Divergence had been the name of the game so far this year as the trade war played out and the US outperformed the globe in terms of growth and equity sweepstakes. But the US yield breakout in October seems to be leveling the field again. The majority of equity indices around the world are negative on the month, while the US and Japan double-digit returns on the year have been cut in half. Looking ahead this week for fundamental signals, US retail sales should improve, though housing data may start to register a hit due toHurricane Florence.
United States: The week of October 15 will be a busy one in the US with several economic indicators as well as minutes from the September 25-26 FOMC meeting on the calendar. In terms of economic indicators, retail activity will be the focus, and a healthy gain is expected in retail sales in September. The Empire State and Philly Fed indexes should be mixed, but will remain at strong levels. Another solid gain is anticipated in industrial production while housing starts will likely decline and existing home sales should post a small gain. Finally, business inventories are expected to rise as is the leading economic index.
The economic calendar includes retail sales which are seen rising 0.5% in September (Monday) in headline sales and an ex-auto gain of 0.3%, after disappointing August data. Empire State index is estimated to rise to 21.0 in October (Monday), from a 5-month low of 19.0 in September. Industrial production is expected to rise 0.4% in September (Tuesday), following 0.4% gains in August and July. Also on tap are the NAHB housing market index (Tuesday), seen rising to 68 in October from 67, along with JOLTS job openings. September housing starts (Wednesday) are forecast to drop 2.5% to 1.250 mln, while permits should rise 2.5% to 1.280 mln. All of the September housing data are at risk of a hit from hurricane Florence. EIA energy inventory data is on tap too (Wednesday). The Philly Fed index should moderate to 21.0 in October (Thursday), from 22.9 in September and initial jobless claims are estimated to rise 6k to 220k in the week ended October 13 (Thursday), following a 214k reading in the week of October 6, as we may see a boost from Hurricane Michael. The leading economic index should post a 0.5% rise in September, a 12th straight monthly increase. The week rounds out with existing home sales that may post a lean 0.2% increase in September (Friday), to 5.35 mln, following a flat reading of 5.34 mln in August.
Canada: Canada’s top-tier releases book-end this week’s docket, with the BoC’s Business Outlook Survey due Monday and the September CPI due Friday. The Bank’s Business Outlook Survey for autumn will likely show increased worry over trade. In the data calendar, CPI is seen holding steady in September on a month comparable basis (0.0%) after the 0.1% rise in August. Annual CPI growth is projected to slow to a 2.6% y/y pace in September from 2.8% in August and the lofty 3.0% growth rate in July, adding further support to the Bank’s view that the run-up in CPI through July was due to temporary factors that are now unwinding. Manufacturing sales values (Wednesday) are projected to fall 0.5% in August after the 0.9% improvement in July. August retail sales (Wednesday) are expected to improve 0.5% after the 0.3% gain in July.
Europe: The tensions between Rome and Brussels are likely to continue and the European Council meeting this week may also not bring the hoped for Brexit breakthrough. EU-27 leaders will hold a working dinner on Wednesday, before the official summit on Thursday and while there were signs that UK Chancellor May’s team are closer than ever to a deal with the EU’s Brexit negotiators, it is already clear that Brexiteers, as well as Northern Ireland’s DUP, which May relies on in parliament, will be putting up a fight. Meanwhile, the time for a deal that also has to pass national parliaments is truly running out.
Data releases focus on German ZEW Investor Sentiment (Tuesday), where a slight dip should be posted in the October reading to -10.9 from -10.6 in September, although with the large volatility in markets this past week, uncertainty is higher than usual and much may depend on the timing of the answers. The final reading of September Eurozone HICP inflation (Tuesday) is unlikely to hold any surprise and confirm the headline rate at 2.1% y/y, above the ECB’s 2% limit for price stability, but mainly due to higher energy and food price inflation. Core inflation remains at just 0.9%, giving Draghi room to ignore high headline rates for now. Other data releases include Eurozone trade (Tuesday), as well as BoP and current account data (Friday).
UK: Brexit negotiations are coming to a head into this week’s Brussel’s summit. The data calendar is busy this week, highlighted by monthly labor data (Tuesday), inflation figures (Wednesday) and retail sales (Thursday). The labor market report is expected to show unemployment rate remaining unchanged at 4.0% in August, and average household pay to also hold unchanged from the previous month, at 2.6% y/y in the three months to August (medians same). As for inflation, the headline CPI should dip to 2.6% y/y in September from 2.7% in the month prior, with the core CPI figure seen ebbing to a 2.0% y/y rate from 2.1% in August. For September retail sales, a 0.3% m/m contraction could be released, after 0.3% growth in the month prior, with the y/y rate seen lifting to 3.7% y/y from 3.3%
Japan: The September trade report (Thursday) should reveal a narrowed deficit to JPY 100.0 bln from the prior 438.4 bln shortfall when imports rose to a 15.3% y/y gain, while exports climbed to 6.6% y/y. September national CPI (Friday) likely cooled to 1.2% y/y from 1.3% overall, and to 0.8% y/y from 0.9% on a core basis. That won’t be good news for BoJ.
China: The September CPI (Tuesday) is expected to rise to 2.4% y/y from 2.3%, while September PPI (Tuesday) is penciled in slowing to 3.5% y/y from 4.1%. All eyes will be on Q3 GDP (Friday). Growth is seen decelerating modestly to 6.5% y/y from 6.7%, though that nevertheless could add to rising concerns over the bearish impact on growth from the US trade imbroglio. September industrial production (Friday) should pull back to a 5.9% y/y pace from 6.1%. September retail sales and fixed investment are also due (Friday), with the former forecast at 8.9% y/y from 9.0%, and the latter at an unchanged 5.3% y/y.
Australia: The Reserve Bank of Australia releases the minutes of the October meeting (Tuesday). Deputy Governor Debelle speaks (Wednesday) at the 2018 Citi Conference, Sydney. Employment (Thursday) is seen rising 25.0k in September after the 44.0k gain in October. The unemployment rate is seen at 5.3%, matching September.
New Zealand: The calendar has CPI (Tuesday), expected to expand 0.8% (q/q, sa) in Q3 after the 0.4% gain in Q2. The annual growth rates is projected to accelerate to a 1.8% pace from 1.5% in Q2. There is nothing from the RBNZ this week. The next meeting is November 8. No change is expected to the 1.75% policy setting next month and through 2019.
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Andria Pichidi
Market Analyst
HotForex
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