It is fairly quiet on the economic calendar with little market-moving US data this week. However, in other major markets inflation will still be in focus, with the UK, Eurozone, Japan and Canada all reporting CPI. Furthermore, the week does end on a more interesting note, with a slew of flash PMIs on Friday.
Watch for:
- North America – US Industrial Production, housing data and flash PMIs; Canadian inflation
- Europe & Asia – UK CPI, final Eurozone HICP and Japan inflation; also Eurozone confidence, UK Retail Sales and flash PMIs for Eurozone and UK.
- LatAm – Trade balance data for Colombia and Argentina, and the Brazilian current account
North American data:
- US Industrial Production (Monday 18th October 1315GMT) +0.2% MoM expected (+0.4% in August)
- US Building Permits and Housing Starts (Tuesday 19th October 1230GMT) with BP at 1.720m (1.721m in August) and HS at 1.630m (1.615m in August) expected
- Canada inflation (Wednesday 20th October 1230GMT)
- US Weekly Jobless Claims (Thursday 21st October 1230GMT)
- US Existing Home Sales (Thursday 21st October 1400GMT) forecast to increase to 6.0m (5.88m in August)
- US Flash PMIs (Friday 22nd October 1345GMT)
It is slim pickings for tier one US data this week. Industrial Production is expected to show marginal monthly growth of +0.2% which will pull the YoY data higher. Furthermore, consensus forecasts suggest there will be a marginal improvement in Capacity Utilization to 76.5% (from 76.4% in August) which would continue to move above the pre-pandemic level of 76.3% from February 2020. There are also expected to be marginal improvements in Housing Starts and Existing Home Sales.
Canadian core inflation has been rising sharply in recent months and is something that is adding to the pressure on the Bank of Canada to tighten policy. The sharp rising energy prices are certainly adding pricing pressures and any further increase to Canadian core inflation will add further wind to the sails of a rallying CAD.
The US flash PMIs are the key data point for the week. Traders will be looking to see if there is a continued settling of the Composite PMI which has been falling for the past four months but showed signs of slowing this decline last month around the 55 level (which indicates fairly solid expansion territory).
Market Reaction:
- USD impact will be most significant for Friday’s flash PMIs, a settling around or above 55 on the Composite PMI would be positive for risk appetite and USD.
- CAD will be volatile around Wednesday’s inflation numbers. Further increases will drive CAD higher.
Europe & Asia:
- Reserve Bank of Australia meeting minutes (Tuesday 19th October 0130GMT)
- UK CPI (Wednesday 20th October 0600GMT)
- Eurozone final HICP inflation (Wednesday 20th October 0900GMT) both core and headline are forecast to be unrevised at +1.9% and +3.4% from the flash reading.
- Eurozone Consumer Confidence (Thursday 21st October 1400GMT)
- Japan inflation (Thursday 21st October 2330GMT) core inflation expected to increase to +0.1% (from 0.0% in August)
- UK Retail Sales (Friday 22nd October 0600GMT)
- Eurozone flash PMIs (Friday 22nd October 0800GMT)
- UK flash PMIs (Friday 22nd October 0830GMT)
It is a week packed with inflation data. The UK CPI is first up, and last month’s spike above 3% on the core inflation is prompting growing calls at the Bank of England for potential policy tightening. Any further increases would add further weight to these calls and should help support GBP. Eurozone final inflation is not forecast to show any revision to either the core or headline inflation numbers from the flash readings a couple of weeks ago. Japanese core inflation is expected to move above zero for the first time since March 2020.
Flash PMIs will also be key for Eurozone and UK. The Eurozone has been playing catch up throughout recent months and saw the Composite PMI falling sharply in September. It will be interesting to see if it falls below the 55 level, which is around where both US and UK Composite PMIs are looking to stabilize. The German activity data and surveys have not been great recently and could be a key drag on the Eurozone-wide PMI reading.
Market Reaction:
- GBP has plenty of data to drive sentiment. Any increase in inflation should be GBP supportive, as would positive retail sales data (especially after last month’s big negative surprise).
- EUR is unlikely to see too much action off the Eurozone inflation numbers, but the flash PMIs on Friday will be market moving. Any continued sharp slowing of the expansion, especially below 55 on the Composite, would likely be EUR negative.
Latin America
- Colombia Trade Balance (Tuesday 19th October 1500GMT)
- Argentina Trade Balance (Thursday 21st October 1900GMT)
- Brazil Current Account (Friday 22nd October 1000GMT)
Colombia continues to run a big trade deficit, (-$1.2bn in July), with China accounting for a huge 24% of its total imports, which were around 4% higher than compared to July 2019. Any increase in the trade deficit will add further downside pressure to the already underperforming Colombian peso.
Brazil’s current account deficit has been improving in recent months and has been helping to drive the recent recovery in the Brazilian real. BRL bulls will be looking for another positive monthly surplus which would continue to reduce the deficit which fell to just 1.2% of GDP in August.
Market Reaction
- COP volatility around trade balance, and will suffer on any increase in the deficit
- BRL volatility around the current account data will continue to be supported if the deficit continues to be reduced
