In a relatively light calendar week, US economic indicators will be at the forefront, along with data out of China, the Eurozone and the United Kingdom. Inflation and retail sales numbers will be the highlights coming out of the United States, while industrial output and trade data will be the focus in non-US markets. The Federal Reserve will also be making headlines as it publishes its September meeting minutes and more Fed officials make public appearances.
China releases trade data
China’s economy continues to defy projections of a slowdown in 2017 with the World Bank this week lifting its forecasts for GDP growth for the year from 6.5% to 6.7%. Rising global demand for Chinese exports has been one of the reasons why growth has been outperforming. After a dismal 2016, export growth has averaged 7.7% year-on-year so far this year. This trend looks set to continue in September with exports forecast to rise by an annual rate of 8.8% when the monthly trade figures are published on Friday. Imports are expected to grow by 13.5%. Also due out of China next week is the Caixin services PMI on Monday.
Eurozone industrial output to be eyed
It’s going to be a fairly quiet week for Eurozone data with the only notable releases consisting of the Eurozone sentix index (Monday), and industrial output numbers (Thursday). Euro area industrial production is forecast to rise by 0.5% month-on-month in August, with corresponding figures for Germany and France due on Monday and Tuesday respectively. A bigger market mover might be ECB President Mario Draghi’s attendance at a panel discussion at the Peterson Institute in Washington on Thursday. With the October 26 policy meeting approaching, investors will be eager to get a better insight as to what decision to expect from the European Central Bank with regards to asset purchases and forward guidance.
UK data will struggle to eclipse Brexit and political concerns
The pound looks set to have its worst weekly performance in a year this week. It’s on track for losses of around 2.5% as worries that Theresa May’s days as prime minister are numbered add to the uncertain outlook for the UK amid lack of progress in the Brexit negotiations. A possible vote of no confidence by Conservative MPs forcing May to stand down cannot be ruled out in the coming days or weeks.
Data out next week however, may provide some support for the battered pound. Trade, industrial output and manufacturing figures for August are all published on Tuesday. Industrial production is forecast to rise by 0.2% m/m in August, down from 0.2% in July, though the annual rate is expected to accelerate from 0.4% to 0.8%. The manufacturing sub-sector is also forecast for positive growth, expected at 0.3% m/m and 1.9% y/y. UK manufacturers have lagged behind their Eurozone counterparts this year even though the global economic recovery has picked up a gear and sterling remains weak, highlighting the challenge Britain faces in rebalancing its economy.
Hurricanes likely to distort retail sales figures
US data should add some excitement for traders in the coming week as key inflation and retail sales numbers are released. However, the week will likely start on a quiet note as US markets will be partially closed for Columbus Day on Monday. The first major data announcement is due on Wednesday, comprising of the JOLTS job openings for August, and the Fed minutes of the September policy meeting are also published on the same day. With the odds of a December rate hike now having risen to above 90% (according to fed fund futures) following a series of robust indicators and hawkish language by Fed policymakers, the FOMC minutes are unlikely to see much of a reaction in forex markets. However, analysts will still want to scrutinize the minutes for any signs of division over the inflation outlook given that some committee members have been more concerned than others about the absence of inflationary pressures.
On Thursday, producer prices for September will precede the CPI and retail sales reports for the same month on Friday. Both headline and core inflation are forecast to tick higher in September, with annual CPI rising to 2.3% from 1.9%, and core CPI to 1.8% from 1.7%. Consumer prices based on the CPI measure have been growing more strongly than the Fed’s targeted inflation gauge, the core PCE price index, which declined to a two-year low of 1.3% in August. Retail sales meanwhile are forecast to receive a major boost from auto sales, which surged in September as Americans replaced their vehicles damaged in the hurricanes. Total retail sales are expected to jump by 1.7% m/m in September after falling by 0.2% in the prior month. Finally on Friday is the University of Michigan’s preliminary reading of the consumer sentiment index for October.
Also to watch out of the US next week are Fed speakers, which will include Minneapolis Fed President Neel Kashkari, Dallas Fed President Robert Kaplan, Fed Governors Lael Brainard and Jerome Powell, and Chicago Fed President Charles Evans.
