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EUR/GBP dropped further to 0.8647 last week but recovered. Initial bias is neutral this week first. On the downside, sustained trading below 55 day EMA (now at 0.8625) will extend the fall from 0.9267 (as another falling leg of a long term consolidation pattern), to 0.8201/8338 support zone. On the upside, above 0.8848 minor resistance will turn bias back to the upside for recovery instead.

In the bigger picture, as long as 0.8720 resistance turned support holds, rise from 0.8201 is seen as resuming larger up trend from 0.6935 (2015 low). Break of 0.9499 (2020 high) should be seen at a later stage. However, firm break of 0.8720 will argue that sideway pattern from 0.9499 is extending with another falling leg instead.

In the long term picture, the fall form 0.9499 (2020 high), as a correction to rise from 0.6935 (2015 low), could have completed 0.8201. It's still early to judge that up trend is ready to resume. But in that case, further rise would be seen to 0.9499 first, and then 0.9799 (2009 high).

EUR/AUD rose further to 1.5416 last week but failed to sustain above 1.5396 resistance and retreated. Initial bias stays neutral this week first. Further rally is in favor as long as 1.5047 support holds. Firm break of 1.5416 will carry larger bullish implication. Next target is 161.8% projection of 1.4281 to 1.4965 from 1.4716 at 1.5823. However, break of 1.5047 will turn bias back to the downside for 55 day EMA (now at 1.4867).

In the bigger picture, current development raises the chance of medium term bottoming at at 1.4281, on bullish convergence condition in daily MACD. Firm break of 1.5396 will bring stronger rally back to 1.6434 key resistance next. Nevertheless, rejection by 1.5396 will maintain medium term bearishness for another fall through 1.4281 at a later stage.

In the longer term picture, as long as 55 month EMA (now at 1.5599) holds, the down trend from 1.9799 (2020 high) could still extend to 1.3624 long term support, and below. However, sustained trading above 55 month EMA will raise the chance that this down trend was over. Further break of 1.6434 resistance should confirm medium term bullish reversal.

EUR/CHF's rebound from 0.9407 extended to 0.9798 last week, but lost momentum again. Initial bias remains neutral this week first. On the upside, above 0.9798 will resume the rebound to 0.9864 resistance. Firm break there will solidify the case of medium term bottoming at 0.9407, and target 38.2% retracement of 1.1149 to 0.9407 at 1.0072. On the downside, below 0.9641 minor support will turn bias back to the downside for retesting 0.9407 low instead.

In the bigger picture, as long as 0.9864 resistance holds, long term down trend from 1.2004 (2008 high) is expected to continue. Next target is 138.2% projection of 1.2004 to 1.0505 to 1.1149 at 0.9033. However, firm break of 0.9864 will confirm medium term bottoming, on bullish convergence condition in daily MACD. Stronger rally would then be seen back to 55 week EMA (now at 1.0152), even as a corrective rebound.

In the long term picture, capped below 55 month EMA, EUR/CHF is seen as extending the multi-decade down trend. There is no prospect of a bullish reversal until firm break of 1.0505 support turned resistance (2020 low).

Monday, Oct 10, 2022

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Tuesday, Oct 11, 2022

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Wednesday, Oct 12, 2022

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Thursday, Oct 13, 2022

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Friday, Oct 14, 2022

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Summary

• Japan's economy has been reasonably resilient so far in 2022. Growth has been moderate, although confidence surveys suggest mixed prospects for different economic sectors, consistent with only moderate growth ahead.
• We also expect relatively contained inflation going forward as well. While prices are elevated compared to recent history, inflation remains low by international standards.
• As for the currency, historically there have been two important drivers for movements in the yen: the currency's safe haven characteristics and Japan's yield differentials with the rest of the world. In more recent times the yen's safe haven properties seem to have diminished to some extent, whereas yield differentials have remained a better indicator of potential trends in the yen.
• Given that yield spreads appear to be the more influential driver, trends in global monetary policy, especially those of the Federal Reserve, should be influential for the yen. The increasing divergence in monetary policy between a hawkish Federal Reserve and dovish Bank of Japan means we believe the yen still has room to weaken against the U.S. dollar in the medium term, even if the Ministry of Finance intervenes in FX markets again to support the currency.
• We believe that as yields continue to diverge, the yen can weaken toward a USD/JPY exchange rate of JPY149.00 by Q1-2023, before recovering somewhat as next year progresses.

