ECB, BOJ and BOC meetings, along with preliminary Q3 GDP data from the US and EU will highlight the final week before the US elections.
USD
Housing starts and building permits continued to rise in September taking advantage of favourable conditions caused by low interest rates and came in at 1415k and 1553k respectively. Existing home sales skyrocketed to 6.54m, the highest in 14 years. Housing is leading the recovery, however if the housing market gets overheated it can lead to a new bubble.
This week we will have more housing data, durable goods orders and as well as first reading of Q3 GDP which is expected to show annualised rebound of around 32%. PCE inflation and personal spending data will round up the week.
Important news for USD:
Monday:
New Home Sales
Tuesday:
Durable Goods Orders
Thursday:
GDP
Friday:
PCE
Personal Spending
EUR
Preliminary PMI data for October paint a mixed picture. Manufacturing PMI rose to 54.4 from 53.7 in September on the back of a very strong German reading of 58. Services continued to decline coming in at 46.2 vs 47 as expected and down from 48 the previous month. Composite reading fell below 50 level to 49.4 from 50.4 in September. The reading shows a two-way recovery with manufacturing going strong while services dropping due to virus related restrictions. Markit notes that EU “is at increased risk of falling into a double-dip downturn” adding that “the prospect of a slide back into recession will exert greater pressure on the ECB to add more stimulus.”
This week we will have an ECB meeting. We see no changes to the policy at this meeting but possibility of more stimulus to come in December targeting PSPP (Public Sector Purchases Program). We will also get preliminary Q3 GDP, expected at 7.5%, as well as preliminary October inflation figures.
Important news for EUR:
Thursday:
ECB Interest Rate Decision
Friday:
GDP (EU, Germany, France)
CPI
GBP
Inflation in September has improved after a dramatic drop in August and came in at 0.5% y/y. Core inflation came in at 1.3% y/y as expected. The biggest contributor was recreation and culture. After the “eat out to help out” scheme ended in August, prices in restaurant and bars also pushed inflation higher. Overall, the inflation push seems connected only to several goods and services thus not making the environment inflationary. Retail sales improved 1.5% m/m from thebAugust reading thus making retail sales volumes in Q3 increase by 17.4% which is a new record. They continue to rise and exceed the pre-virus levels.
Preliminary October PMI data showed expansion but it has significantly slowed down. Manufacturing came in at 53.3 vs 54.1 in September, services came in at 52.3 vs 56.1 in September while composite came in at 52.9 vs 56.5 the previous month. Markit noted that “The slowdown would have been even more pronounced had it not been for exports rising as overseas customers sought to secure orders before potential supply disruptions as Brexit draws closer” and “While the fourth quarter still looks likely to see the economy expand, the rate of growth looks to have slowed sharply and the risk of a renewed downturn has risen.”
Moody has downgraded UK to Aa3 citing three reasons: Weakening economic strength, erosion of fiscal strength and weakening of UK institutions and governance. Due to the furlough scheme the debt grew over 100% of GDP in 2020. Finance minister Sunak revealed additional support for businesses. The maximum grant will increase to £3750 from £1875 previously with grants for self-employed doubling from 20% to 40%. While trade negotiations with EU are still going and will continue to do so until the end of the year UK and Japan have signed post Brexit free-trade agreement.
AUD
RBA Assistant Governor Kent stated that there is a need in the economy for more policy support and this need will be prevalent for some time given the economic outlook and high unemployment. RBA minutes from the October meeting showed that both unemployment and underemployment are expected to remain high for an extended period. Inflation is expected to remain subdued for some time. Members have discussed the options of reducing the targets for the cash rate and the 3-year yield towards zero, without going negative. AUD was weakened by Kent’s and minutes’ remarks and AUDUSD is pushing toward the 0.70 level.
Q3 GDP from China came in at 2.7% q/q vs 3.3% q/q as expected while coming in at 4.9% y/y vs 3.2% y/y the previous quarter. After a strong reading in Q2 the rebound has lost its steam and it was dampened by low imports. Imports are indicator of domestic demand which helps propel economic recovery. Industrial production in September continued to improve and came in at 6.9% y/y vs 5.8% y/y as expected. The improvement was achieved due to the rising exports. Retail sales came in at 3.3% y/y vs 1.6% y/y as expected. Domestic consumption is picking up making this a second consecutive month of rising positive reading. Chinese tourists have travelled only within the country thus all their money was spent within the economy which in turn helped create jobs for low-skilled workers and further stabilised consumption.
This week we will have Q3 inflation data from Australia as well as official PMI data from China.
Important news for AUD:
Wednesday:
CPI
Saturday:
Manufacturing PMI (China)
Non-Manufacturing PMI (China)
Composite PMI (China)
NZD
RBNZ Governor Orr stated that there is plenty more room in their QE program and that they would prefer to deal with inflation than battle deflation. He added that they will update on policy tools in November, RBNZ meeting is on November 11. GDT price index came in at 0.4%, faltering a bit, but still a third positive auction in a row. CPI in Q3 rose to 0.7% q/q from -0.5% q/q the previous quarter, although expectations were for a rise to 0.9% q/q. Incoming data from New Zealand are good but RBNZ keeps sending dovish messages thus keeping the currency in a limbo.
CAD
Retail sales for August came in at 0.4% m/m vs 1.1% m/m as expected. The biggest contributors were building materials and garden equipment which rose 4.5%. Clothing stores were flat on the month due to the rise in jewellery while they are down -12% since August of last year. Retail sales are waning as we are getting into Q4. Headline inflation in September improved to 0.5% y/y from 0.1% y/y in August thanks to rising prices in transportation, recreation, education and reading, and shelter.
This week we will have BOC meeting with no changes to rate or policy expected and monthly GDP figure for August.
Important news for CAD:
Wednesday:
BOC Interest Rate Decision
Friday:
GDP
JPY
Trade balance in September came in at JPY675bn vs JPY975.6bn as expected. Exports came in at -4.9% y/y, worse than -2.6% y/y expected while imports came in at -17.2% y/y. Although the imports data is terrible it still represents an improvement from -21.5% y/y as expected and -20.8% y/y the previous month. Exports to China showed the biggest improvement coming in at 14% y/y while exports to EU slumped -10.6% y/y.
National inflation numbers in September show complete absence of inflation with headline number coming in flat as expected, down from 0.2% m/m in August. Ex fresh food, energy component also came in flat on month, while ex fresh food component came in at -0.3% m/m vs -0.4% m/m as expected. The numbers are very worrying and they will prompt BOJ to consider additional stimulus in the near future. Considering their track record so far, doing more of the same will hardly provide desired results.
This week we will have the BOJ meeting. No changes to policy or rate are expected but lower assessment of the economy is possible. Additionally, we will have consumption, employment and Tokyo area inflation data.
Important news for JPY:
Thursday:
BOJ Interest Rate Decision
Retail Sales
Friday:
CPI
Unemployment Rate
CHF
SNB total sight deposits for the week ending October 16 came in at CHF705.1bn vs CHF704.6bn the previous week. After a short break total sight deposits continue to rise indicating more space for SNB intervention in FX markets.
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