchanged at 3.8% y/y for the third month in a row while markets were bracing for a higher 4% y/y print. Services inflation was also unchanged at 4.7% y/y and the main culprit for a drop in inflation were food prices which declined to 4.5% y/y from 5.1% y/y in August. Core CPI ticked down for the second month in a row and printed 3.5% y/y vs 3.6% y/y the previous month while expectations were for a higher 3.7% y/y reading. Softer than expected reading will increase chances of a rat cut this week and markets are positioning for a cut in December.
Preliminary October PMI numbers showed economy strengthening going into the Q4. Manufacturing surged almost into expansion with a 49.6 print after a 46.2 in September. Both services and composite were lifted to 51.1 from 50.8 and 50.1 previous month respectively. The report paints an encouraging picture as output picked up, job losses moderated and inflation slowed down to the pace of targeted 2%.
AUD
China’s Q3 GDP grew by 1.1% q/q, up from 1% q/q growth seen in the previous quarter, better than 0.8% q/q as expected and 4.8% y/y, down from 5.2% y.y in Q2, but in line with expectations. September industrial production printed 6.5% y/y thus beating expectations of 5% y/y growth and is up from 5.2% y/y in August. Hi tech manufacturing and autos sector showed biggest increases. Retail sales, on the other hand, grew by 3% y/y, beating expectations of 2.9% y/y growth, but weakened compared to 3.4% y/y growth seen in August. Fixed Asset Investments declined -0.5% m/m for the worst reading since July of 2020 as companies stopped investing due to mounting uncertainties surrounding tariffs and trade war. PBoC has left 1-year and 5-year Loan Prime Rates unchanged at 3% and 3.5% respectively as was widely expected.
This week we will have Q3 CPI reading from Australia and official PMI data from China. Expectations are for inflation to pick up which will put RBA on hold for longer.
Important news for AUD:
Wednesday:
CPI
Friday:
Manufacturing PMI (China)
Services PMI (China)
Composite PMI (China)
NZD
Q3 inflation data came in line with expectations at 1% q/q and 3% y/y and up from 0.5% q/q and 2.7% y/y seen in Q2. RBNZ’s own inflation measure, sectoral model, ticked down to 2.7% from 2.8% in the previous quarter. The bank is well on rate cutting cycle as they give more importance to reviving stumbling growth than inflation.
CAD
Inflation surged in September to 2.4% y/y from 1.9% y/y in August while markets were expecting 2.3% y/y print. All components of CPI grew y/y with food, shelter and health and personal care showing biggest increases. Prices for gasoline were down and kept inflation from running even hotter. Core measures also showed increase across the border with median at 3.2% y/y, trim at 3.1% y/y and common at 2.7% y/y. Stronger than expected inflation print will raise some questions at BoC, but it should not deter bank from cutting next week as they are giving more attention to reviving growth and labor market.
Prime Minister Carney, former head of BoE and BoC, spoke before the students and clarified that a decade-long process of integration with the US is over as they have fundamentally changed the way they handle trade. He added that Canada’s relationship with the US will never be the same. The main point of the talk was the incoming budget that will be released on November 4. Budget will be focused on building and taking control as buy Canadian products will be a priority. The budget will also include largest defense spending in generations. Defense spending is not productive so it will not help the average Canadian and with that much infrastructure spending we could see country run large fiscal deficits.
This week we will have BoC meeting where another 25bp rate cut is fully priced in.
Important news for CAD:
Wednesday:
BoC Interest Rate Decision
JPY
Nippon Ishin party leaders confirmed that they will vote for Takaichi and with their help she managed to win in the first round of voting in the Lower House. This will make her first female Prime Minister in Japan’s history. She failed to secure majority in the Lower House and will lead a minority government which will have impact on her policies. There will be fiscal spending and tax cuts are expected to come, but the issue is how much of it will opposition allow. Japan’s largest union Rengo has asked for a 5% or more wage increases for fiscal year 2026 in order to stay on top of rising costs of living.
September inflation report for the whole country of Japan saw both headline and core numbers rising to 2.9% y/y as expected from 2.7% y/y in August. Ex food, energy category slowed down to 3% y/y from 3.3% y/y the previous month. Services inflation printed 1.4% y/y, well below targeted 2% which should keep BoJ on hold next week. Preliminary October PMI saw declines across the sector with manufacturing falling to new 19-month low with a 48.3 print as new orders slumped to the declining domestic demand. Services declined to 52.4 from 53.3, staying nicely in expansion but they dragged down composite to 50.9 from 51.3. The report notes rising both input and output costs as inflationary pressures are not abating.
This week we will have a BoJ meeting where we see bank staying on the sidelines for yet another meeting.
Important news for JPY:
Thursday:
BoJ Interest Rate Decision
CHF
SNB total sight deposits for the week ending October 17 came in at CHF473.8bn vs CHF474.2bn the previous week. It is a second consecutive week of small declines but nothing that will have meaningful impact on the market. SNB Chairman Schlegel warned that US tariffs pose downside risks and may have negative impact on the economy. Economic uncertainty remains high and SNB expects inflation to pick up in the coming quarters.
