There are several tier-one announcements throughout the calendar this week. There are three major central banks, with the ECB meeting the highlight, whilst we also get a first look at Q3 US growth with Advance GDP. Other major central banks updating their monetary policy include the Bank of Japan and the Bank of Canada, in addition to the Colombian central bank too. However, the data does not stop there.

Watch for: 

  • North America – US Advance GDP dominates, along with Durable Goods, Consumer Confidence and Michigan Sentiment; home sales both New and Pending; the Bank of Canada policy decision and Canadian GDP 
  • Europe & Asia – ECB monetary policy and the Bank of Japan, also inflation for Australia and the Eurozone along with flash Eurozone GDP
  • LatAm – Unemployment for Mexico, Brazil, Chile and Colombia; along with Brazilian inflation and Colombian central bank interest rates

North American data: 

  • US Consumer Confidence (Tuesday 26th October 1400GMT) an improvement to 110.0 from 109.3 is expected.
  • US New Home Sales (Tuesday 26th October 1400GMT) are expected to increase to 763,000 (from 740,000 in August)
  • US Durable Goods Orders (Wednesday 27th October 1230GMT) monthly growth of +0.4% for core durables expected (+0.2% on the month in August)
  • Bank of Canada monetary policy (Wednesday 27th October 1400GMT) no change forecast to the headline rate of +0.25%
  • US Advance Q3 GDP (Thursday 28th October 1230GMT) +3.2% annualised growth expected (down from a final +6.7% in Q2)
  • US Pending Home Sales (Thursday 28th October 1400GMT) 
  • Canadian August GDP (Friday 29th October 1230GMT) 
  • US core PCE inflation (Friday 29th October 1230GMT) 
  • Revised Michigan Sentiment (Friday 29th October 1400GMT) 

How far growth moderated in Q3 as inflation continues to rise will be a key theme across major economies, and US Advance GDP will be a crucial signal of this. Just how far lower will the supply shortages drag growth in Q3? Consensus forecasts of +3.2% annualised growth (down from the huge +6.7% in Q2) are running way above where the Atlanta Fed’s GDPNow growth tracker is sitting, currently way down at +0.5%. This gives weighting to the potential for a negative surprise.

Once more we also see eyes tracking towards the US inflation outlook. After the US core CPI levelled off at +4.0% a couple of weeks ago, it will be interesting to see if the Core Personal Consumption Expenditure (the Fed’s preferred inflation gauge)also plateaus at the current +3.6%.

UK Inflation gauges

The Bank of Canada is expected to continue to wind down its weekly asset purchases at the monetary policy meeting this week. Purchases currently run at C$2bn per week and are expected to be cut to C$1bn per week ahead of what is expected to be the end of the program at the December meeting. Interest rates are though expected to remain at +0.25% as considerable slack remains in the economy

Market Reaction: 

  • USD will be volatile around Advance GDP where we could easily see a significant data surprise, in addition to any surprises in the core PCE.
  • CAD potential volatility around the BoC decision and Canadian GDP

Europe & Asia: 

  • Australian CPI (Wednesday 27th October 0030GMT) expected to remain at +3.8%
  • Bank of Japan monetary policy (Thursday 28th October c. 0400GMT) no change to the deposit rate of -0.10%
  • European Central Bank monetary policy (Thursday 28th October 1145GMT) no change to the deposit rate of -0.50%
  • Eurozone flash inflation (Friday 29th October 0900GMT) headline inflation is expected to increase to +3.7% (from +3.4%) whilst core inflation is expected to remain steady at +1.9% 
  • Eurozone flash GDP (Friday 29th October 0900GMT) +1.9% QoQ expected (+2.2% QoQ in Q2)

Major central banks take the focus this week, with the European Central Bank and the Bank of Japan certainly key events. For the BoJ, as per usual, we are not expecting any changes to the -0.1% deposit rate. Although core inflation moves above zero for the first time in 18 months, this is unlikely to mean anything for policy. 

The ECB is tackling rising inflation and a deterioration of PMIs (growth outlook). Although the ECB may talk about higher inflation, it is not yet sustainable enough to impact materially on policy. We are not expecting much this meeting, with the update on asset purchases at the March 2022 end of the PEPP more of a December question. 

Eurozone inflation and GDP will also be key events on Friday. How high will inflation rise in October? How far did growth moderate to in Q3? Headline inflation is expected to increase to +3.7% but the core is likely to remain steady at +1.9% (which is still under the ECB’s 2% target). Seasonally adjusted GDP grew by +2.2% in Q2, but a growth slowdown is expected in Q3 as supply chain issues continue to bite.

Eurozone HICP inflation

Market Reaction: 

  • AUD to move on any surprises in the CPI data on Wednesday 
  • JPY is unlikely to do too much on the very constant BoJ
  • EUR will be volatile around the ECB meeting and off inflation and growth on Friday.

Latin America: 

  • Mexico Unemployment (Monday 25th October 1000GMT)
  • Brazil mid-month Inflation (Tuesday 26th October 1100GMT) is expected to be lower at +1.02% MoM (+1.14% in September)
  • Brazil Unemployment (Wednesday 27th October 1100GMT)
  • Chile Unemployment (Friday 29th October 1000GMT)
  • Colombia Unemployment (Friday 29th October 1500GMT)
  • Colombian Central Bank interest rates (Friday 29th October 1900GMT)

Unemployment is a key theme across LatAm this week. Trends have been improving in recent months. Brazilian unemployment fell to a 12 month low, Chile is at a 17 month low, and Colombia is at an 18 month low. A continuation of these trends will help to support the currencies.

The Colombian Central Bank interest rate decision is on Friday. After raising rates by +25 basis points to 2.00% in the meeting at the end of September, the question is whether there will be a repeat in the meeting this week. Three of the seven board members had been looking for a +50bps hike in September and with inflation above the bank’s 2% to 4% target range, another increase could be coming this week.  

Latam currencies

Market Reaction

  • There is an ongoing divergence of performance. CLP and BRL continue to struggle, whilst COP and MXN are relative outperformers