Only Moderate Economic Growth Ahead for Japan

Japan's economy has been reasonably resilient so far in 2022. Growth has been moderate; the economy expanded 0.9% quarter-over-quarter (not annualized) in the Q2, following a mere 0.1% gain in Q1. Taking a closer look at the details of the Q2 GDP report, this growth was broad-based, with private consumption growing 1.2% over the quarter and business capital spending increasing by 2%.

However, key measures from the Bank of Japan's Q3 Tankan surveys showed business sentiment in some sectors becoming less upbeat. Confidence at large manufacturing firms continued to soften in Q3, with the large manufacturers' diffusion index unexpectedly falling one point to 8 in Q2, the third consecutive decline. A positive Tankan survey reading indicates that of the surveyed businesses, optimists outnumbered pessimists. So while in Q3 some optimists likely became pessimists, there are still more optimists than pessimists overall. Future expectations also became less positive, as the forward-looking outlook measure for manufacturing firms fell one point to 9.

Meanwhile, service sector sentiment improved, with the large non-manufacturing index ticking up to 14 from 13, as Japan gradually reopens its borders to travel and tourism. However, uncertainty regarding how the service sector will fare amid a global slowdown may be clouding future expectations, as the outlook reading fell two points to 11. Ultimately, softening confidence is consistent with our expectation for only moderate growth ahead.

As for inflation, prices have picked up and are elevated compared to recent history, although inflation remains low by international standards. In August, nationwide CPI inflation reached 3.0% year-over-year, with the CPI excluding volatile components like fresh food and energy lower at 1.6%. We expect these moderate trends for growth and inflation to continue in 2022.

Bank of Japan: Easy Does It

With only limited growth and inflation as well as softening sentiment, we expect the Bank of Japan (BoJ) to maintain its easy monetary policy stance in the near-to-medium term. At the BoJ's September meeting, the central bank was clear that no rate hikes are on the table. Thus, we do not expect any shift in the BoJ's key policy parameters—the policy rate and the 10-year government bond yield target—for the foreseeable future. BoJ Governor Kuroda has said monetary easing will support the economy and help prevent a downturn, and the BoJ won't hesitate to add to easing if needed.

Given the yen's continued depreciation against the U.S. dollar, the Ministry of Finance recently intervened in currency markets for the first time in over 30 years, spending US$19.7B in September to support the currency. While the yen surged initially, that gain proved to be short-lived. The yen is currently down around 20% against the U.S. dollar year-to-date, and the Ministry of Finance has warned of yet another intervention to prop up the currency, committing to take “bold action” if there are “excessively one-sided moves”. Ultimately, we still expect weakness in the yen versus the U.S. dollar in the coming quarters, and view intervention as likely to provide only temporary relief for the currency.

Safe Haven vs. Yield Differentials: Which is More Influential for the Yen?

Historically, there have been two important drivers for movements in the yen. The first comes from safe haven characteristics of the currency. The second is Japan's yield differentials with the rest of the world. Looking back at much of the past decade, both seem to be relevant influences for the currency. However, more recently, the yen's safe haven properties seem to have diminished to some extent, while yield differentials have remained a better indicator of the yen's potential future trend.

