FX Week Ahead – US retail sales, Yellen and China trade in focus

Given this week’s major events such as nonfarm payrolls, the twin ISM surveys out of the US and the steep drop in the British pound, next week will likely be calmer. Thursday and Friday could see more action due to US retail sales, Chinese trade balance and a speech by Fed Chair Janet Yellen.

US: Retail sales and Yellen speech

At the beginning of the week, the Columbus day holiday in the United States could lead to thin trading conditions during North American trading hours. Staying in the United States, traders could look at the JOLTS job openings numbers on Wednesday before the weekly initial jobless claims out on Thursday. The latest jobless claims were near a 43-year low at 249k this week and it will be interesting to see whether they will remain as low again.

Friday will be the busy day for US economic data and events. The main highlight will be Retail Sales for September, which are expected to rebound compared to a disappointing August. Retail sales are expected to go up by 0.4% month-on-month, while ex-autos are also expected to be strong at 0.4%. Failure of the numbers to meet expectations will be bad for third quarter growth estimates, which will be out at the end of the month. Lower-than-expected economic growth could keep the Fed on the sidelines in December, as growth has been relatively slow this year.

On Friday, September producer prices will also be announced and PPI has been recovering lately. The University of Michigan preliminary consumer sentiment will also be key; not only for its economic significance but also because high consumer confidence before an election usually augurs well for the incumbent party. Fed Chair Janet Yellen will speak at a Federal Reserve Bank of Boston event on Friday, capping a week during which various Fed officials including New York’s Bill Dudley will also speak. Yellen will speak in a conference that will deal with why the economic recovery has been slow so far; a theme that is also reflected in the Fed’s gradual approach in raising interest rates. The minutes from the September Fed meeting will come out on Wednesday.

Eurozone: Sentix and Germany’s ZEW surveys

The Eurozone will have a rather quiet week as no major data or ECB officials will be on tap. The week will start with the Eurozone Sentix investor sentiment survey on Monday. The ZEW economic sentiment index (Tuesday) out of Germany is expected to show a substantial improvement in October compared to the previous month. German data has generally been strong lately but it will be interesting whether the recent woes related to Brexit are going to have any effect on sentiment on Germany and the Eurozone. Other statistics expected next week will be German trade numbers (also out on Monday) and French and German final inflation for September. Eurozone industrial production for August will be out on Wednesday.

Asia: Chinese inflation, and trade and Japanese machinery orders

There will be some important numbers out of China next week, as the Chinese return from their Golden week break. The Chinese data will come out relatively late in the week, with September trade figures coming out on Thursday and consumer inflation for the same month due out on Friday. Another year-on-year rise in Chinese imports will be viewed as a healthy sign out of the world’s second largest economy. Consumer inflation will be accompanied by producer prices. Inflation in China is expected to remain relatively low – around 1.6%, but that would be up from the previous month’s 1.3% year-on-year rate.

In Japan, current account data for August will be released on Tuesday while August machinery orders, a key gauge of capital spending plans, are scheduled for release on Wednesday. Machinery orders are expected to decline by 5.5% on the month but be up 6.5% year-on-year. Corporate goods prices, a measure of Japanese wholesale prices, are expected to show deep deflation of -3.2% year-on-year in September, although they will be not as bad as the -3.6% reading of the previous month.

Finally Australia will release housing finance for August and the NAB business survey for September on Tuesday.