Next week’s economic releases, which includes UK inflation figures, can determine the future path of monetary policy for major economies, while political events, such China’s five-yearly Communist Party Congress commencing on Wednesday, perhaps have the capacity to steer developments for the years to come.
Chinese Party Congress, Japanese trade data and elections further ahead and Australian employment to be closely watched
Data on producer as well as on consumer prices for the month of September will be released out of China on Monday. Expectations are for the producer price index (PPI) to grow by 6.3% year-on-year, at the same pace as in the preceding month. According to analysts’ estimates, the consumer price index will rise by 1.6% on an annual basis, below August’s 1.8%. Among other releases attracting attention in China, are figures on urban investment, industrial output and retail sales (all for the month of September), as well as third quarter GDP figures, to be released on Thursday. Analysts’ forecasts are projecting an annual growth rate of 6.8% during the quarter. The respective figure during the second (as well as the first) quarter of the year stood at 6.9%, with the official growth target for 2017 being "around 6.5%". In the background will be China’s Communist Party Congress taking place in Beijing and beginning on Wednesday, October 18. This political meeting takes place once every five years and has a mandate of considering and approving new policies, as well as appointing to certain positions those individuals who will lead China over the next five years.
Transitioning from the world’s second largest economy to the next in line, September Japanese trade data out on Thursday will definitely be eyed. Exports and imports are expected to rise by double digits though at a smaller pace relative to August (but only slightly so in the case of imports). Of course, speculation regarding the outcome of general elections taking place in the nation on October 22 will be on the rise. Should the Japanese Prime Minister Shinzo Abe come out strong, then it is expected that we’ll have a continuation of Abenomics with a reflationary economic agenda remaining on the table. This is also seen as increasing the odds for the Bank of Japan to maintain its ultra-loose monetary policy, something which supports the dollar/yen moving higher over the medium- to longer-term given the divergent monetary policies in the US and Japan.
Relating to the Antipodean currencies, the releases gathering most attention in Australia will be Thursday’s employment data (number of positions added to the economy, unemployment rate and participation rate) for the month of September. Last month’s upbeat employment report allowed the aussie to move higher relative to the greenback. Out of New Zealand, third quarter inflation figures to be released on Tuesday will be in focus. The bi-weekly milk auction, which tends to affect the kiwi as New Zealand is a major dairy exporter, will also be taking place on the same day.
Eurozone inflation, ZEW survey and producer prices out of Germany – UK data supporting the case for a hike?
Final inflation figures for the month of September to be released on Tuesday will be attracting attention in the eurozone, especially after reports this week that the European Central Bank could decide to proceed with a reduction of its monthly asset purchases (currently amounting to 60 billion euros per month) by around half as it completes its monetary policy meeting on October 26. On a monthly and annual basis, inflation is expected to show growth by 0.4% and 1.5% respectively, with August’s equivalent figures being released at 0.3% and 1.5%. The core measures of inflation will also be eyed. Also out on Tuesday, will be the ZEW survey gauging economic sentiment for the month of October in Germany, eurozone’s (as well as Europe’s) largest economy. September producer price data released on Friday will also be on the look-out in Germany.
Expected to be of most importance out of the UK will be Tuesday’s inflation figures for the month of September, August employment statistics out on Wednesday and Thursday’s September retail sales. Month-on-month, the consumer price index (CPI) is anticipated to grow by 0.3% (August’s figure stood at 0.6%) and year-on-year by 3.0% (August’s equivalent came in at 2.9%). The Bank of England’s inflation target stands at 2%. It will be interesting to see whether the numbers would support the case for an interest rate hike to be delivered by the BoE, something which would support a stronger British currency. The central bank will be completing its next meeting on monetary policy on November 2.
US industrial production, housing starts and existing home sales – manufacturing & retail sales as well as inflation dominating attention in Canada
Out of the US, industrial production figures to be released on Tuesday, housing starts on Wednesday and existing home sales on Friday, all pertaining to the month of September, would probably be the releases having the capacity to move forex markets the most. It is important to note that the effect of hurricanes could have distorted the aforementioned economic releases. Other themes which have been recurring and driving sentiment either in favor or against the US currency, such as who the next Fed chair would be (with a Yellen reappointment not to be ruled out), the US-North Korea spat and President Trump’s plans on tax reform, might reappear as well.
Canada will see the release of manufacturing sales on Wednesday as well as inflation and retail sales data on Friday. In terms of inflation, the CPI measures utilized by the Bank of Canada will be in focus as well. It remains to be seen whether the data will negatively or positively affect the Bank of Canada’s appetite for additional interest rate hikes after the ones delivered in July and September which brought the central bank’s benchmark rate to 1%. The BoC will be completing its next meeting on October 25.
This weekend’s International Monetary Fund and World Bank meeting of central bankers and finance ministers would be also generating interest (the IMF this week upgraded its growth outlook for the US, China, Japan and the eurozone relative to its previous forecasts in July), with Federal Reserve Chair Janet Yellen (talking on Sunday) being among the notable speakers. Yellen will also be participating in a lecture titled "Monetary Policy Since the Financial Crisis" on Friday.
