UPCOMING
EVENTS:
- Monday: US and Canada Holiday, Fed’s Waller. (US stock
market open/bond market closed) - Tuesday: UK Labour Market report, German ZEW, Canada CPI,
New Zealand Q3 CPI. - Wednesday: UK CPI.
- Thursday: Australia Labour Market report, ECB Policy
Decision, US Retail Sales, US Jobless Claims, US Industrial Production and
Capacity Utilization, US NAHB Housing Market Index. - Friday: Japan CPI, China Industrial Production and
Retail Sales, UK Retail Sales, US Housing Starts and Building Permits.
Monday
Christopher Waller
is a key Fed governor because he’s been a “leading indicator” for changes in
Fed’s policy. He recently mentioned that they could go faster on rate cuts if
the labour market data worsened, or if the inflation data continued to come in
softer than everybody expected.
He also added that
a fresh pickup in inflation could also cause the Fed to pause its cutting. The
market is now almost perfectly in line with the Fed’s latest projections, so if
he brushes aside the recent inflation data, that will likely boost the risk
sentiment.
Fed’s Waller
Tuesday
The UK Labour
Market report is expected to show 250K jobs added in the three months to August
vs. 265K to July, and the Unemployment Rate to remain unchanged at 4.1%. The
Average Weekly Earning including Bonus is expected at 3.8% vs. 4.0% prior,
while the ex-Bonus figure is seen at 4.9% vs. 5.1% prior.
The market is
pricing 36 bps of easing by year-end with an 80% chance of a 25 bps cut in
November. BoE’s Governor Bailey recently caused a selloff in the GBP when he
mentioned that the central bank could become more aggressive on rate cuts,
while BoE’s Chief Economist Pill cautioned against the risk of cutting rates
either too far or too fast.
We will likely
need an awful report to get the market to fully price in a back-to-back cut in
December, but it’s unlikely that we will see a 50 bps cut being priced for
November unless the CPI data shows a big downside surprise as well.
UK Unemployment Rate
The Canadian CPI
Y/Y is expected at 1.8% vs. 2.0% prior, while the M/M figure is seen at -0.2%
vs. -0.2% prior. The underlying inflation measures are more important for the
BoC, so that’s what the market will be focused on. The Trimmed Mean CPI Y/Y is
expected at 2.5% vs. 2.4% prior, while the Median CPI Y/Y is seen at 2.3% vs.
2.3% prior.
The last soft Canadian CPI raised the probabilities for a 50 bps cut at the
upcoming meeting as BoC’s Macklem hinted to a possibility of delivering larger
cuts in case growth and inflation were to weaken more than expected.
The market scaled
back those probabilities following the surprisingly good Canadian Retail
Sales, the GDP report and the US NFP report. The expectations for a 50 bps
cut picked up again though and the probability was standing around 52% right
before the Canadian Labour Market report on Friday.
Those probabilities dropped to 36% following
a strong report but got back around 50% after the weak BoC Business Outlook Survey. The market is
clearly pushing for that 50 bps cut at any sign of weakness. Therefore, we can
expect the market to increase the chances of a 50 bps cut in case we get a soft
CPI report.
Canada Trimmed Mean CPI YoY
The New Zealand Q3
CPI Y/Y is expected at 2.3% vs. 3.3% prior, while the Q/Q figure is seen at
0.7% vs. 0.4% prior.
The core inflation
rate in New Zealand fell inside the 1-3% target band in the last report, and
given the unemployment rate at the highest level since 2021 and high frequency
indicators continuing to show weakness, the RBNZ cut by 50 bps at the last meeting.
The market expects
another 50 bps cut at the upcoming meeting in November and a total of 152 bps
of easing by the end of 2025.
New Zealand Core CPI YoY
Wednesday
The UK CPI Y/Y is
expected at 1.9% vs. 2.2% prior, while the M/M measure is seen at 0.2% vs. 0.3%
prior. The Core CPI Y/Y is expected at 3.4% vs. 3.6% prior, while the M/M
figure is seen at 0.3% vs. 0.4% prior.
A hot report won’t
change much in terms of market pricing as just one cut is fully priced in by
the end of the year anyway. A soft report though will likely see the market
looking for another 25 bps cut in December, and a very soft one for a 50 bps
cut in November.
UK Core CPI YoY
Thursday
The Australian
Labour Market report is expected to show 25K jobs added in September vs. 47.5K
in August and the Unemployment Rate to remain unchanged at 4.2%. The report is
unlikely to change anything for the RBA which continues to maintain its hawkish
stance.
Australia Unemployment Rate
The ECB is
expected to cut interest rates by 25 bps and bring the policy rate to 3.25%.
The central bank wasn’t looking for a back-to-back cut in October but following
the bleak PMIs at the end of September, the market rushed to price in such a
move which was then solidified following the benign Eurozone CPI and dovish
comments from ECB members. The market expects the ECB to deliver another
25 bps cut in December and four more in 2025.
ECB
The US Jobless
Claims continues to be one of the most important releases to follow every week
as it’s a timelier indicator on the state of the labour market.
Initial Claims
remain inside the 200K-260K range created since 2022, while Continuing Claims
after rising sustainably during the summer improved considerably lately.
Last week though,
the data surprised to the upside with both Initial and Continuing Claims
spiking to the cycle highs. The spike was attributed to distortions from
Hurricane Helene and the Boeing strike.
This week Initial
Claims are expected at 255K vs. 258K prior, while Continuing Claims are seen at
1870K vs. 1861K prior.
US Jobless Claims
The US Retail
Sales M/M are expected at 0.3% vs. 0.1% prior, while the ex-Autos M/M measure
is seen at 0.2% vs. 0.1% prior. The focus will be on the Control Group figure
which is expected at 0.3% vs. 0.3% prior.
Consumer spending
has been stable which is something you would expect given the positive real
wage growth and resilient labour market. Retail sales data is generally a
market moving release but it’s volatile and most of the time the initial moves
are faded.
The Y/Y figure
smooths the noise but in recent recessions, retail sales haven’t been a leading
indicator, on the contrary, retail sales showed weakness when the recessions
were well underway. Therefore, the data shouldn’t influence the market’s
pricing much.
US Retail Sales YoY
Friday
The Japanese Core
CPI Y/Y is expected to drop to 2.3% vs. 2.8% prior. The Tokyo CPI is seen as a
leading indicator for National CPI, so it’s generally more important for the
market than the National figure.
We had a dovish
turn from Governor Ueda in September caused by the appreciation of the JPY and
the Fed’s 50 bps cut. More recently, there’s been a more neutral language
coming from some BoJ officials and PM Ishiba, but the data doesn’t really point
to a near term hike though.
Japan Core-Core CPI YoY