FX Week Ahead Overview:
- A decidedly lighter economic calendar has traders watching inflation data and bond markets in the middle of October.
- Eurozone and Japan inflation data may not do much to move either ECB or BOJ rate expectations as both central banks are firmly entrenched in dovish policies.
- On the other hand, both the BOC and BOE are moving towards policy normalization, putting Canada and UK inflation data in the spotlight.
For the full week ahead, please visit the DailyFX Economic Calendar.
10/20 WEDNESDAY | 06:00 GMT | GBP INFLATION RATE (SEP)
According to a Bloomberg News survey, September UK inflation rates (CPIH) increased by +0.4% from +0.7% (m/m) while holding steady over the past year at +3.2% (y/y). UK core inflation is still expected relatively high at +3.1% from +3.2% (y/y). But the upcoming UK inflation report has seen anticipation build for quite some time.
Earlier this month, newly-minted Bank of England Chief Economist Huw Pill said that the “balance of risks is currently shifting towards great concerns about the inflation outlook, as the current strength of inflation looks set to prove more long lasting than originally anticipated.” UK rates markets are now discounting the first 25-bps rate hike to come as soon as next month when the BOE releases the next iteration of its Quarterly Inflation Report (QIR).
10/20 WEDNESDAY | 09:00 GMT | EUR INFLATION RATE FLASH (SEP)
Inflation is not the concern for the Eurozone that it is for the UK, even if data are expected to show high price pressures this week. According to a Bloomberg News survey, September Eurozone inflation rates (HICP) increased by +0.5% from +0.4% (m/m) and +3.4% from +3% (y/y), while Eurozone core inflation is due in at +1.9% from +1.6% (y/y).
At the start of October, European Central Bank Chief Economist Philip Lane said that “the red zone for everyone is if inflation became persistent at a number that’s immoderately above the inflation target – that’s a very far distance from where the euro area is,” implicitly suggesting that the ECB will look through rising price pressures and instead keep interest rates on hold for an extended period of time.
10/20 WEDNESDAY | 12:30 GMT | CAD INFLATION RATE (SEP)
According to a Bloomberg News survey, the September Canada inflation rate (CPI) is forecasted to show an increase of +0.1% from +0.2% (m/m) and +4.3% from +4.1% (y/y), while the core reading is due in unchanged at +3.5% (y/y). With inflation continuing to run above expectations, it seems likely that the Bank of Canada will soon restart its stimulus withdrawal efforts when it meets later this month. Currently, asset purchases are running at a rate of C$2 billion per week. Following the superb September Canadian jobs data and surging energy prices– energy accounts for approximately 11% of Canadian GDP – there is reason to believe there is less slack in the economy than anticipated mid-year.
10/21 THURSDAY | 23:30 GMT | JPY INFLATION RATE (SEP)
Japan may have a new prime minister, but the economic situation remains as stagnant as ever. According to a Bloomberg News survey, the SeptemberJapan inflation rate (CPI) is expected to show a decline of -0.1% from -0.2% (m/m) and -0.1% from -0.4% (y/y), while inflation rate ex-food and energy is expected unchanged at -0.5% (y/y) and the core reading is likewise due in unchanged at -0.5% (y/y). Rising energy prices are a significant threat to the Japanese economy, which imports over 90% of its energy, but the fact remains that the Bank of Japan is poised to remain the world’s most dovish central bank for the long-haul.
10/22 FRIDAY | 14:00 GMT | USD MARKIT MANUFACTURING PMI (SEP)
The US economy slowed dramatically over the summer months, with the Atlanta Fed 3Q’21 GDPNow forecast a meager +1.2% annualized. However, the slump may prove short-lived as measures of economic activity remain quite strong by historical standards. The flash October US Markit Manufacturing PMI reading is due in at 60.3 from 60.7 in September, while the flash October US Markit Services PMI is expected at 55.1 from 54.9. Overall, the readings suggest that the near-term outlook for corporate earnings remains strong, which could help propel US stock indexes back to their all-time highs over the coming weeks.
— Written by Christopher Vecchio, CFA, Senior Strategist