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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
