Week of OCTOBER 14TH

Last week, US inflation numbers and the FOMC minutes provided markets additional clarity around upcoming monetary policy decisions.

The coming week is busy, with the key events anticipated to be the ECB's interest rate decision and China's economic growth figures. Reports on inflation in Japan and the UK will also be in focus.​

Week in Review

The start of the week saw some commotion with China returning from a public holiday after the Economic Planner announced no details of stimulus. Stocks in Hong Kong fell sharply, while mainland burses rose. Further comments from Chinese officials reassured markets that support would continue, however, and Chinese-related assets grew.

The main event of the rest of the week centred around US economic data. The minutes struck a more hawkish tone. Several members wanted to cut interest rates by only 0.25%, suggesting dissenter Michelle Bowman had more backing. Furthermore, FOMC members placed more importance on employment figures than inflation. In light of the latest jobs report, markets thought easing may not happen as quickly as anticipated, pricing in even a hold in Novemeber. This narrative was strengthened the following day with the CPI release of 0.2% for the monthly headline reading above the expected 0.1%. The core rate increased to 3.3% instead of 3.2% forecasted, recording the highest level since June this year.

Several ECB members spoke ahead of the quiet period before next week's rate decision. Notable hawk Joachim Nagel from Germany stood out for supporting interest rate cuts, suggesting odds now favour another round of easing when the central bank meets next week.​

UK monthly GDP aligned with expectations of 0.2%, while industrial production grew faster than forecast.

Biggest Market Movers

• Loonie declined to a 3-month high vs. a stronger dollar on rising chances of interest rate cuts by the BOC as Middle East tensions took a backseat and the EIA reduced its demand forecasts for 2025.
• UK's premier index fell over 1% despite signals of a more dovish BOE as trading resumed in China on a disappointing footing.
• Kiwi declined over 1% after the RBNZ cut interest rates by 50bps and signalled another aggressive cut at its next meeting.

Top Events in the Weak Ahead

Markets are expected to have a slow start, as the US, Japan and Canada will be closed for a holiday on Monday. Monetary policy will be the key theme of the week, with several important data points set to be released that are vital for central banks.

ECB Decision on the Spotlight

Markets will likely focus on the ECB's interest rate decision on Thursday, with the consensus forecast being a further 0.25 percentage point cut. Inflation is seen falling faster than anticipated, which would force the ECB to revise its projections for consumer prices and make the case for a faster pace of lowering rates going forward in a more dovish manner. Analysts will be keen to see how encouraging the tone is following the meeting to understand if policy is headed back to the "low inflation, low rates, low growth" norms seen before the pandemic.​ Below 1.10, EURUSD could slid towards the 200-day MA of 1.0875.

Inflation Remains Strong Overall

On Wednesday, the UK is expected to report that its headline inflation for September will remain at 2.2%, while the core rate will see a significant decline to 3.2% from 3.6%. While still above the target rate, this could remind traders of BOE Governor Andrew Bailey's comments from just over a week ago, which suggested that the bank could become slightly more aggressive in interest rate cuts should inflation fall more rapidly. Below the 50-day MA at 1.31, cable remains at risk of a decline to the round 1.30 handle. Meanwhile, the UK's labour market will be published on Tuesday.

Japan will report its CPI on Friday amid speculation that the BOJ could move to raise rates later this year in order to counter rising consumer costs. Headline inflation is forecast to moderate slightly to 2.7% from 3.0% previously, but the "core-core" rate, which is more closely monitored for monetary policy purposes, is expected to remain at 2.0%, matching the BOJ target. Hovering below 150, the door to 148 remains wide open.

Canada's headline inflation rate is expected to remain at 2.0%, but the BOC preferred measure, the trimmed mean, is forecast to tick up to 2.5% from 2.4%. However, traders appear unlikely to believe this will impact the bank's dovish policy stance, eying 1.38.

Key Chinese Data in Focus

Important Chinese economic figures will be released in the coming week. On Sunday, trade balance numbers for the country will be published. Experts predict the trade surplus will shrink as export growth is anticipated to slow relative to import growth.

Then, on Friday, the Q3 GDP is projected to show a quarterly increase of 0.7%, matching the rate from the previous quarter. However, this would lift the annual GDP growth rate to 5.0%, achieving China's annual target up from 4.7% earlier.​

Other Events and Earnings

The week will see several economic indicators and company earnings released.

On Tuesday, the German ZEW economic sentiment index will be published. Wednesday has Japanese machinery orders and US housing starts. Thursday, Japan's trade balance and Australia's unemployment rate will be announced. Friday will include UK retail sales figures.

Many large American companies, including UnitedHealth, Johnson & Johnson, Bank of America, ASML, Prologis, TSMC, Netflix, Morgan Stanley, P&G, American Express, and SLB, will report their latest quarterly earnings throughout the week.​