Preliminary PMI data from Europe, talks surrounding Brexit negotiations as well as Q3 GDP reading from China will impact the markets.

USD

Inflation in September came in as expected, headline at 1.4% y/y and core at 1.7% y/y. Retail sales on the other hand smashed expectations by coming in at 1.9% m/m vs 0.8% m/m as expected. Control group also had a very strong reading coming in at 1.4% m/m vs 0.2% m/m as expected. US consumer is keeping the economy going and this may put some risk-on mood in the markets. IMF now sees world GDP contracting -4.4% in 2020 vs -5.2% as was estimated in June. GDP for 2021 is seen at 5.2% vs 5.4% in June. China growth for 2020 is raised to 1.9% from 1% while outlook for 2021 is unchanged at 8.2%. Eurozone 2020 contraction is seen at -8.3% vs. -10.2% in June while 2021 growth is seen at 5.2% vs. 6.0% in June.

This week we will have housing data.

Important news for USD:

Tuesday:

Housing Starts

Building Permits

Thursday:

Existing Home Sales

EUR

ZEW survey showed a small improvement in the current situation in Germany from -66.2 to -59.5, however there were big drops in expectations component. German dropped to 56.1 from 77.4 while EU expectations dropped to 52.3 from 73.9. ZEW notes rising virus cases as the main culprits for the drop in the expectations category. We can add Brexit uncertainties as well as incoming US elections and their negative impact to the investor optimism in the mix. Industrial production in August slipped to 0.7% m/m from 5% m/m in July indicating that economic recovery started to lose it’s steam in mid Q3. Production is now 6.7% lower than it was before the virus. The slowdown in production was lead by non-durable consumer goods production while durable consumer goods production picked up.

This week we will have preliminary October PMI data.

Important news for EUR:

Friday:

Markit Manufacturing PMI (EU, Germany, France)

Markit Services PMI (EU, Germany, France)

Markit Composite PMI (EU, Germany, France)

GBP

Claimant count, jobless claims, in September came in at 28k vs 39.k the previous month. Claimant count rate remained stable at 7.6%. ILO unemployment rate rose to 4.5% due to the change in the methodology. Still there are concerns that the number is low due to the furlough scheme and inability to properly measure unemployment. Wages have improved as workers are going back to work but are still very weak and not able to provide any inflationary pressures.

Reuters reported that EU leaders will authorise continuation of Brexit negotiations for the ‘coming weeks’. Prime minister Johnson hinted to preparations for no-deal Brexit which plunged GBP almost 100 pips against major counterparts. Negotiations will continue over the weekend and we see them dragging through November as well.

This week we will have inflation, consumption and preliminary October PMI data.

Important news for GBP:

Wednesday:

CPI

Friday:

Retail Sales

Markit Manufacturing PMI

Markit Services PMI

Markit Composite PMI

AUD

Employment change in September came in at -29.5k vs -40k as expected. The unemployment rate ticked up to 6.9%, keeping it below expected level of 7%, while participation rate was unchanged at 64.8%. Both full-time and part-time employment showed declines coming in at -20.1k and -9.4k respectively. The report was not good, but not as bad as expected. Additionally, the report is not showing the full picture as government job support is assisting the numbers. RBA governor Lowe indicated a possibility of cutting rate from 0.25% to 0.10% which weighed heavily on the AUD pushing it lower. Analysts now see RBA cutting rate at their next meeting on November 3 and markets are pricing around 74% chance of that happening. Lowe also added the possibility of expanding QE program to encompass purchases of 10yr bonds and urged for further fiscal support.

Trade balance in China for the month of September came in at CNY254.7bn vs CNY419.5bn as expected. Exports rose 8..7% y/y while imports jumped to 11.6% y/y vs 1% y/y as expected. This huge jump in imports did lower the surplus, however it is indicative of strong domestic demand which is much more important. Alternatively, the rise in imports could be due to the stockpiling ahead of the US sanctions. September CPI came in at 1.7% y/y vs 1.9% y/y as expected dropping from 2.4% y/y in August. Main culprit were food prices, particularly pork prices, which showed a significant drop. PPI broke a chain of three consecutive improving months by coming in at -2.1% y/y vs -2% y/y in August. Low PPI will hurt industrial profits in the future thus prompting monetary authorities to increase support for the economy.

This week we will have Q3 GDP data as well as consumption and production data for September.

Important news for AUD:

Monday:

GDP (China)

Industrial Production (China)

Retail Sales (China)

NZD

Assistant Governor of RBNZ Hawkesby commented that although there is still a lot of uncertainty about the economy some economic data have surprised to the upside. Global risks are to the downside and economy will require continued policy support. He added that lower NZD could provide further stimulus is interest rates go negative which sent NZD down as markets are increasingly sensitive to all news related to the possibility of negative rates implementation.

This week we will have Q3 inflation data.

Important news for NZD:

Thursday:

CPI

CAD

Manufacturing sales in August came in at -2% m/m vs -1.4% m/m as expected. This breaks the chain of three consecutive rising months. The largest declines were in the transportation equipment (-13.7%) and plastics and rubber industries (-9.6%). Sales of wood products and miscellaneous industry were up for the fourth consecutive month, rising 12.3% and 12% respectively.

This week we will have inflation and consumption data.

Important news for CAD: 

Wednesday:

CPI

Retail Sales

JPY

Core machinery orders in August came in at 0.2% m/m vs -1% m/m as expected and -15.2% y/y vs -15.6% y/y as expected. A small beating on expectations may indicate increased business spending in months to come. Final industrial production came in at 1% m/m and -13.8% y/y, a bit weaker than preliminary reported. Tertiary industry index improved to 0.8% m/m but an improvement of 1.5% m/m was expected. Both reports indicate just a gradual improvement in their respective sectors.

This week we will have national inflation data as well as preliminary October PMI data.

Important news for JPY:

Friday:

CPI

Markit Manufacturing PMI

Markit Services PMI

Markit Composite PMI

CHF

SNB total sight deposits came in at CHF704.6bn vs CHF705.1 the previous week. A small drop indicating that SNB slowed down their intervention. They are most likely satisfied with the current EURCHF level and decided to stand on the sidelines for a time being. Swiss government has upgraded GDP projection for 2020 to -3.8% from -6.2% previously but it came at the cost of downgrading GDP for 2021 to 3.8% from 4.9% previously. Inflation has also seen improvements to -0.7% in 2020 and -0.1% in 2021 from -0.9% and -0.3% respectively, but the fact that they expect deflation to continue through the next year is very worrisome. SNB Chairman Jordan stated that although they are not big fans of negative rates they are necessary. With disinflationary pressures presiding over the economy negative rates are here to stay.

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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 MT4.VAR. and MT4.ECN. accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.