Safe haven investments are typically attractive during times of market volatility, and are expected to retain or gain value during times of market stress. In theory, safe haven currencies should do better when equity markets are down. To better understand the historical relationship between global equity markets and the yen, and examine the correlation between these variables over time. We used the MSCI global equity index (in local currency terms) to measure worldwide equity performance. We would expect the USD/JPY exchange rate to have a positive correlation with equity performance, with both moving in the same direction most of the time. That is, when an equity index declines, the USD/JPY exchange rate should also decline so that the U.S. dollar gets weaker and the Japanese yen gets stronger. Using weekly returns between 2010 and 2019 (prior to the pandemic), the correlation between the MSCI global equity index and USD/JPY is indeed positive at +35%. However, since the start of 2020 (essentially when the pandemic began), the correlation between equities and USD/JPY has turned negative. And indeed, weekly data since March 2022 (when the Fed first began to lift the fed funds rate) show that MSCI index returns had a negative correlation with changes in USD/JPY, with the correlation at -24%. This would imply a negative relationship between the currency pair and global equities, or in other words when equities fall, USD/JPY rises or the yen weakens against the U.S. dollar—antithetical to the characteristics of a safe haven currency. While it is not obvious why the yen's safe haven characteristics have diminished, recent history suggests looking elsewhere for a more reliable currency driver, as the equity-yen correlation has broken down.

That brings us to yield differentials between the U.S. and Japan. To compare these differentials, we used the difference between the yield on the 10-year U.S. Treasury bond and the yield on the 10-year Japanese government bond (JGB). Similarly to equities, we would also expect USD/JPY to have a positive correlation with this yield spread. Given the BoJ targets a JGB yield near zero, rising U.S. yields as a result of Fed tightening should ultimately be supportive of the dollar. A stronger dollar would drive up the USD/JPY exchange rate and reflect a weaker yen. Indeed, using weekly percentage changes since 2010, the correlation between USD/JPY and the yield spread is +42%. In contrast to the yen and equities, there does not appear to have been any significant change in the relationship between the yen and yield spread during the pandemic, meaning the post-2010 correlation is representative of the historical behavior of the two variables. In our view, this yield spread, heavily influenced by BoJ and Fed policy, remains a better driver of the yen's movements than safe haven dynamics. When looking at the correlations between the weekly percentage change of the Treasury-JGB yield spread versus USD/JPY starting in March 2022, we observe a higher correlation of +68%.

The rolling yearly correlation of weekly changes in the yield spread and the MSCI index versus USD/JPY show that the two correlations sharply diverge in 2020 and have remained apart since, a sign that safe haven characteristics of the yen may not as reliable an influence as they were pre-pandemic. Given that yield spreads appear to remain a more influential driver of the USD/JPY exchange rate, trends in global monetary policy and bond yields, especially those of the Federal Reserve and United States, should be influential for the yen. The FOMC has committed to doing “whatever it takes” to bring inflation down, and we expect the FOMC to hike the fed funds rate by 75 bps in November and 50 bps in December. Looking ahead to 2023, we expect further tightening, with 25 bps rate hikes at both the February and March meetings. If realized, the target range for the fed funds rate would peak at 4.75%-5.00% in March 2023.

In stark contrast, the Bank of Japan likely will remain comfortable with easy monetary policy for the foreseeable future. Given the increasing divergence between a dovish BoJ and tighter Fed monetary policy, the yen still has potential to weaken against the U.S. dollar in the medium term, even if the Ministry of Finance intervenes in FX markets again to support the currency. We believe that as yields continue to diverge, the yen can weaken toward a USD/JPY exchange rate of JPY149.00 by Q1-2023. However, once the United States falls into recession and given our outlook for the Federal Reserve to eventually ease monetary policy, we do subsequently see potential for the yen to strengthen heading into late 2023.

Summary

United States: Labor Market Cooling Jolts Markets

• Total payrolls rose by 263K in September, a shade above consensus. The unemployment rate fell to 3.5%, while average hourly earning increased 0.3%. Job opening plummeted by 1.1 million vacancies, according to September's JOLTS. The ISM manufacturing survey fell to 50.9 in September, while ISM services slipped to 56.7. During August, the U.S. trade deficit narrowed to $67.4 billion, while construction spending fell 0.7%.
• Next week: NFIB (Tuesday), CPI (Thursday), Retail Sales (Friday)

International: RBA Slows Down While RBNZ Keeps Constant

• The RBA delivered a smaller-magnitude 25 bps rate hike at its October monetary policy meeting, bringing its Cash Rate to 2.60%. This was in line with our forecast, but fell short of consensus and market expectations. The central bank signaled that it expects to further increase the policy rate in the period ahead, and said it remains “resolute in its determination” to bring down inflation. Also this week, the RBNZ delivered its fifth consecutive 50 bps rate hike, bringing the OCR to 3.50% and signaling more to come as well.
• Next week: Norway CPI (Monday), U.K. Monthly GDP (Wednesday), Sweden CPI (Thursday)

