Central bank meetings will dominate the next seven days as the Bank of England, the Bank of Japan and the US Federal Reserve all hold their policy meetings. It will be a big week for economic indicators as well, as the Eurozone releases preliminary GDP figures and the October jobs report is out in the United States.
Australian, New Zealand and Canadian data eyed after aussie, kiwi and loonie take a battering
Political concerns in Australia and New Zealand have taken the Australian and New Zealand dollars to multi-month lows this week, while a less hawkish Bank of Canada and uncertainty about NAFTA’s future have dragged the Canadian dollar to above C$1.28 per US dollar. The aussie may find some support from a batch of data releases out of Australia next week, which will include private sector credit (Tuesday), building approvals (Thursday) and retail sales (Friday).
In New Zealand and Canada, employment figures will be the main focus. The jobless rate for the third quarter will be watched by kiwi traders on Tuesday. Concerns about New Zealand’s new Labour coalition’s economic policies has bruised the kiwi in forex markets. Indications of an improving labour market may alleviate the currency’s pain.
Over in Canada, if Monday’s monthly GDP estimate for August and Friday’s employment report were to point to strong growth, the loonie might get a lift from revived expectations of another rate hike in the coming months.
Bank of Japan expected to lower inflation outlook
As other central banks move towards tighter monetary policy, the Bank of Japan looks nowhere near starting the normalization process. With inflation still running below 1% and new dovish members joining the Bank’s board, there is still a debate within the BoJ if it should be doing more to bring inflation towards it’s 2% goal. The Bank is widely expected to hold policy unchanged on Tuesday when it concludes its two-day policy meeting. But it’s latest quarterly outlook report could reveal another downward revision to the inflation forecasts.
The policy divergence with other advanced economies is likely to keep the yen weaker for a while longer even as growth in Japan starts to gather momentum. Major indicators to watch next week are household spending, unemployment rate and industrial output, all of which are due on Tuesday.
Eurozone flash GDP and inflation in the spotlight
After the European Central Bank’s dovish tapering decision this week, economic growth and inflation numbers will keep the euro under the limelight next week. Preliminary data due on Tuesday is expected the show the Eurozone economy expanding by 0.5% during the third quarter of the year. That would be slightly weaker than the 0.6% rate enjoyed in the second quarter. The annual rate is expected to pick up slightly from 2.3% to 2.4%. Inflation meanwhile, is forecast to moderate from 1.5% year-on-year in September to 1.4% in October’s flash reading. The core rate, which excludes food and energy prices and is more closely watched by the ECB, is also expected to ease by 0.1 percentage points to 1.2%. Before the inflation and GDP figures, the economic sentiment index should attract some attention on Monday.
Bank of England ponders rate hike
The UK’s initial estimate of GDP for the third quarter showed a slightly stronger-than-expected growth of 0.4% quarter-on-quarter, a modest improvement on the prior three months’ 0.3% rate. The data raised the odds that the Bank of England will raise rates next week, though the market-implied probability (currently at around 70%) is still below the level it was before two of the Bank’s deputy governors cautioned against a premature rate increase in the past fortnight. Many economists also share the view that an early tightening could prove to be a mistake. Rate hike speculation had driven the pound to a 15-month high of $1.3656 in September but the mixed signals from policymakers, along with Brexit concerns, pushed sterling to a 3-week low of $1.3068 today. If the BoE does go ahead and raise rates next Thursday as expected by most analysts, a possible narrow majority could hurt the pound as it would indicate limited support for additional rate rises in the coming months.
Also important next week will be the Markit/CIPS PMIs for manufacturing (Wednesday), construction (Thursday) and services (Friday).
Busy week for dollar with FOMC meeting and abundance of US data
The Federal Reserve could struggle for attention next week as no move is expected by the central bank, while a number of major economic data are released. Starting with personal income and consumption figures on Monday, both are forecast to rise strongly in September after a weak August. The personal consumption expenditure report (PCE) will also contain the latest core PCE price index. The Fed’s favourite inflation gauge had fallen to a two-year low of 1.3% y/y in August and a further decline could weaken the case for higher interest rates. Business surveys (Chicago PMI, CB consumer confidence) will be the main items on the calendar on Tuesday.
On Wednesday, the ISM manufacturing PMI is expected to show October was another robust month for US manufacturers after rising to a 13-year high in September. The Fed will take centre stage later in the day and will likely signal a rate hike for December. With no press conference scheduled for November, the FOMC meeting is not anticipated to be a very eventful one.
There will be more excitement for traders on Friday as the October jobs report is published. The hurricanes hitting the US East Coast caused a 33k fall in nonfarm payrolls in September – the first drop in seven years. They are expected to rebound by a massive 310k in October, while the unemployment rate is forecast to remain unchanged at 4.2%. Average earnings though could ease from 2.9% to 2.7% y/y in October, with the strong labour market so far doing little in boosting wages, hence the unease at the Fed about going too fast on raising rates.
Another big release will be the ISM non-manufacturing PMI for October. Factory orders and trade balance figures for September will complete the barrage of data on Friday.
