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It is now all about inflation data. The focus was temporarily on the labour market but everyone knows that the Fed is primarily concerned with what is happening with inflation.
Wall Street will first get a look at producer prices on Wednesday and then CPI the next day. August data showed high inflation remains well-entrenched as shelter and food prices surged, while gas prices softened. Expectations for the September inflation report are for inflation pressures to remain hot. The consumer price index is expected to increase by 0.2% for the month and 8.1% over the past year.
Traders will also pay close attention to the FOMC minutes that should show a consistent hawkish stance to fight persistently high inflation. It will also be another busy week of Fed speak as seven FOMC members will be making appearances. Evans and Brainard speak on Monday. On Tuesday, Mester speaks to the Economics Club of NY. Wednesday sees Kashkari and Barr speak before the minutes are released. Cook makes the last Fed appearance on Friday.
Earnings season also begins with the big banks. This earnings season will likely be filled with hiring freezes/layoff announcements, cost-cutting saving measures, and mostly downbeat outlooks. The health of the consumer is weakening, and Wall Street will want to see how bad banks assess the health of the consumer.
Three weeks to go until the next ECB meeting and it’s still not clear whether the central bank will opt for 75 basis points or 100. The decision to super-charge the tightening cycle is not an easy one as policymakers are desperately concerned about the economic ramifications and the risk of going too far too quickly. Final inflation readings combined with various ECB appearances – including President Christine Lagarde – could shed further light on which way the central bank is currently leaning.
Where do we begin? The key event next week may well be the expiry of the BoE’s gilt-buying intervention on 14 October which some fear could spark another exodus from UK government bonds as the backstop is removed. Those fears may be overblown but investors may only be able to relax again once successfully removed.
We’ll hear from a variety of BoE policymakers next week, all of whom will likely face a barrage of questions related to its bond-buying, the government and its mini-budget and of course the economy. On top of that, there’s a selection of economic data including the jobs report on Tuesday, and GDP and industrial production on Wednesday.
Another week of question dodging and scripted “answers” is on the cards for the government as it desperately scrambles to clear up the mess it so rapidly created.
The focus remains on Ukraine as Russia continues to lose ground in territories it previously captured. Meanwhile, the West is working towards fresh sanctions and potential caps on Russian energy prices in response to the illegal annexation of four regions it currently partially controls in Ukraine.
It’s that time of the week when I rant about Turkey’s ridiculous monetary policy experiment and its damaging consequences at a time of global tightening. Inflation rose above 83% in September, a victory for President Erdogan no doubt as forecasts put it closer to 85%. Next week we’ll get labour market figures on Monday and current account on Tuesday (spoiler, it hasn’t been fixed by soaring inflation and the weakest ever exchange rate).
Further rate hikes are coming, the question is when and how much. Markets are pricing in a coin flip between 50 and 75 basis points but will the SNB wait until 15 December to pull the trigger? Inflation eased to 3.3% in September, a level Chairman Thomas Jordan suggested the central bank won’t tolerate (anything above target, in fact). We’ll hear from him again on Tuesday.
Next Friday, China’s CPI data will be released and is expected to be around 2.5%, comfortably within target. Against the backdrop of a sharp correction from a recent peak in the US dollar, USD/CNH fell by 3.44%, easing pressure on the currency. The 20th National Congress of China will be held next Sunday, 16 October. The market generally expects that adjusting the pandemic prevention and control policy may be one of the important themes of this meeting.
WPI inflation data for September is expected to show price pressures easing next week, which could enable the RBI to consider slowing its tightening cycle.
A quiet week following the RBA decision to slow the pace of tightening last week with a 25 basis point hike. This was below market expectations of 50bps and made the RBA the first major central bank to ease off the brake. Consumer inflation expectations on Thursday may be of some interest.
In New Zealand the central bank did not ease off the brake, opting instead to maintain its pace with another 50bps hike, taking the cash rate to 3.5%. The market expects the central bank’s final interest rate target for this round to be around 4.5% according to the Refinitiv rate probability tracker. A tight labour market and lower immigration are creating more sustained domestic inflation pressures and the RBNZ believes there’s still more work to do. On the data front, the BusinessNZ manufacturing index will be released on Thursday.
Japanese FX intervention is a hot topic once more as it trades around 145 to the dollar. This is just shy of where the Ministry of Finance intervened a couple of weeks ago and around the level the BoJ conducted a rate check the week prior. Another hot US jobs report on Friday may have made intervention more likely.
The BoJ is unlikely to tweak its yield curve control policy any time soon. Governor Haruhiko Kuroda said it would continue to adhere to the easing policy and keep the yield curve ceiling at 0.25% and the benchmark interest rate at -0.1 %. No changes are expected until after Kuroda’s term ends in March 2023. Still, PPI data on Thursday may be of interest.
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