Weekly Outlook: 2017, October 29 - November 05

The US dollar had an excellent week, mostly thanks to speculation about the next Chair of the Fed. What’s next? The upcoming week opens a new month and packs both a Fed decision and the Non-Farm Payrolls. Here are the highlights for the upcoming week.

1. US Core PCE: Monday, 12:30. A monthly rise of 0.1% is on the cards.
2. Japanese rate decision: Tuesday morning. The Bank of Japan has failed to lift inflation despite a massive QE program and a negative interest rate. The current policy is to hold 10-year bond yields at 0%, thus buying bonds whenever needed. After the Japanese elections, the BOJ may reconsider its policy measures, but most BOJ meetings do not yield a change.
3. Euro-zone inflation data: Tuesday, 10:00. A full repeat is predicted now: 1.5% in the headline CPI and 1.1% in core CPI.
4. Canadian GDP: Tuesday, 12:30. A growth rate of 0.1% m/m is predicted.
5. US CB Consumer Confidence: Tuesday, 14:00. The score for October is higher: 121.1 points.
6. New Zealand jobs report: Tuesday, 21:45. The level of employment is predicted to jump by 0.8% and the unemployment rate is estimted to tick down to 4.7%.
7. US ADP Non-Farm Payrolls: Wednesday, 12:15. A gain of 191K jobs is on the cards.
8. US ISM Manufacturing PMI: Wednesday, 14:00. A small slide to 59.4 is expected in the headline number.
9. US Fed decision: Wednesday, 18:00. This is a meeting that does not consist of a press conference nor new forecasts and thus is not expected to yield a change in policy. The focus is on the December meeting when the Fed is likely to deliver its third and last rate hike for the year. So far, Yellen and her colleagues are not deterred by lower inflation and intend to proceed as usual. This November meeting provides them with an opportunity to give a hint if they may change their minds. Any expressions of concern about inflation could send the dollar lower, while confidence could send it higher.
10. UK rate decision: Thursday, 12:00. The Bank of England will probably raise the interest rate from 0.25% to 0.50%, reversing the post-Brexit hike of August 2016. In the previous meeting and in consequent speeches, the Bank of England gave heavy hints that they are going to raise the rates due to higher inflation (reached 3% y/y) and also on worries about rapidly expanding credit. However, one member cast doubt about the timing of the hike while Governor Carney seemed unenthusiastic about further hikes. In case the BOE surprises with a no-change, the pound will crash, but the chances are low. In case they hike but hint it is only a one-off, the pound will likely wobble but no go anywhere fast. In case it is the beginning of a tightening cycle, the pound will leap. This is a “Super Thursday” meeting, that also consists of the Quarterly Inflation Report in addition to the rate decision and the meeting minutes. The QIR consists of inflation forecasts that could provide some prospects about the next moves while the meeting minutes could show if there were dissenters against the decision. The event will surely trigger high volatility.
11. US Non-Farm Payrolls: Friday, 12:30. The “king of forex indicators” will likely show a rebound in jobs after the extraordinary report for September. The impact of the hurricanes resulted in a loss of 33K jobs, the first drop since 2010. On the other hand, wages were up 0.5%, a big jump. The report for October will already be more “normal” with a gain in jobs to compensate for the loss. Wages may be more mysterious. If the report shows that the gain in salaries is persistent, it will certainly strengthen the case for a rate hike, given that higher paychecks impact core inflation. The unemployment rate stood at 4.2% in September and could tick up from here. Jobs are expected to jump by 311K in October and the unemployment rate to remain at 4.2%. Average hourly earnings carry expectations for a rise of 0.2%.
12. Canadian jobs report: Friday, 12:30. A gain of 13.6K jobs is on the cards and the unemployment rate is projected to remain unchanged at 6.2%.
13. US ISM Non-Manufacturing PMI: Friday, 14:00. A lower score of 58.3 is expected.

