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The Economic Week Ahead

Market Analysis

The September U.S. jobs report lived up to its “distorted” billing. But, while many of the stats showed outsized gains (in terms of earnings), or losses (in terms of jobs), they could be generally easily rationalized due to the hurricanes. The net result left intact the view that the FOMC will remain on its gradual course of normalization near-term. After the holiday break for the U.S., Canada, and Japan on Monday, markets will be back at full strength with China returning from a week long absence with PMIs on tap. Even before then, there is a risk of a constitutional showdown in Spain over the Catalonia independence vote and heavy-handed response by Madrid, which may yet have Brexit-like complications for the wary EU itself.

United States: The U.S. economic calendar will get off to a slow start after the Columbus/Indigenous Peoples Day holiday break by the markets Monday, focused mainly on more questionable September data including potentially hurricane-impacted inflation and retail sales towards the end of the week.After NFIB small business optimism (Tuesday), MBA mortgage stats are due (Wednesday), along with JOLTS job openings and the FOMC minutes. Accordingly, September PPI is forecast to rise in August (Thursday). Also due then is recently choppy initial jobless claims, seen dropping another 22k to 238k as storm anomalies wash out of the data. Headline CPI is forecast to surge 0.6% in September from 0.4% due to the surge in petroleum prices, in August (Friday).

CanadaA holiday-truncated week is thick with housing data (Monday is Thanksgiving Day). The week begins with September housing starts (Tuesday), expected to dip to 220.0k from the 223.2k in August. Housing permits (Tuesday) are seen slipping 1.0% m/m after the 3.5% drop in July. The August new home price index is due Thursday. The Teranet/National Bank housing price index for September is also due Thursday. There is nothing schedule from the Bank of Canada this week.

Europe: This week’s data releases are unlikely to add much to the discussion as August production numbers are rather backward looking and final inflation numbers are not expected to bring decisive revisions. Developments in Spain, however, will be watched carefully. At the time of writing there was no sign of a breakthrough in the standoff between Madrid and Barcelona. EU officials are watching the situation nervously with a potential showdown on Monday. Wary of setting any type of precedent, they have made clear that an independent Catalonia would no longer be part of the EU, but clearly would prefer the conflict to be resolved without a secession at a time when Brexit talks loom. The data week starts with German August industrial production (Monday). The French production and overall Eurozone IP will be on Thursday. German trade data for August is also due and expected to show another hefty surplus, although the current recovery is more than previously driven by consumption and domestic demand. The main bulk of data releases centres on final September inflation readings, which are expected to confirm German HICP (Friday) at 1.8% y/y, the Spanish (Wednesday) reading at 1.9% y/y, the French (Thursday) at 1.1% y/y, and finally the Italian rate (Friday) at 1.1% y/y. This should leave overall Eurozone HICP inflation, due to the following week on course to be confirmed at 1.5% y/y, well below the ECB’s 2% upper limit for price stability, but also highlighting that the convergence of inflation rates that officials had been hoping would be one of the results of monetary union, hasn’t really happened.

UK: Sterling last week saw its biggest weekly decline, of 2.5% versus the dollar, since August 2016, a time when markets were still reeling from the shock of the vote to leave the EU. Like then, the pound is in a tailspin over political and Brexit uncertainties. The calendar this week has the BRC retail sales report for September (Tuesday), industrial production and trade figures for August (also Tuesday), and the RICS house price balance (Thursday). The BRC report will be monitored to see if the consumer sector continues to hold up, buoyed by near record levels of employment and low borrowing rates, but challenged by an erosion in spending power with inflation exceeding pay increases. As for production, growth in industrial output is expected, which would be the same as in July.

New Zealand: New Zealand’s calendar is thin this week. QV new home prices for September are due Tuesday. The Reserve Bank of New Zealand next meets on November 9. They held rates steady at 1.75% last week, matching expectations. The statement by Acting Governor Spencer was consistent with no change in rates for an extended period.

Japan: The docket kicks off Tuesday after Monday’s holiday with the August current account, where the surplus is expected to narrow to JPY 2,200 bln from 2,320 bln. August machine orders is on Wednesday. The August tertiary industry index (Thursday) should rise 0.1% from the same previously. September PPI (Friday) is seen accelerating slightly to 3.1% y/y from 2.9% in August. Strength in oil prices may be offset by the firmer yen.

China: Loan growth and new yuan loans for September (Tuesday) should show new loans rising to CNY 1,300 bln from 1,090 bln previously. The September trade report (Friday) is forecast to show the surplus narrowing to $39.0 bln from $41.9 bln. Exports likely remained solid, even to the U.S. despite some trade tensions.

Australia: The Reserve Bank of Australia’s Financial Stability Review (Friday) headlines a thin week of data and events. RBA Deputy Governor Debelle speaks (Tuesday) at the FX Global code of conduct in Hong Kong. August housing investment (Thursday) is expected to gain 2.0% after the 2.9% rise in July.

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Andria Pichidi

Market Analyst

HotForex

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