Weekly Market Outlook (14-18 October)

Upcoming events:

• Monday: US, Canada, Federal Reserve Bank holiday. (US stock market open/bond market closed)
• Tuesday: UK Labor Market Report, German ZEW, Canadian CPI, New Zealand CPI Q3.
• Wednesday: UK Consumer Price Index.
• Thursday: Australian labor market report, European Central Bank policy decision, US retail sales, US unemployment claims, US industrial production and capacity utilization, US NAHB housing market index.
• Friday: Consumer Price Index in Japan, Industrial Production and Retail Sales in China, Retail Sales in the UK, US Housing Starts and Building Permits.

Monday

Christopher Waller is a key Fed governor because he has been a “leading indicator” of changes in Fed policy. He recently stated that they may rush to cut interest rates if labor market data worsens, or if inflation data continues to come in lower than everyone expected.

He also added that the new rise in inflation could also lead to the Fed stopping interest rate cuts. The market is now almost exactly in line with the Fed’s latest forecasts, so if you ignore the latest inflation data aside, that will likely boost risk appetite.

Tuesday

The UK labor market report is expected to show 250,000 jobs added in the three months to August compared to 265,000 jobs through July, and the unemployment rate to remain unchanged at 4.1%. Average weekly income including bonus is expected to reach 3.8% versus 4.0% previously, while the previous bonus figure is expected to reach 4.9% versus 5.1% previously.

The market expects an easing of 36 basis points by the end of the year with an 80% probability of a 25 basis point cut in November. Bank of England Governor Bailey It recently caused a sell-off in sterling when he stated that the central bank could become more aggressive about interest rate cuts, while Bank of England chief economist Pell warned of the risk of cutting interest rates too much or too quickly.

We’ll likely need a bad report for the market to fully price in December’s back-to-back cuts, but we’re unlikely to see a 50 basis point cut for November unless the CPI data shows a significant downside surprise where, well, the CPI data shows a significant downside surprise.

Canadian CPI YoY is expected to come in at 1.8% vs. 2.0% previously, while M/M is expected to come in at -0.2% vs. -0.2% previously. Core inflation measures are more important to the Bank of Canada, so that is what the market will focus on. The average CPI on an annual basis is expected to be 2.5% versus 2.4% previously, while the average Consumer Price Index (CPI) on an annual basis is expected to be 2.3% versus 2.3% previously.

Canada’s latest CPI raised the odds of a 50 basis point cut at the next meeting with the Bank of Canada’s Macklem hinting at the possibility of deeper cuts if growth and inflation are weaker than expected.

The market trimmed these odds after surprisingly good Canadian retail sales, GDP report and US non-farm payrolls report. Expectations of a 50 basis point cut rose again, and the probability was around 52% before the Canadian labor market report on Friday.

Those odds dropped to 36% after a strong report but returned to around 50% after a weak Bank of Canada business outlook survey. It is clear that the market is pushing for a 50 basis points cut at any sign of weakness. Therefore, we can expect the market to increase the chances of a cut by 50 basis points in case we get a weak CPI report.

New Zealand CPI for the third quarter year-on-year is expected to come in at 2.3% vs. 3.3% previously, while the quarterly CPI is expected at 0.7% vs. 0.4% previously.

New Zealand’s core inflation rate fell within the 1-3% target range in the latest report, and given the unemployment rate is at the highest level since 2021 and high-frequency indicators continue to show weakness, the Reserve Bank of New Zealand cut by 50 basis points in the latest report. interview.

The market expects another cut of 50 basis points at the next meeting in November and a total of 152 basis points by the end of 2025.

Wednesday

YoY UK CPI is expected to come in at 1.9% vs. 2.2% previously, while M/M is expected at 0.2% vs. 0.3% previously. Core Y/Y CPI is expected to come in at 3.4% vs. 3.6% previously, while the M/M figure is expected at 0.3% vs. 0.4% previously.

The hot report won’t change much in terms of market pricing as only one cut is fully priced by the end of the year anyway. However, the weak report will likely have the market looking at another 25 basis points cut in December, and a very mild 50 basis points cut in November.

Thursday

The Australian labor market report is expected to show 25K jobs added in September compared to 47.5K in August and the unemployment rate to remain unchanged at 4.2%. The report is unlikely to change anything for the Reserve Bank of Australia, which continues to maintain its hawkish stance.

The European Central Bank is expected to cut interest rates by 25 basis points, bringing the interest rate to 3.25%. The central bank was not looking for a back-to-back cut in October, but after bleak PMIs at the end of September, the market was quick to price in such a move which was then consolidated following a benign Eurozone CPI and dovish comments from the central bank. Members of the European Central Bank. The market expects the ECB to cut interest rates by another 25 basis points in December and another four basis points in 2025.

US unemployment claims remain one of the most important releases to follow each week, as they are a convenient indicator of the state of the labor market.

Initial claims remain within the 200K-260K range established since 2022, while continuing claims after a sustained rise over the summer have improved significantly recently.

However, data last week surprised by rising with initial and continuing claims rising to their highest levels of the session. The rise is due to Deformities From Hurricane Helen and the Boeing strike.

Initial claims this week are expected to reach 255,000 vs. 258,000 previously, while continuing claims are expected to reach 1,870,000 vs. 1,861,000 previously.

US Retail Sales is expected to come in at 0.3% vs. 0.1% previously, while US Retail Sales is expected at 0.2% vs. 0.1% previously. The focus will be on the control group number which is expected to reach 0.3% versus 0.3% previously.

Consumer spending was stable, which is to be expected given positive growth in real wages and labor market flexibility. Retail sales data is generally a market-influencing release but is volatile and most of the time initial moves fade away.

The Y/Y figure smoothes out the noise but in recent recessions, retail sales have not been a leading indicator; on the contrary, retail sales have shown weakness when recessions were underway. Therefore, the data should not significantly affect market prices.

Friday

Japan’s core CPI is expected to fall year-on-year to 2.3% versus 2.8% previously. The Tokyo CPI is seen as a leading indicator of the national CPI, so it is generally more important to the market than the national figure.

We saw a dovish turn from Governor Ueda in September due to the appreciation of the Japanese yen and the Fed’s 50 basis point cut. Recently, there has been more neutral language coming from some Bank of Japan officials and Prime Minister Ishiba, but the data doesn’t really point to a near-term uptick.