Below are the most important global events likely to affect FX and bond markets in the coming week, starting October 14.
Focus will center on the possibility of more stimulus in China alongside a raft of economic data from the country, a likely interest-rate cut by the European Central Bank, and further U.S. economic data as investors continue to gauge prospects for interest rates in the world’s largest economy.
U.S.
Investors will continue to scrutinize upcoming U.S. economic data as the outlook for future interest-rate cuts looks uncertain after the Federal Reserve opted for a bumper 50 basis-point reduction in September.
This week’s U.S. data calendar is relatively thin, with retail sales and industrial output data for September due on Thursday, alongside the Philadelphia Fed manufacturing survey for October on the same day, likely to mark the highlights.
Recent stronger U.S. jobs data have caused investors to scale back their expectations for interest-rate cuts, helping to lift the yields on 10-year U.S. Treasurys above 4%. U.S. money markets are now pricing in a total of 44 basis points of rate cuts for 2024, according to LSEG Refinitiv data.
This suggests two 25 basis-point cuts at the Fed’s two remaining meetings in November and December are likely but not certain. Previously, markets were pricing in a high likelihood of another half-point reduction at one of those meetings.
Recent upbeat U.S. economic data “sit incongruously” with the Fed’s jumbo rate cut in September, Investec analyst Philip Shaw said in a note.
As such, investors’ “newfound sensitivity to real economy data” will mean close attention to upcoming data, as well as corporate earnings, Shaw said.
Other data include September existing home sales Wednesday and housing starts for the same month on Friday, Oct. 18. Weekly jobless claims will be released on Thursday.
CANADA
Canadian inflation data for September are due on Tuesday and will be particularly closely watched given uncertainty over how much the Bank of Canada will cut interest rates at its next meeting later this month, whether by the usual 25 basis points or a bigger 50 basis points.
Recent data showed Canada added more jobs than expected in September, while the unemployment rate dropped for the first time since January, potentially reducing the chances of a larger rate cut, analysts said.
Canada’s jobs market still looks weak, however, which “should continue to weigh on inflation over the coming months,” said Monex analyst Nick Rees in a note.
Canadian housing starts data for September are due on Wednesday.
EUROZONE
The European Central Bank announces a decision on Thursday and is widely expected to cut interest rates by 25 basis points, bringing the deposit rate to 3.25%. This would mark a back-to-back rate cut following a reduction in September.
Recent weak eurozone activity data and headline annual inflation now below the ECB’s 2% target have increased investors’ belief that rates will fall again this month.
“Weaker-than-anticipated growth indicators, as well as a decline in inflation, support the case for another rate cut from the ECB,” said analysts at Danske Bank Research.
Investors will also watch for any clues on how far and how fast rates could fall from here, although the ECB might not give too much away.
“We once again expect limited guidance on rate moves thereafter,” HSBC economists said in a note. They forecast 25 basis-point rate cuts at every meeting until April, taking the deposit rate down to 2.25%.
Next week’s key eurozone data include the ECB’s Bank Lending Survey and eurozone industrial production on Tuesday, while an EU summit is scheduled for Thursday-Friday.
Final French and Spanish inflation data for September and Germany’s ZEW sentiment index are also due Tuesday. Italian September inflation data are due Wednesday.
Government bond auctions are scheduled in Finland on Tuesday, Greece and Germany on Wednesday, and Spain and France on Thursday. Germany will auction 2050- and 2054-dated Bunds.
U.K.
In a busy week for U.K. economic data, jobs figures on Tuesday, inflation on Wednesday and retail sales on Friday could all steer whether or not the Bank of England will opt for a back-to-back interest-rate cut at its next decision in November.
U.K. money markets are currently pricing in a 79% chance of a 25 basis-point rate cut on Nov. 7.
HSBC economists expect the annual CPI rate to fall to 1.9% in September, from 2.2% in August, taking it below the BOE’s 2% target. Meanwhile, they say retail sales could drop in September, “paying back some of the monthly rise in August, even if the annual rate remains healthy.”
Investec analysts expect annual CPI inflation to fall by even more to 1.7%, due mainly to sharp falls in petrol prices and airfare. They note that the outlook for oil prices looks uncertain, however, given the current conflict in the Middle East.
