Week of Sept 25

An extensive and active economic schedule of events kept markets agitated, with most major central banks holding meetings, some with surprises, like the SNB and BOE’s hold, and others coming in line with expectations, such as the Fed's somewhat "hawkish hold". The coming week is comparatively quiet, giving the market time to digest the latest monetary policy moves from major central banks, with highlights such as US durable goods, European inflation and Chinese PMIs.

Top Events in Review

Central banks were the dominant factor last week, the biggest being the "hawkish pause" from the Fed. While keeping rates unchanged, as expected, the quarterly update of forecasts saw rates staying higher than expected through next year. The survey also suggested that members still saw another rate hike this year, which could support a quarter point of tightening in November. 

On the other end of the spectrum, the BOE surprised with a rather narrow hold on the voting side despite most economists expecting the BOE to hike by 25bps. UK’s inflation fell much faster than anticipated on Wednesday, supporting BOE's Governor Andrew Bailey's reiterated position that inflation will come down faster than expected, thus not necessitating as many hikes as the market has predicted. In European policy, the Swiss National Bank also surprised by not raising rates in the aftermath of the ECB essentially announcing the hiking was over. That happened just after final CPI figures were revised lower, supporting the ECB's narrative that inflation is coming down. 

The BOJ closed the monpol calendar for the week with a hold even with rising inflation. Governor Kazuo Ueda had been preparing for a stimulus exit but made no changes to forward guidance.

Strikes at Australia's LNG plant and dwindling inventories supported crude. However, the strong dollar and a potential workaround at Chevron saw crude closing lower despite an immediate gasoline and diesel export ban from Russia on Thursday.

RBA minutes showed hesitation to hike in the face of concerns over the economy's outlook.

Biggest Market Movers

The Fed's prediction of rates staying higher for longer than expected boosted the dollar to highs not seen since November. The DXY marked a 10-week record of consecutive gains not seen since 2014, with next focus at 106.

WTI trended higher on falling inventory and production, though a higher post-Fed dollar reversed gains, ending a series of three weeks of gains and glueing near $90 a barrel.

Even before the BOE's rate decision, the pound suffered against a stronger dollar due to lower inflation numbers. BOE’s hold later exacerbated the drop, bringing the GBP/USD over 1% lower and towards $1.22.

The Canadian dollar gained on expected stronger demand for crude and higher inflation that put the possibility of more BOC rate hikes back at the forefront of traders' minds. USC/CAD dropped 1% through the week, but dollar flows towards the week’s end saw the pair retrace more than half the losses, closing above $1.34 and opening up $1.35.

Top Events in the Week Ahead

Barrage of Data in the Euro Area vs US’ PCE

Inflation figures are likely to be the theme for the week, with the Euro Area's flash reading for September coming out the same day the US reports the Fed's favoured price measure, PCE. 

Before the full Eurozone reports, Germany is expected to offer a preview of what's to come, with the consensus of another drop in inflation for the shared economy. French inflation is also expected to fall, driven by a monthly dive into disinflation as household spending is expected to turn negative. Eurozone headline inflation is expected to rise on higher energy costs, but the core rate to continue moving lower. 

On the other hand, annualized US Core PCE is expected to come down to 3.9% from 4.2%, thanks to base effects, as the monthly rate is expected to remain unchanged at 0.2%. US personal spending is expected to decline slightly, potentially alleviating some inflationary pressure. 

EUR/USD is expected to see increased price action but has also recorded a 10-week record of consecutive losses on the back of a stronger dollar. Based on the impact of events throughout the week, traders can look for support below $1.06 at $1.0530, whereas resistance past $1.0740 lies at $1.0765.

Economic Health Indicators in Focus

After the surprise August jump in industrial production, all eyes will be on China's official (NBS) PMI reading for September to see if the trend can be maintained. But Manufacturing PMI is expected to slip back into contraction at 49 from 51 prior, although the services measure is seen buoying the composite measure back into healthily expansionary territory. Aussie could be influenced by the data, finally breaking out of the 0.6350-0.6480 range it traded within for weeks.

The US will report its August durable goods orders, which are expected to bounce back into positive. In addition, the final reading of Q2 GDP for the world's largest economy will become available, with an expected revision back up to 2.1% from 2.0% in the second look at the figure. Risk appetite may shift, bringing the 14500 support of Nasdaq into focus unless bulls can reclaim the 15k handle.

Other Events and Earnings

Monday has the German Ifo Business Climate Survey. Tuesday sees US Conference Board consumer confidence. For Wednesday, German Gfk consumer confidence is expected. Thursday includes European economic sentiment and Japanese retail sales. Friday will see UK Nationwide housing prices, monthly Canadian GDP and Michigan Consumer Sentiment Index. A very light corporate calendar includes reports from the likes of Thor Industries, Costco, Micron Technologies, Accenture, Nike and Carnival.