Credit Market Insights: Treasury Market Turbulence Intensifies

• A bout of volatility has taken a hold of Treasury markets. Global recession fears, aggressive rate hikes from the Fed and market intervention in the U.K. and Japan have intensified financial market volatility. Bond prices often rise when recession fears mount. Yet persistent inflation and the expectations for tighter monetary policy have pushed yields up, straining the inverse relationship commonly seen between bond and equity prices.

Topic of the Week: Cashed Out? A Look at Household Savings

• The U.S. consumer has shown incredible resilience, though cracks are starting to appear. If the differential from the pre-pandemic saving growth rate continues to decline at the same rate that it has over the past three quarters, the excess savings accumulated in 2020 and 2021 will be wiped out by Q3-2023.

Full report here.

U.S. Highlights

• The last jobs report before the Federal Reserve’s November meeting showed that 263k jobs were added in September, bringing the unemployment rate back down to 3.5%.
• ISM Manufacturing and Services PMIs indicate that demand for goods is slowing swiftly, while demand for services is slowing more gradually and has yet to yield substantial ground.
• Oil supply reductions signaled by OPEC+ this week will raise energy prices, creating another headache for the Federal Reserve.

Canadian Highlights

• The OPEC+ decision to scale back output jolted oil prices and supported the energy intensive TSX equity index. We still see limited upside for oil moving forward, amid a weakening global economy.
• In a speech this week, BoC Governor Macklem delivered a hawkish message. He noted that more work needs to be done to cool inflation, and that it’s still too soon to take a decision-by-decision approach to policy.
• This morning’s Labour Force Survey flashed some signs of cooling conditions (hours worked declined), but still reinforced that job markets are tight and wage growth is robust.

U.S. - More Jobs, Less Oil, No Pivot

The first week of the third quarter was largely centered around labor market conditions and their potential impact on the policy stance of the Federal Reserve at their November meeting in four weeks’ time. Lower job openings, higher jobless claims, and slowing job growth all provided some evidence of a softening labor market, but a lower unemployment rate and solid wage growth clouded the aggregate outlook. Equity markets rallied to start the week with hopes of a ‘Fed pivot’ before retreating on Friday as the jobs report drove yields higher and dampened the prospect of a less aggressive Fed. As of the time of writing, the S&P 500 is still up 2.5% for the week, while the ten-year treasury yield sits at 3.9% - 10bps higher than it was to start the day.

Non-farm payrolls capped the week, coming in slightly above market expectations with 263k jobs added in September. The unemployment rate ticked down by 0.2 percentage points, back to its July low of 3.5% as the labor force was virtually unchanged from its August level. Combined with steady growth in average hourly earnings of 0.3% month-over-month (m/m), it is clear that the labor market remains strong – a sentiment that is not lost on financial markets which are now pricing in a fourth 75bps hike by the Fed in November with 80% probability.

Earlier in the week, we saw job openings for August decline by 10% to reach their lowest level since June 2021. This brought the ratio of job openings to unemployed individuals down to 1.67 - its lowest level since November 2021 (Chart 1). This will be welcomed by Jerome Powell who noted that this ratio was exceptionally high in his September press conference. Jobless claims also displayed signs of softening with a 15.3% increase last week, although this only brings the level of claims back to where it was a month ago. On aggregate, the labor market will need to soften further in order for inflation to sustainably return to the Fed’s target range.

One sector which is showing clear signs of slowing is manufacturing, with the ISM Manufacturing PMI quickly approaching contractionary territory (Chart 2). The index dropped by 1.9 percentage points to 50.9 in September, reaching its lowest level since May 2020. Slowing demand was a leading contributor to the lower reading, with both new orders and new export orders contracting. Some of this demand has shifted into the service sectors, with the ISM Services PMI remaining well in expansionary territory, though it too is showing some signs of slowing. While the reading for September was slightly above expectations at 56.7, a slowdown in the backlog of orders as well as new orders could be indicative of the early signs of peak demand for services.