The U.K. will auction July 2054-dated government bonds, or gilts, on Tuesday and October 2031-dated gilts on Wednesday.
SCANDINAVIA
Swedish inflation data for September are released on Tuesday, where a weak number could increase prospects of a large rate cut.
The Riksbank cut interest rates again at the end of last month and said rates would likely fall again at the two remaining meetings of this year, with a larger 50 basis-point drop possible at one of them.
Norway will hold an auction on Wednesday, while Sweden will sell inflation-linked bonds on Thursday.
TURKEY
Turkey is expected to leave its key interest rate on hold at 50% on Thursday.
“Given limited improvement in services inflation and inflation expectations, we maintain our view that the policy rate will remain on hold throughout this year and that the easing cycle will only commence in 2025,” HSBC economists said in a note.
CHINA
It’s a big week for China-watchers, featuring a third-quarter growth print plus key indicators of the economy’s health and a central bank rate announcement.
The onslaught of data comes as Beijing ramps up efforts to breathe life back into the economy. Investors are expecting more stimulus announcements but the bar for disappointment is low. Markets have experienced furious rallies and just-as-frenzied selloffs as traders assess each new stimulus effort. It remains to be seen if policymakers will manage to really boost confidence.
On the data front, things kick off with trade data for September on Monday, followed by the People’s Bank of China medium-term lending facility announcement on Tuesday, and a string of data releases Friday, Oct. 18.
Forecasts compiled by the Wall Street Journal suggest that the data will signal continued weakness in the economy.
Economic growth likely eased to 4.5% in the third quarter, the WSJ poll showed. Exports are expected to have continued to grow in September but at a slower pace, though imports likely picked up. Consumer price inflation is expected to have held steady, while producer price deflation likely worsened. Industrial production is projected to have picked up in September, while new bank loans may have risen sharply from August thanks to the stepped-up stimulus.
Housing price data on Friday will show if the decline in home prices has finally stopped.
Small victories like these could support the yuan and other Asian currencies, Maybank analysts said. Strong fiscal stimulus could also boost the yuan, leading to positive spillovers for regional FX, but the converse is also true, they added.
AUSTRALIA & NEW ZEALAND
In Australia, the release of employment data for September on Thursday will shape activity in the bond market. The Reserve Bank of Australia remains watchful of both inflation–which remains sticky–and recent strength in employment growth, citing them as key reasons for why it hasn’t joined other central banks yet in slashing interest rates.
A sudden rise in unemployment would likely prompt a clear change in messaging from the RBA, bringing a cut into view. But so far that has not happened, with third-quarter inflation data at the end of this month also set to be pivotal in determining the outlook.
A speech by the RBA’s chief economist, Sarah Hunter, on Wednesday may also trigger a market response. There’s no set topic for the speech yet.
In New Zealand, inflation data for the third quarter on Wednesday are expected to support the Reserve Bank of Zealand’s recent decision to lower the official cash rate by 50 basis points to 4.75%. The central bank has expressed a high level of confidence that inflation is settling within its 1% to 3% target band.
Housing price data for New Zealand on Tuesday will also give a glimpse into how consumer confidence is faring, especially in light of the start of rate cuts.
JAPAN
Japan is scheduled to release closely-watched consumer price data on Friday, Oct. 18 as speculation grows over the timing of the Bank of Japan’s next interest-rate increase.
Core consumer prices excluding volatile fresh food prices are expected to have risen 2.3% in September from a year earlier, according to a poll of economists by data provider Quick. The pace of price rises is expected to be slower than the 2.8% rise in August because of the government’s renewed energy subsidies.
August machinery orders due Wednesday and those of September–plus trade data–on Thursday, will likely give hints on the strength of external demand amid concerns about the global economic outlook, including the performances of the country’s biggest trading partners, the U.S. and China.
Market participants will also closely watch upcoming remarks from Bank of Japan policy board member Seiji Adachi for further clues on the central bank’s monetary policy path. Adachi is scheduled to meet local leaders in Kagawa, Japan, on Wednesday.
SINGAPORE
Singapore watchers are in for a data-packed week, featuring advanced estimates of third-quarter gross domestic product and a central bank meeting, both on Monday.
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10-13-24 2014ET