UK and US rate policy will be data dependent following the latest minutes

Last week we saw the Dollar give up some of its gains despite FOMC members continuing to talk up the prospects of a potential interest rate hike in December. The FOMC minutes cited the Chinese slowdown as a reason to delay lift off in September. The dovish tone continued as the participants anticipated that the recent global developments would likely put further downward pressure on inflation in the near term. The Dollar continued to weaken against its major counterparts after the release of the somewhat dovish Federal Reserve minutes.  It should be noted that the probability that the Fed will act by December has dropped to 39 percent, down from 66 percent in June.

Meanwhile, the BoE minutes were also dovish, but the market has already parred it expectation for a hike in early 2016 to Q4 2016 following some disappointing data. As expected the vote was 8-1 to keep rates on hold with Ian Mccafferty once again voting for a hike. The BoE went on to state that the economy probably grew at a rate of 0.6% for Q3 which is down from Q2. Business surveys are consistent with easing growth in the economy. With regards to inflation they stated that near term inflation has weakened since August and they see it below 1% until spring 2016.

Looking to the week ahead. 

Monday 12th October 2015

Key inflation is set for release in the UK. The headline CPI annualised number is expected to remain anaemic, which will only delay the prospects of a rate hike. Meanwhile, the German ZEW economic sentiment is due to hit the wires.  The ZEW is a survey of about 275 German institutional investors and analysts which asks respondents to rate the relative six month economic outlook for Germany. The outlook is expected to deteriorate given the economic backdrop.

  • UK CPI
  • UK PPI
  • GER ZEW Sentiment
  • EUR ZEW Sentiment

Tuesday 13th October 2015

Key inflation is set for release in the UK. The headline CPI annualised number is expected to remain anaemic, which will only delay the prospects of a rate hike. Meanwhile, the German ZEW economic sentiment is due to hit the wires.  The ZEW is a survey of about 275 German institutional investors and analysts which asks respondents to rate the relative six month economic outlook for Germany. The outlook is expected to deteriorate given the economic backdrop.

  • UK CPI
  • UK PPI
  • GER ZEW Sentiment
  • EUR ZEW Sentiment

Wednesday 14th October 2015

Probably the biggest day in terms of data from both sides of the pond. In the UK, the focus will be on the labour data with the release of the claimant count, unemployment rate and average earnings. Metrics from the UK labour market are expected to be positive. If this is the case the hawks will keep the prospect of an early rate hike on the periphery. The US data will be focused on inflation and retail sales, both will need to be positive to keep the markets guessing on a December “lift off”.

  • UK Ave Earning
  • UK Claimant Count & Unemployment rate
  • US Retail Sales
  • US PPI

Thursday 15th October 2015

US inflation pressures remain low, with economists’ forecasting a -0.2% reading month-on-month for the consumer price index. Falling energy prices continues to post soft readings, contributing to the expected deflation last month. Also Thursday, FOMC member Dudley is scheduled to speak. Despite the Fed’s recent rhetoric which includes downplaying the weak September employment report, markets remain unconvinced of the likelihood of lift-off in December this year, with many institutions forecasting a rate hike as late as March next year.

  • US CPI
  • Philly Fed Manufacturing Index
  • FOMC Member Dudley Speaks

Friday 16th October 2015

University of Michigan Consumer Sentiment will dominate Friday’s headlines. Last month’s reading plunged to its lowest reading in a year, suggesting moderate growth, mild inflation and a dampening in optimism for the future. Eurozone CPI is released in the morning, as we gain an insight into the struggling economy’s inflation.

  • University of Michigan Consumer Sentiment
  • Eurozone CPI