This week we will have inflation data from UK, New Zealand, Japan and Canada, employment data from Australia as well as Q3 GDP, production and consumption data from China. Additionally, 20th National Congress of the Communist Party of China will be held throughout the week and great number of companies will report their Q3 earnings.
USD
IMF released new projections for 2023 and it sees global GDP down to 2.7% from 2.9% in July. US GDP is unchanged at 1%, however Eurozone has been downgraded to 0.5% vs 1.2% y/y in July. The message of the report was “the worst is yet to come”. IMF chief economist stated that central bank fight against inflation will continue through 2024 as he does not see inflation coming to target in 2023. He added that the unemployment rate in the US will rise 2pp over 2024 and 2024. Minutes from the latest FOMC meeting reiterated bank’s hawkish stance.
CPI report for September showed headline number tick down to 8.2% y/y from 8.3% y/y previous month, but higher than 8.1% y/y as expected by the markets. Core CPI printed 6.6%, a highest reading in the last 40 years. On a monthly basis, headline came in at 0.4% m/m vs 0.2% m/m as expected while core came in at 0.6% m/m vs 0.4% m/m as expected. Housing costs, medical costs, food and airline fares were pushing inflation up while falling gasoline prices dragged inflation down. The report makes a 75np rate hike in November a certainty with a probability of a 100bp rate hike creeping in.
The yield on a 10y Treasury started the week at 3.89%, it crossed 4% during the week and finished the week at around 3.9%. The yield on 2y Treasury rose to 4.5%, the highest level since 2007. Spread between 2y and 10y Treasuries started the week at -42bp and widened to -52bp. FedWatchTool after the CPI report does not see the probability of a 50bp rate hike in November, probability of a 75bp rate hike is at 97.4%. while a probability of a full 100bp rate hike is at 2.6%.
EUR
ECB members have been presenting cases for both 50bp and 75bp rate hikes throughout the week with ECB Vice President de Guindos stating that it is very difficult to determine the level of the terminal rate adding that bank is data dependent when it comes to the further moves. Trade balance continued to deteriorate and in August it came in at -€50.9bn vs -€34bn in July. Exports were up 24% y/y, however imports were up 53.6% y/y. Energy imports year-to-date rose astonishing 154% illustrating the magnitude of European energy crisis.
GBP
Employment report showed some mixed numbers. Claimant count risen to 25.6k from 6.3k in August. Employment change in last three months dropped -109k. However, the unemployment rate for the month of August ticked down to 3.5%. Additionally, average weekly earnings including bonus rose 6% 3m/y. Labor shortages are increasing as number of people that are classified as long-term sick and out of the jobs market rose by little less than 170k in the past three months.
BOE Governor Bailey sent a message to pension funds stating “you have three days left to get this done” and added that BOE will be out of the market “by the end of the week”. These statements mean that BOE is no longer planning on buying Gilts as an emergency liquidity program and it has sent GBP tumbling for more than 200 pips against USD. The pound had a huge rebound on Wednesday and Thursday as markets were pricing in a turnaround of Prime Minister Liz Truss tax cuts plans. Kwasi Kwarteng has been sacked from the position on Chancellor of Exchequer and in his place Jeremy Hunt has been appointed.
This week we will have inflation data.
Important news for GBP:
Wednesday:
CPI
AUD
RBA Assistant Governor Ellis confirmed that neutral nominal rate is at least 2.5% adding that neutral real rates should ne in positive territory, although they may be low.
Headline inflation from China in the month of September printed 2.8% y/y as expected and up from 2.5% y/y in August. Food inflation was up 8.8% y/y and it was the main contributor to the reading. CPI is still within PBOC’s target range so they may continue with easing if the need arises. PPI, on the other hand, continued to decline and printed a 0.9% y/y reading, down from 2.3% the previous month and making it declining for eleventh consecutive month.
20th National Congress of the Communist Party of China starts on October 16. It will last for about one week and we will get more information whether there will be change in zero-Covid policy, although chances for it are low.
This week we will have employment data from Australia as well as trade, Q3 GDP, production and consumption data from China.
Important news for AUD:
Tuesday:
GDP (China)
Industrial Production (China)
Retail Sales (China)
Thursday:
Employment Change
Unemployment Rate
NZD
RBNZ has released annual report for the period 2021-2022 in which Governor Orr states that the bank remains committed to supporting economic recovery through the COVID-19 pandemic. He added that the bank needs to continue with fighting inflation as further progress is needed on that field.
This week we will have inflation data for Q3.
Important news for NZD:
Monday:
CPI
CAD
Final manufacturing sales reading for the month of August came in at -2% m/m vs -1.8% m/m as preliminary reported. This marks a fourth consecutive drop in manufacturing sales as manufacturing sector in Canada goes through a slowdown due to drop in demand. The sales were lower in 17 of 21 industries led by petroleum and coal as well as chemicals -4.5%. Wholesale trade fared much better as it came in at 1.4% m/m vs 0.8% m/m as preliminary reported and up from -0.6% m/m the previous month.
This week we will have inflation data.
Important news for CAD:
Wednesday:
CPI
JPY
Core machinery orders for the month of August dropped -5.8% m/m vs -2.3% m/m as expected. The drop comes after two consecutive months of increases with July printing 5.3% m/m. The report shows fall in non-manufacturing orders as biggest cause for the drop in headline reading. USDJPY rose over the 146 level in the aftermath of this news and crossed the 147 level after US CPI report. On Friday the pair has crossed the 147.75 level which was a high from 1998 and almost reached the 149 level.
CHF
SNB total sight deposits for the week ending October 7 came in at CHF639.3bn vs CHF669.6bn the previous week. Another big drop in sight deposits (-30.3bn) as investors move away funds from SNB thus forcing it to sell EUR and USD.
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Please note that this analysis should not be used as investing advice as it is only an overview of the economic events influencing the markets. Please remember that our accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.
