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by Charalambos Pissouros

Weekly Outlook: Oct 14 – Oct 18: EU Summit, AU jobs data, New Zealand and Canada CPIs

Following last week’s trade negotiations between the US and China, where the two nations reached a phase-one deal, investors are now likely to keep their gaze locked mainly on Brexit and the EU summit scheduled for Thursday and Friday. Recent developments suggest that a withdrawal accord is now more likely and thus, it would be interesting to see whether this could be agreed by the end of this week. As for the data, Australia’s employment numbers, as well as New Zealand’s and Canada’s CPIs would also be in focus.

Monday appears to be a relatively light day in terms of economic releases and indicators. Markets in Japan and Canada will stay closed due to the Thanksgiving Day and the Health-Sports Day respectively. The only indicator worth mentioning is Eurozone’s industrial production for August, and expectations are for a 0.3% mom rebound after a 0.4% slide in July. That said, this would drive the yoy rate lower, to -2.5% from -2.0%.

On Tuesday, during the Asian morning, the RBA will release the minutes of its latest policy meeting. At that gathering, the Bank decided to cut interest rates by 25bps, to a new record low of +0.75%, and reiterated that they will continue to monitor developments, including in the labor market, and ease policy further if needed. According to the implied yield curve of the ASX 30-day interbank cash rate futures, investors are fully pricing in another cut for February. Thus, we will scan the minutes for hints and signals as to whether policymakers are willing to continue easing, and if so, when they could push the cut button again. That said, we believe that market participants will prefer to wait for the employment data, due out on Thursday, before they decide to adjust their bets on that front.

ASX 30-day interbank cash rate futures yield curve

From China, the CPI and PPI rates are due out. The CPI rate is expected to have ticked up to +2.9% yoy from +2.8%, while the PPI one is forecast to have slid to -1.2% yoy from -0.8%.

Later, during the European morning, we get the UK employment report for August. The unemployment rate is expected to have remained unchanged at 3.8%, while average weekly earnings, both including and excluding bonuses, are expected to have slowed to +3.9% yoy and +3.7% yoy from +4.0% and 3.8% respectively. According to the IHS Markit/KPMG & REC Report on Jobs for the month, starting salaries for permanent workers rose at the slowest since December 2016, while temporary pay growth slid to a five-month low. This supports the case for lower official wage rates.

The German ZEW survey for October is also coming out. Both the current conditions and economic sentiment indices are forecast to have slid further into the negative territory. Specifically, the current conditions index is expected to have declined to -26.0 from -19.9, while the economic sentiment one is anticipated to have fallen to -33.0 from -22.4.

On Wednesday, Asian time, New Zealand’s CPIs for Q3 are scheduled to be released. The qoq rate is anticipated to have remained unchanged at +0.6%, something that would drive the yoy rate down to +1.4% from +1.7%. At its prior meeting, the RBNZ kept interest rates unchanged at +1.00%, and although it maintained its easing bias, it did not provide hints that a November cut is a done deal. The Committee agreed that new information since August did not warrant a significant change to the policy outlook, and added that there is still scope for more fiscal and monetary stimulus, “if necessary”, in order to support the economy and maintain their inflation and employment objectives.

New Zealand CPIs inflation

However, the financial world remained convinced that the Bank will push the cut button again at its November meeting, assigning a 100% probability according to New Zealand’s OIS (Overnight Index Swaps). Thus, although a +1.4% yoy CPI rate would still be just a tick above the RBNZ’s latest projection for the quarter, which is at +1.3%, it is very unlikely to alter the market’s consensus.

Later in the day, we get CPIs from the UK as well. Both the headline and core CPI rates are expected to have risen to +1.8% yoy and +1.7% yoy, from +1.7% and +1.5% respectively. A rebound in inflation may allow the BoE to maintain its hiking bias, but how officials will decide to move forward will mainly depend on the Brexit outcome. Eurozone’s final CPI prints for September are also coming out and, as it is usually the case, they are expected to confirm their preliminary estimates.