International events this week will serve to further complicate the Fed’s already difficult position, with OPEC+ signaling that it will curtail oil production by 2 million barrels-per-day (bpd). National gas prices, which have been rising for the past few weeks, will likely rise further and return to making positive contributions to headline inflation. Next week’s CPI data for September will provide a better picture of recent developments on the prices front, but as it stands now the Fed will likely remain resolute in its current hawkish stance.

Canada - More Work to be Done

Following another difficult month September, it was a turbulent week for Canadian equity markets. Bourses bounced higher to begin the week, with the TSX up 5% through Tuesday. Ironically, some weak economic data, and the recent rout in financial markets were big drivers for this brief turnaround. Investors figured that these signals would be enough for central banks around the globe to at least consider some adjustments to their aggressive tightening campaigns. However, this hope faded later in the week, as this morning's employment report indicated that Canadian job markets remained tight, reinforcing hawkish messaging from BoC Governor Macklem earlier in the week.

The energy heavy TSX index was given another jolt by the steep climb in oil prices. WTI shot 15% higher this week (as of writing), buoyed by the OPEC+ decision to scale back global oil output by 2 million barrels per day in order to shore up prices after several weeks of declines. However, the actual reduction in output should work out to something closer to 900k barrels. Ultimately, even with this week's rally, we see limited upside potential for WTI heading into 2023 as the global economic backdrop continues to soften.

Our assumption that oil prices will trend lower next year is a key factor underpinning our forecast for slowing inflation. This view is also cultivated by the additional 75 bps of tightening we think is in the cards for the Bank of Canada. In a speech this week, Governor Macklem reinforced that more tightening is on the way.

Additional rate hikes will erode housing affordability that's already stretched-thin, further weighing on demand. In this vein, we've recently downgraded our forecasts for Canadian home sales and average home prices, and September data from local boards released this week reinforced our view. Most notably, home sales tumbled 11% m/m in Toronto, while prices were down nearly 3% m/m last month (Chart 1).

In his speech, Governor Macklem also remarked that it's still too soon to take a "decision-by-decision" approach to policy. This latter remark could signal that the Bank is considering a higher endpoint for the policy rate than the 4% level we expect. However, this will depend on how the broader growth outlook evolves. This morning's jobs report confirmed that the economy is cooling, but that labour markets remain tight and wage growth is robust (Chart 2). The Canadian economy added 21k jobs last month, bang on consensus. However, this was due to a rebound in the educational sector, which may have been "artificially" depressed by difficulties in seasonally adjusting the data in the month prior. Removing this sector yields a clearer picture – Canadian employment is softening, while hours worked also tumbled in September. However, the unemployment rate remains near a multi-decade low and wage growth is running at 5%. The latter is simply too high for a central bank hell-bent on returning inflation to its 2% target.

U.S. headline inflation likely fell for a third consecutive month in September as oil prices dropped (by 8.6% month-over-month). Gasoline prices were up more than 16% from a year ago, easing down from a 26% year-over-year jump in August.

While headline inflation began its descent in June, food price growth has kept climbing—hitting a new multi-decade high in August. And core price growth (excluding food & energy products) likely ticked higher in September, reflecting price pressures that remain very broad. Indeed, while wholesale used vehicle prices fell in September, shelter costs have exhibited considerable and persistent strength.

We expect underlying price growth to slow more sustainably. But this will play out amid a weaker economy with higher unemployment rate as the U.S. Federal Reserve continues to hike interest rates aggressively.

Week ahead data watch:

• U.S. retail sales likely trended up in September (+0.2%), with higher sales of motor vehicles and parts offsetting a price-led drop in sales at gasoline stations.
• Statistics Canada’s flash estimate for August manufacturing sales indicated a 1.8% decline. Roughly half of that is likely explained by a drop in prices led by petroleum products.
• Canadian wholesale trade likely rose 0.8% in August, due to higher sales of food, beverage, and tobacco items, thanks to continued food and beverage product inflation.

