UPCOMING EVENTS:
- Monday: US NAHB Housing Market Index.
- Tuesday: RBA Meeting Minutes, Canada CPI, US Housing Starts and Building Permits.
- Wednesday: PBoC LPR, UK CPI, Eurozone Wage Growth.
- Thursday: Canada PPI, US Jobless Claims.
- Friday: Australia/Japan/EU/UK/US Flash PMIs, Japan CPI, UK Retail Sales, Canada Retail Sales.
Tuesday
The Canadia CPI Y/Y is expected at 1.9% vs. 1.6% prior, while the M/M figure is seen at 0.3% vs. -0.4% prior. The focus will be on the underlying inflation measures with the Trimmed Mean CPI Y/Y expected at 2.4% vs. 2.4% prior, while the Median CPI Y/Y is seen at 2.4% vs. 2.3% prior.
The BoC is now focused on growth as inflation has been inside the target band for several months while economic activity slowed down. The market is pricing a 35% chance of another 50 bps cut in December, so lower than expected inflation readings will likely raise those probabilities.
Wednesday
The PBoC is expected to keep the LPR rates unchanged at 3.1% for the 1 year and 3.6% for the 5 year. Deflationary forces remain in place and the market continues to signal that they need to do more.
The PBoC pledged more monetary policy support with another cut in the reserve requirement ratio to accommodate additional government bond issuance likely coming by the end of the year. The central bank should do much more though as real interest rates are still too high.
The UK CPI Y/Y is expected at 2.2% vs. 1.7% prior, while the M/M figure is seen at 0.5% vs. 0.0% prior. The Core CPI Y/Y is expected at 3.2% vs. 3.2% prior. Last time, the UK inflation data missed expectations by a big margin with services inflation dropping to 4.9% from 5.6% in the prior month.
In the meantime, we’ve also got a soft labour market report and a lower than expected GDP print. The market is currently pricing just a 22% probability of another 25 bps cut in December, but that should increase if we were to get another miss in the CPI data.
Thursday
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 a spike to the cycle highs in the last couple of weeks due to distortions coming from hurricanes and strikes, are now turning around.
This week Initial Claims are expected at 223K vs. 217K prior, while there’s no consensus for Continuing Claims at the time of writing although the prior reading saw a decrease to 1873K vs. 1884K prior.
Friday
Friday is going to be the Flash PMIs Day for many major economies. The market is going to focus majorly on the Eurozone, UK and US PMIs as they are likely to influence the interest rate expectations:
- Eurozone Manufacturing PMI: 46.0 expected vs. 46.0 prior.
- Eurozone Services PMI: 51.5 expected vs. 51.6 prior.
- UK Manufacturing PMI: 49.9 expected vs. 49.9 prior.
- UK Services PMI: 52.0 expected vs. 52.0 prior.
- US Manufacturing PMI: 48.8 expected vs. 48.5 prior.
- US Services PMI: 55.3 expected vs. 55.0 prior.
The Japanese Core CPI Y/Y is expected at 2.2% vs. 2.4% prior. Inflation isn’t really an issue for Japan as the underlying measures are basically at target. Nonetheless, the probabilities for a rate hike in December increased to 55% recently as the Japanese Yen continued to depreciate non-stop due to the rally in Treasury yields. One of the main reasons why the BoJ hiked rates last time was the fast depreciation of the JPY.
