The week is off to a quiet start, with US markets closed for Columbus Day and Canada celebrating Thanksgiving, leading to reduced trading activity.
On Tuesday, the UK will publish the change in the number of applicants, the average earnings index of 3m/y and the unemployment rate. Later in the day, the highlight will be Canadian inflation data.
On Wednesday, we’ll also see inflation data from New Zealand and the UK. On Thursday, Australia will report changes in employment and the unemployment rate, while the Eurozone will have the ECB’s monetary policy announcement. In the US, we’ll get jobless claims, retail sales y/y and industrial production y/y.
On Friday, the UK will release data on retail sales m/l, while the US will report building permits and housing starts.
In the UK, the consensus for the change in the number of claimants is 20.2K from 23.7K previously. For the 3m/y average earnings index, it is 3.8% from 4.0% previously, while the unemployment rate is expected to remain unchanged at 4.1%.
Overall, expectations for UK labor market data suggest modest weakness, particularly in the private sector. The BoE will monitor this data, along with Wednesday’s inflation report, to decide the next steps on the path of monetary policy.
So far, UK economic data has been mixed but broadly in line with the pace of rate cuts. The economy is showing signs of improvement and inflation is gradually returning to the 2.0% target.
However, the main concern remains services inflation, which is still above 5.0%. Expectations for this week’s data are for headline inflation to be 1.9% y/y, with core inflation likely to come in at 3.4%.
As the labor market appears to be cooling overall, the Bank may accelerate the pace of rate cuts. The market currently expects cuts at both the November and December meetings, but some analysts say there is a possibility the BoE will cut once in November and pause in December.
Canadian inflation data is expected to fall more than expected, which could prompt the BoC to accelerate the pace of rate cuts starting at this month’s meeting.
Consensus is for a 0.2% drop in headline prices, with y/y inflation at 1.9%. Expectations for median core inflation are 2.3%, while for the reduced average, the consensus is 2.4%.
The BoC is concerned about the state of the economy, especially as data suggests that Q3 GDP will be well below the Bank’s forecasts and expectations. The housing market is also under pressure, adding to the Bank’s concerns.
If economic data continues to weaken, the BoC is likely to cut interest rates by 50 bps at this month’s meeting. Governor Tiff Macklem noted that growth may not be as strong as expected and expressed hope that this will change so that inflation does not fall and remains below the Bank’s 2% target.
In New Zealand, analysts expect inflation to fall below the RBNZ forecast, driven primarily by lower oil and fuel prices in recent months. Westpac expects annual inflation growth of 2.2% and quarterly inflation of 0.7% versus the central bank’s forecasts of 2.3% y/y and 0.8% q/q.
The market now expects the RBNZ to deliver another 50bps rate cut at its November meeting, following last week’s 50bps cut.
In Australia, the market consensus for the employment change is 25.2k from 47.5k previously, with the unemployment rate expected to remain unchanged at 4.2%. However, Citi expects a shift of 39,000 jobs on the basis that September is typically a strong hiring month before the start of summer in Australia.
At this week’s meeting, the ECB is expected to cut interest rates by 25 bps, although a pause cannot be ruled out. Recently, headline inflation in the euro area has fallen below the ECB’s 2% target, and core inflation has also fallen.
The broader economic outlook is not promising, with both manufacturing and services PMIs falling in recent months, indicating that the economy is vulnerable. If this trend continues, Wells Fargo believes the ECB may implement consecutive 25bp cuts at all meetings until the end of the first quarter of 2025, and then slow to quarterly cuts until the deposit rate reaches 2.0%.
ECB
In the US, consensus for core retail sales yoy is 0.1% vs. 0.1% previously, while yoy retail sales are expected to rise 0.3% vs. 0, 1% previously.
For industrial production m/m, the consensus is -0.1% vs. 0.8% previously, indicating that the industrial sector continues to struggle due to high borrowing costs. ING expects rate cuts of 25 bps at both the November and December meetings.
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