US

It is now all about inflation data.  The focus was temporarily on the labour market but everyone knows that the Fed is primarily concerned with what is happening with inflation.

Wall Street will first get a look at producer prices on Wednesday and then CPI the next day. August data showed high inflation remains well-entrenched as shelter and food prices surged, while gas prices softened. Expectations for the September inflation report are for inflation pressures to remain hot.  The consumer price index is expected to increase by 0.2% for the month and 8.1% over the past year.

Traders will also pay close attention to the FOMC minutes that should show a consistent hawkish stance to fight persistently high inflation. It will also be another busy week of Fed speak as seven FOMC members will be making appearances.  Evans and Brainard speak on Monday. On Tuesday, Mester speaks to the Economics Club of NY.  Wednesday sees Kashkari and Barr speak before the minutes are released. Cook makes the last Fed appearance on Friday.

Earnings season also begins with the big banks.  This earnings season will likely be filled with hiring freezes/layoff announcements, cost-cutting saving measures, and mostly downbeat outlooks.  The health of the consumer is weakening, and Wall Street will want to see how bad banks assess the health of the consumer.

EU 

Three weeks to go until the next ECB meeting and it’s still not clear whether the central bank will opt for 75 basis points or 100. The decision to super-charge the tightening cycle is not an easy one as policymakers are desperately concerned about the economic ramifications and the risk of going too far too quickly. Final inflation readings combined with various ECB appearances – including President Christine Lagarde – could shed further light on which way the central bank is currently leaning.

UK 

Where do we begin? The key event next week may well be the expiry of the BoE’s gilt-buying intervention on 14 October which some fear could spark another exodus from UK government bonds as the backstop is removed. Those fears may be overblown but investors may only be able to relax again once successfully removed.

We’ll hear from a variety of BoE policymakers next week, all of whom will likely face a barrage of questions related to its bond-buying, the government and its mini-budget and of course the economy. On top of that, there’s a selection of economic data including the jobs report on Tuesday, and GDP and industrial production on Wednesday.

Another week of question dodging and scripted “answers” is on the cards for the government as it desperately scrambles to clear up the mess it so rapidly created.

Russia

The focus remains on Ukraine as Russia continues to lose ground in territories it previously captured. Meanwhile, the West is working towards fresh sanctions and potential caps on Russian energy prices in response to the illegal annexation of four regions it currently partially controls in Ukraine.

South Africa

Another quiet week with only tier three data scheduled for release.

Turkey

It’s that time of the week when I rant about Turkey’s ridiculous monetary policy experiment and its damaging consequences at a time of global tightening. Inflation rose above 83% in September, a victory for President Erdogan no doubt as forecasts put it closer to 85%. Next week we’ll get labour market figures on Monday and current account on Tuesday (spoiler, it hasn’t been fixed by soaring inflation and the weakest ever exchange rate).

Switzerland

Further rate hikes are coming, the question is when and how much. Markets are pricing in a coin flip between 50 and 75 basis points but will the SNB wait until 15 December to pull the trigger? Inflation eased to 3.3% in September, a level Chairman Thomas Jordan suggested the central bank won’t tolerate (anything above target, in fact). We’ll hear from him again on Tuesday.

China

Next Friday, China’s CPI data will be released and is expected to be around 2.5%, comfortably within target. Against the backdrop of a sharp correction from a recent peak in the US dollar, USD/CNH fell by 3.44%, easing pressure on the currency. The 20th National Congress of China will be held next Sunday, 16 October. The market generally expects that adjusting the pandemic prevention and control policy may be one of the important themes of this meeting.

India

WPI inflation data for September is expected to show price pressures easing next week, which could enable the RBI to consider slowing its tightening cycle.

Australia

A quiet week following the RBA decision to slow the pace of tightening last week with a 25 basis point hike. This was below market expectations of 50bps and made the RBA the first major central bank to ease off the brake. Consumer inflation expectations on Thursday may be of some interest.

New Zealand

In New Zealand the central bank did not ease off the brake, opting instead to maintain its pace with another 50bps hike, taking the cash rate to 3.5%. The market expects the central bank’s final interest rate target for this round to be around 4.5% according to the Refinitiv rate probability tracker. A tight labour market and lower immigration are creating more sustained domestic inflation pressures and the RBNZ believes there’s still more work to do. On the data front, the BusinessNZ manufacturing index will be released on Thursday.

