Solid US growth remains a feature of the global environment. But the FOMC’s 8th rate hike last month, and no signs of stopping, are starting to unnerve investors, especially amid slowing in China, and political turmoil in the EU. Meanwhile, the global wall of worry is rising, with each new development adding to an already convoluted trade in bonds, stocks, and currencies. Along with monetary policy and tariff/trade risks, there are the ongoing uncertainties over Brexit, and the escalating tensions between Italy and the EU. While all of these are keeping the markets choppy, the US economy, and particularly the labor market, keeps rolling along.
United States: Solid US growth remains a feature in an increasingly turbulent global environment. And all eyes will be on the Advance Q3 GDP report (Friday) for more insight on the strength of the economy. Meanwhile, earnings will be front and center as Q3 gets fully underway. Expectations are for only a slight moderation from the hefty 25% y/y pace from Q2. However, key for the markets may be guidance. Fedspeak will dot the calendar all week with seven speaks on tap, including five voters. The Q3 GDP report (Friday) will be much awaited after the 4.2% clip from Q2. Positive contributions are expected from consumption, inventories, government spending as well as nonresidential investment, but net exports should be a drag, along with residential investment. Along with GDP, the rest of the week’s reports should generally be upbeat. September new home sales (Wednesday) are estimated rising 0.5% to 632k, after bouncing 3.5% in August from declines in the prior two months. September durable goods orders will be of interest, despite the usual monthly volatility. The final October Michigan sentiment reading should be unchanged from the preliminary 99.0 print, which fell from 100.1 in September.
Canada: BoC policy announcement, Monetary Policy Report and press conference, all due Wednesday, are the highlight this week. BoC is expected to announce a 25 basis point increase in rates to 1.75%, as the economy runs near potential and underlying inflation holds around the 2% target. Three to four more 25 basis point rate hikes are expected next year. The reminder of the calendar is rather underwhelming this week. August wholesale shipment values (Monday) are seen falling 0.5% after a 1.5% jump in July. August average weekly earnings (Thursday) are projected to slip 0.1% (m/m, sa) after the 0.4% drop in July. The October CFIB Business Barometer is due on Thursday.
Europe: ECB meeting (Thursday) is the focal point, and the center of attention will be President Draghi’s response to the latest jitters in Eurozone peripheral markets that were triggered by the standoff between Rome and Brussels over the budget overshoot. Draghi is anticipated to stick to his guns and confirm the phasing out of asset purchases by the end of the year. The guidance on rates, meanwhile, is unlikely to change. Some council members may be pushing for an early discussion on the timing of the first move, though not before early next year.
Data releases are unlikely to materially change the ECB outlook. However, confidence reports are expected to confirm that growth momentum is waning and not just due to capacity constraints, but also resulting from an increasingly uncertain outlook for world trade. The German Ifo reading may still get some support from the last rebound in manufacturing orders, although the revamped survey now includes the services sector which could be a drag and leave the reading lower than it would have been. Meanwhile preliminary October PMI numbers are expected to generally slip from September levels, but should remain firmly above the 50 point no change mark, thus indicating the expansion remains intact. A decline is expected in the Eurozone manufacturing PMI (Wednesday), while the services reading is seen falling back to 54.5from 54.7. The German Ifo Business Climate for October (Thursday) is expected to decline to 103.5 from 103.7 in September, with the expectations reading falling back further amid the eroding outlook. So far, job creation has held up, albeit at a slower pace, and with companies more uncertain about the future and reluctant to invest too heavily in new machinery.
UK: The Pound declined by an average of nearly 1.5% versus the Dollar, Euro and Yen last week. The Brexit negotiations will continue, and could last into December or even January, although there are risks for leaving it too close to the March 29th exit day, as businesses would likely to get tetchy and markets would probably start betting on a no-deal scenario the closer to the deadline negotiations go, while the time available for both the UK and the EU-27 to ratify a deal would erode.
The calendar this week is quiet, highlighted by CBI’s October industrial trends and distributive sales surveys (due Tuesday and Thursday, respectively), data which are not normally market movers.
Japan: The October services PPI (Thursday) should show a slight deceleration to 1.1% y/y from 1.3%. October Tokyo CPI (Friday) is expected to show an overall rise of 1.6% y/y versus 1.2%, while holding steady at 1.0% y/y on a core basis.
Australia: A busy week for Reserve Bank of Australia officials contrasts with a moribund schedule of economic data. Debelle provides remarks (Tuesday) at the ISDA Annual Australia Conference. Assistant Governor (Business Services) Boulton, Assistant Governor (Financial System) Bullock and Deputy Governor Debelle participate in a panel (Tuesday) at the Sibos 2018 Conference. Panel participation at the Sibos Conference is also scheduled for Head of Payments Policy Department Richards (Wednesday) and Head of Payments Settlements Department Johnston (Thursday). There is not any top tier economic data due this week.
New Zealand: The calendar has the trade report (Thursday), which is expected to reveal a modest narrowing in the deficit to -NZ$1,400 mln in September from -NZ$1,484 in August. There is nothing from RBNZ this week. The next meeting is November 8, where no change to the 1.75% policy setting is expected next month and through 2019.
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Andria Pichidi
Market Analyst
HotForex
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