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EUR/USD certainly felt the decision of the ECB in a week that unleashed some volatility and sent the euro tumbling down. The upcoming week features inflation and GDP data among other events. Here is an outlook for the highlights of this week.

1. German retail sales: Monday, 7:00. The largest economy in the euro-zone saw consumption sliding by 0.2% in August. For the month of September, a rise of 0.5% is expected. Germany’s economy leans more towards industrial exports than internal consumption.
2. Spanish CPI: Monday, 8:00. The fourth-largest economy has seen inflation stabilizing in recent months after reaching 3% beforehand. In September, the annual level of inflation reached 1.8%. We now get the preliminary figures for October. A small slide to 1.7% y/y is on the cards.
3. Spanish GDP: Monday, 8:00. Spain has been a success story in the past three years, growing above the euro-zone average. In Q2, the economy advanced by 0.9%. Q3 will likely see a similar rate, but uncertainty looms due to the ongoing Catalan crisis. A growth rate of 0.8% is projected.
4. German CPI: Monday, during the morning for the various German states and the all-German figure, is published at 13:00. Prices rose by 0.1% m/m in September, exactly as expected. Germany is the largest economy in Europe and changes in its GDP impact the all-European number more than any other country. A similar figure is expected now.
5. French GDP: Tuesday, 6:30. The second-largest economy in the euro-zone enjoyed an upbeat growth rate of 0.5%, albeit beneath the euro-zone average in Q2. The figure for Q3 will be the first full quarter with Macron in power. A gain of 0.5% is estimated now, a repeat of the previous quarter.
6. French CPI: Tuesday, 7:45. Contrary to Germany, France saw a drop of 0.1% m/m in prices back in September. The publication from France provides a last-minute hint towards the all-European CPI. This time, a slide of 0.1% is forecast. The consumer spending measure is published at the same time but the CPI carries more weight.
7. CPI: Tuesday, 10:00. While the ECB decision is already behind us, the fresh flash CPI estimate has a significant impact on future moves. Headline CPI stood at 1.5% in September, which is not satisfactory to meet the ECB’s “2% or a bit below” inflation target. Core CPI slipped to 1.1%, falling short of predictions. The exact same numbers are projected now.
8. GDP: Tuesday, 10:00. After all the major countries published their estimates, we get the all-European measure. Current expectations may change according to the earlier publications. The euro-zone economies grew by 0.6% in Q2, continuing the streak of upbeat publications. A slightly more modest growth rate of 0.5% is expected.
9. EU Economic Forecasts: Tuesday, 10:00. The European Commission releases its updated economic forecasts three times a year. After a few upbeat publications, it will be interesting to see if the crisis in Catalonia will have any impact on the projections. Some forecasters have revised down Spain’s growth prospects, but we haven’t seen the crisis being accounted for at the euro area level.
10. Unemployment Rate: Tuesday, 9:00. This busy time of the day also consists of the unemployment rate. After peaking above 12%, the jobless rate fell gradually and stands at 9.1% as of August. We now get the belated numbers for September. Another improvement is predicted: 9% this time.
11. Manufacturing PMIs: Thursday morning: 8:15 for Spain, 8:45 for Italy, final French figure at 8:50, final German number at 8:55 and the final euro-zone release at 9:00. Markit’s manufacturing PMI for Spain stood at 54.3 points in September, above the 50 point threshold separating expansion from contraction. A small rise to 54.9 is forecast. Italy, the third-largest economy, had a score of 56.3 points. A small rise to 56.7 is projected. The initial read for France for October showed an upbeat level of 56.7. Germany’s reached 60.5 and the whole euro-zone was 58.6. The preliminary figures for October will likely be confirmed now.
12. German Unemployment Change: Thursday, 8:55. Germany has seen unemployment dropping quite consistently in past years. The fall in July was quite impressive: 23,000. Another drop is likely for the month of August: 10K this time.

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