Japan

Japanese FX intervention is a hot topic once more as it trades around 145 to the dollar. This is just shy of where the Ministry of Finance intervened a couple of weeks ago and around the level the BoJ conducted a rate check the week prior. Another hot US jobs report on Friday may have made intervention more likely.

The BoJ is unlikely to tweak its yield curve control policy any time soon. Governor Haruhiko Kuroda said it would continue to adhere to the easing policy and keep the yield curve ceiling at 0.25% and the benchmark interest rate at -0.1 %. No changes are expected until after Kuroda’s term ends in March 2023. Still, PPI data on Thursday may be of interest.

Singapore

GDP data on Friday is the only notable economic release. Growth is seen slowing to 3.4% in Q3.

Economic Calendar

Sunday, Oct. 9

Economic Data/Events

• China aggregate financing, money supply, new yuan loans expected this week
• Austria holds its presidential election

Monday, Oct. 10

Economic Data/Events

• US bond market is closed in observance of Columbus Day/Indigenous People’s Day. The stock market will be open.
• Norway CPI
• Greece CPI
• Australia foreign reserves
• Singapore MAS monetary policy statement, GDP
• Canadian financial markets are closed in observance of Thanksgiving
• China’s financial markets open after Golden Week Holiday
• The 2022 annual meetings of the International Monetary Fund and World Bank kick off in Washington. Through Oct. 16
• Fed’s Brainard and Evans speak at the NABE annual meeting in Chicago
• ECB chief economist Lane gives opening remarks at the online ECB Conference on Monetary Policy
• ECB’s Centeno speaks at a meeting in Lisbon of central banks from Portuguese-speaking countries
• Scotland’s First Minister Sturgeon delivers the keynote speech to Scottish National Party’s National Conference in Aberdeen

Tuesday, Oct. 11

Economic Data/Events

• Australia consumer confidence, business conditions, household spending
• China FDI
• Italy industrial production
• Japan BoP current account
• Mexico international reserves
• New Zealand truckometer heavy traffic index, card spending
• South Africa manufacturing production
• Turkey current account
• UK jobless claims, unemployment
• IMF publishes its World Economic Outlook and Global Financial Stability Report
• Fed’s Mester speaks at a webinar hosted by the Economic Club of New York
• BOE Governor Bailey speaks at the Institute of International Finance annual meeting in Washington. Deputy Governor Jon Cunliffe speaks on a panel on global payments at the IIF meeting
• ECB chief economist Lane delivers the keynote speech at the 7th SUERF, CGEG, EIB and Societe Generale conference on “EU and US Perspectives: New Directions for Economic Policy” in New York
• SNB President Jordan delivers the annual O. John Olcay Lecture at the Peterson Institute in Washington
• The Bretton Woods Committee International Council meeting begins. Through Oct. 14
• BOJ announces the outright purchase amount of government securities

Wednesday, Oct. 12

Economic Data/Events

• US PPI, FOMC minutes, mortgage applications
• Eurozone industrial production
• India CPI, industrial production
• Japan machinery orders
• Mexico industrial production
• New Zealand home sales, net migration
• Thailand foreign reserves, forward contracts
• Turkey industrial production
• UK industrial production, trade, monthly GDP
• IMF publishes its Fiscal Monitor report
• The OPEC Monthly Oil Market Report is published
• EU energy ministers meet in Prague
• Fed’s Bowman speaks at a Money Marketeers event in New York
• Fed’s Kashkari participates in a town hall discussion at an economic development summit in Rhinelander, Wisconsin
• ECB’s Christine Lagarde, de Cos and Knot speak at the IIF annual meeting in Washington. Knot also speaks at the IMF meeting in Washington
• BOE’s Haskel delivers the keynote speech at the 7th World KLEMS conference in investment and productivity at the University of Manchester
• BOE’s Mann speaks at a webinar hosted by the Canadian Association for Business Economics titled “Global Macro Conjuncture and Challenges Facing Small Open Economies.”
• BOE chief economist Pill speaks at an event hosted by the Scottish Council for Development and Industry in Glasgow
• RBA’s Ellis speaks at Citi Australia & New Zealand Investment Conference in Sydney
• Hong Kong Chief Executive John Lee delivers the opening keynote speech at the two-day BritCham Hong Kong Summit
• Bloomberg Invest New York two-day conference begins

