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Brexit crunch time


The UK Rightmove House Price number will show if property price growth continues to slow in October, as the UK housing market comes down from a three-decade boom. Japan’s Industrial Production figure will be released in the early hours, followed by Switzerland’s Total and Domestic Sight Deposit data. In the US session, markets will be looking for a rebound in the US October Empire Manufacturing survey after it dipped to its lowest level in four months in September. US September Retail Sales will be the main release of the afternoon and is a health check on consumers’ spending habits, which account for about 70% of US Gross Domestic Product (GDP). The retail sales figure is not price adjusted; therefore, a sharp decline (3.0% MoM) in used auto vehicles prices during the month, along with delayed spending due to Hurricane Florence could depress the headline reading. US August Business Inventories, Canada’s September Existing Home Sales, and Bank of Canada (BoC) Q3 business and credit outlook surveys will also be published. New Zealand Q3 inflation data will be released overnight.

Monday is the deadline for Italy to submit its draft budget plans to the European Commission. The country has already announced a deficit of 2.4% of GDP for 2019, putting them in breach of EU rules. The government has stood by its plans, withstanding a sell-off in its sovereign bond market and escalating borrowing costs. Now it must withstand the European Council, who could start an excessive deficit procedure against the nation.


In the early hours of the morning, the Reserve Bank of Australia (RBA) will release the minutes of its October meeting. Curbing a domestic housing market boom and subdued inflation have underpinned the Bank’s reasoning for keeping interest rates unchanged for 26 consecutive months. The UK August employment report will show that the economy is quickly approaching its capacity limit. The unemployment rate fell to a four-decade low in July, while regular pay growth from May to July quickened to 2.9% annually, rising 3.1% alone on the month. With productivity growth stalling, any increase in wage growth is inflationary, underpinning the Bank of England’s (BoE) predicament in keeping interest rates constant ahead of Brexit. Eurozone August Trade Balance data is expected to rebound modestly after remaining on a downward trend since the beginning of 2018. A stronger trade-weighted Euro and softer demand from Asia is impacting the Eurozone’s export growth, a particular problem for Germany. The Eurozone October ZEW Expectations of Economic Growth will also be published.

In the afternoon session, the focus will be on the US September Industrial Production reading. Strong gains in the volatile utilities and auto vehicles sector led to an increase in August, and have many expecting a moderation in September. Surveys of US manufacturing suggest resilient growth in the sector despite a slowdown in output expansion in recent months. This will be followed by the US October NAHB Housing Market Index and the August Treasury International Capital report. The Reserve Bank of Australia’s Guy Debelle will speak at some point on Tuesday. The fact he is delivering the speech to a Citi conference means it should have something of interest for financial markets.


Australia will release its September Westpac Leading Index overnight, but the market focus will be on the UK September Consumer Price Index (CPI) released in the European morning. The August release surprised markets with an acceleration in price pressures, despite expectations that the impact of Sterling’s past depreciation would continue to fall out of the annual calculation, pushing inflation lower. However, the surprise rise in price pressures was driven by volatile components – computer games, seasonal clothing discounts, theatre tickets, and air and sea fares all played a part. We expect UK inflation to resume its downward trend in September; however, the recent increase in energy prices means moves lower will be more gradual, and inflation is unlikely to fall below the 2.0% target until 2019.

In the US session, there is a host of US housing market data. The US October 12th MBA Mortgage Applications, September Housing Starts, and Building Permits figures will provide a guide to how the US housing market is faring with higher borrowing costs and affordability problems. Canada will publish its August Manufacturing Sales data. The typical focus on the Federal Reserves’ minutes of its latest meeting will this time be limited as the dramatic developments in global bond and equity markets since the September 26th meeting makes these minutes relatively stale. Chairman Jerome Powell’s press conference following the rate decision also means the Board’s decision-making process has now been well explained to markets. The focus will be on the Committee’s view of the inflation process, which several Board members have already suggested will determine the pace of rate increases.

October’s EU Council meeting has been long hyped as the deadline for a UK-EU agreement on the Withdrawal Bill, but a standoff on the Northern Ireland backstop continues to hamper negotiations. The summit starts with a working dinner on Wednesday night where the state of Brexit negotiations will be reviewed. The key thing to watch for is an announcement of an extra European Council meeting in November, which could pave the way for a final EU-UK Withdrawal Agreement if enough progress is made. With reports of dissent and resignations in Westminster over the current proposal, the goings on in London will be just as important as those in Brussels.

On the speakers’ schedule, the BoE’s John Cunliffe speaks before lawmakers. He is typically regarded as a dove, but as Deputy Governor for financial stability, his remarks may not stray to monetary policy concerns. The Fed’s Lael Brainard speaks but with the conference topic Fintech and Financial Inclusion, and with no Q&A she may not touch on monetary policy. Bundesbank President Jens Wiedmann speaks in Berlin and is sure to sound a hawkish tone.


Japan’s September Trade Balance and Australia’s September employment report will be key releases overnight. Switzerland reports import and export data for September in the European morning. UK September Retail Sales will be the main economic release of the day and financial markets will be watching to see if UK retail sales finally stumble with many attributing the sector’s strong growth to the warmest summer on record. Last month increased retail sales were led by home furnishings, while clothing and food sales fell after a strong July. While UK retail sales growth may well fall, we believe they will remain resilient. UK consumers are finally experiencing real wage growth after a year of inflation undercutting wage gains. This and a tight labour market will continue to support spending power.

In the US session, a number of survey data will be published along with the weekly US Initial and Continuing Jobless Claims. The October Philadelphia Fed Business Outlook, October Bloomberg Economic Expectations and Consumer Confidence, and September Leading Index will all be released.

For the speakers’ schedule, Bank of Japan (BoJ) Governor Haruhiko Kuroda speaks in the early hours of Thursday. The European Central Bank’s (ECB) centrist Ewald Nowotny puts in a double bill, with two speeches in Austria. The Fed’s uber dove James Bullard will talk on the economic outlook, while centrist Randal Quarles will also speak on the same topic.


In the early hours of Friday morning, Japan’s CPI ex Fresh Food is expected to inch closer to the 1.0% mark, still only at half the central bank’s target. The UK release of public borrowing figures for September will also be revealed. The UK deficit has fallen by about 30.0% over the last year. With UK Prime Minister Theresa May’s recent pledge to end austerity and the Chancellor to release the new budget on October 29th, these readings take on renewed importance. Canada will release its September CPI and August Retail Sales data. US September Existing Home Sales are expected to persist with their decline after stabilising in the previous month. The US housing sector continues to feel the effects of increased interest rates and high house prices.

BoJ Governor Haruhiko Kuroda will speak in the early European morning. BoE Governor Mark Carney will talk at the New York Economics Club. With the Bank’s chief economist recently warning that domestic inflation is on the rise, Carney needs to justify sitting on his hands ahead of Brexit uncertainty while domestic growth increasingly justifies a rate rise. The US Federal Reserve’s Raphael Bostic, a centrist, will speak on the economic outlook.