More inflation data will be released from Canada. The headline rate is anticipated to have ticked up to +2.0% from +1.9%, while the core one is forecast to have stayed unchanged at +1.9% yoy. At its latest meeting, the BoC kept interest rates unchanged at +1.75%, reiterating that the current degree of monetary policy stimulus remains appropriate and thereby, staying among the very few major central banks that have not turned their eyes to the cut button yet. Thus, following the better-than-expected employment report for September, decent inflation numbers, around the Bank’s 2% objective, may allow Canadian policymakers to stay sidelined for a while more.

Canada CPIs inflation

From the US, we have retail sales for September, with the headline rate expected to have slid to +0.3% from +0.4%, but the core one to have increased to +0.2% mom from 0.0%.

On Thursday, the most important release is likely to be Australia’s employment report for September. The unemployment rate is forecast to have remained unchanged at 5.3%, well above the 4.5% mark, which the RBA believes it would start generating inflationary pressures, while the net change in employment is forecast to show a slowdown to 10k from 37.7k in August. A weak employment report is likely to keep Australian policymakers’ hands around the cut button, and may prompt market participants to bring forth the timing of when they expect the next quarter-point decrease to be delivered.

Australia employment report

From the UK, we get the retail sales for September, with both the headline and core monthly rates expected to have returned within the positive territory. Specifically, they are both anticipated to have risen to +0.1% mom from -0.2% and -0.3% respectively. This would drive the yoy rates up to +3.2% and +2.9% from +2.7% and +2.2%. However, bearing in mind that the yoy rate of the BRC retail sales monitor for the month declined to -1.7% from -0.5%, we would consider the risks surrounding the official forecasts as titled to the downside.

Having said all that though, despite the fact that we get a bunch of important UK data that could move the pound this week, we believe that GBP traders will stay largely focused on the political scene and the EU summit which begins on Thursday. Remember that last week, the pound skyrocketed after Irish PM Varadkar said that a Brexit deal could be reached by the end of October, and after EU Brexit negotiator Michel Barnier said that he had a “constructive” meeting with his British counterpart. All this has increased expectations with regards to a Brexit deal, but we would like to hear what the view of other EU member states is. Even if they find consensus at the summit, any deal would have to be approved by the UK Parliament, perhaps at a rare session on Saturday. Thus, we still believe that a finalized and sealed deal in less than a week’s time is not such an easy task, and if it doesn’t take flesh, Johnson would have to ask for a new extension, at least according to law. However, with the UK PM sticking to his guns that Britain will exit the EU by October 31st, with or without a deal, what would happen if no accord is approved remains largely a mystery.

Finally, on Friday, during the Asian morning, Japan’s National CPIs for September are coming out. The headline rate is expected to have ticked up to +0.4% from +0.3%, while the core one is forecast to have declined to +0.3% from +0.5%. That said, bearing in mind that both the headline and core Tokyo rates for the month moved lower, we see the risks surrounding the headline National rate as tilted to the downside.

Japan CPIs inflation

At its previous gathering, the BoJ decided to keep its ultra-loose policy and forward guidance unchanged, disappointing those who expected some form of easing, or at least a more dovish language. That said, the Bank added that it would pay closer attention to the possibility of losing its momentum towards hitting its inflation aim, and that they will reexamine developments at their next meeting. Thus, with inflation staying stubbornly well below the Bank’s objective of 2%, the probability for additional easing soon is likely to increase.

In China, GDP for Q3 is coming out, alongside the industrial production, fixed asset investment, and retail sales, all for September. The GDP is expected to have slowed to +1.5% qoq from +1.6%, something that would drive the yoy rate down to +6.1% from +6.2%. Industrial production and retail sales are forecast to have accelerated to +5.0% yoy and 7.8% yoy respectively, while the fixed asset investment rate is anticipated to have ticked down to +5.4% yoy from +5.5%.


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