Thursday, Oct. 13

Economic Data/Events

• US CPI, initial jobless claims
• Germany CPI
• Sweden CPI
• Australia inflation expectations
• China medium-term lending
• Japan PPI
• New Zealand food prices
• Mexico central bank releases minutes from its Sept. 29 meeting
• ECB’s de Guindos speaks at the “Mercado de Fusiones y Adquisiciones en España y Europa” conference organized by PwC and Expansión
• Riksbank’s Breman speaks in a roundtable on the economic outlook for Sweden at the Citi Macro Forum in Washington
• G-20 finance ministers and central bankers meet in Washington
• Italy’s newly elected parliament convenes for the first time
• IEA publishes its oil market report
• EIA oil inventory report

Friday, Oct. 14

Economic Data/Events

• US retail sales, business inventories, University of Michigan consumer sentiment
• US banks kick off earnings season: JPMorgan, Wells Fargo, and Morgan Stanley report
• China CPI, PPI, trade
• France CPI
• Poland CPI
• Canada existing home sales, manufacturing sales
• India wholesale prices, trade
• Japan money stock
• New Zealand PMI
• Philippines overseas remittances
• UK RICS home prices
• BOE emergency bond buying is set to end
• BOE publishes its quarterly bulletin
• ECB’S Holzmann speaks at a conference hosted by the OECD and Austrian National Bank in Vienna
• Australia ends mandatory Covid-19 isolation requirements

Sovereign Rating Updates

• Czech Republic (S&P)

GBP/USD bounces after government U-turn

Sterling recouped losses after investors found relief in Britain’s reversal on tax cuts. The original plan of a largely unfunded fiscal package had triggered a flight to safety. But buyers of Sterling-denominated assets were quick to return to the table after the government was forced into an awkward U-turn. Meanwhile, the BoE’s emergency intervention in the bond market offered some support. Temporary weakness in the US dollar also helped the pound regain all the lost ground. Still, few would bet on a sustained recovery of the pound as its fundamentals remain fragile. 1.1700 is a fresh resistance and 1.0400 a new low.

USD/JPY rallies over policy divergence

The Japanese yen softens as the intervention effect wears off. Its fall is yet to end against the backdrop of monetary normalisation on a global scale. Japanese authorities have signalled more willingness to defend their currencies. However, such measures may only have limited effect. Artificially popping up the yen would not be a game changer as long as the differentials in inflation and interest rates keep widening, and to the extent that US yields outperform Japanese ones. Instead, heightened volatility could further fuel speculative moves. The pair is still on its way to a 24-year high at 147.50. 140.50 is the closest support.

UK oil recovers on OPEC supply cut

Brent crude rose to a three-week high after OPEC+ agreed the largest output reduction since 2020. A cut of 2 million barrels per day just ahead of peak winter season may put a brake on the downtrend. The surprise decision comes at odds with major economies’ efforts to contain soaring energy costs. The White House may respond by releasing further strategic oil stocks ahead of the midterm elections in November. One major repercussion is that a resurgence in oil prices could dim chances of the US Fed pivoting to a slower pace in rate hikes. The commodity would climb towards 100.00 past 90.00. 76.00 is a fresh support.

US 30 weakens as Fed committed

The Dow Jones 30 struggles as a strong US labour market would support the Fed’s hawkish stance. A drop in US yields following a slowdown in the US manufacturing sector in September briefly eased the downward pressure on risk assets. However, the central bank is widely expected to raise rates and keep them in restrictive territory for a while. Portfolio rebalancing in a high interest rate environment is likely to weigh on equities. After all, why would investors risk their skins for stock alphas when the bond market can return 4% a year? The index bounced off 28700 and is testing the former support at 31100.