US inflation data in focus

Monday

The US Columbus Day holiday means Monday’s trading session will lack any US data releases. The typically illiquid environment could lead to abrupt currency moves. However, Australia’s September ANZ Job Advertisements and Foreign Reserves data will be released overnight. Switzerland’s September Unemployment Rate and October 5th Domestic Sight Deposits numbers will also reach markets. An increase in Swiss domestic sight deposits indicate the central bank has intervened in FX markets to weaken their currency. Though, Italy’s recent backtrack of government spending plans suggest the central bank may no longer need to be on standby to hit the printing press. The uber dovish Federal Reserve’s James Bullard is due to speak in the morning. The media Q&A following his speech may allow Bullard’s dovish view of the US economy to counter the recent hawkish commentary coming from the central bank.

Tuesday

Overnight, Japan releases its Current Account and Trade Balance figures for the month of August. Australia will also report September NAB Business Conditions and Confidence Surveys. The most important release of the session often flies under financial markets’ radar. The NFIB Small Business Optimism Index most obviously shows the impact of President Donald Trump’s economic stimulus of lower taxes and looser regulation. In August, the survey reached a new record high, underpinned by signs of real growth. Small businesses reported historically high, some record breaking, levels of increased sales, investment, earnings and hiring. The only negative was that firms struggled to find qualified workers, limiting job creation in the sector. Signs suggest the US is hitting against its supply capacity. Canada September Housing Starts are likely to continue to moderate as higher interest rates and tighter lending conditions take the steam out of the housing market.

There is a full schedule of speakers on Tuesday, with the European Central Bank’s (ECB) Francois Villeroy de Galhau talking at a small business event. Last time Villeroy spoke, he described policy tightening as ‘more and more warranted’. Two Federal Reserve centrists, John Williams and Patrick Harker will also speak at separate events.

Wednesday

Australia releases Westpac’s October Consumer Confidence in the early hours, followed by Japan’s August Core Machine Orders. The UK’s Trade Balance has surpassed market expectations for the last three months on consistent increases in the UK’s trade services surplus. The official release of the UK’s industrial and manufacturing production stats for August are likely to show slowing growth in the sector based on leading survey indicators. However, the UK Manufacturing Purchasing Managers’ Index (PMI) already suggests growth recovered in September, making this release relatively stale unless it can surprise.

The US Producer Price Index (PPI) is likely to be the most important release of the day as financial markets equate price pressure to the pace of Federal Reserve tightening. The question at the Federal Reserve, and for markets, is can the US continue this pace of stellar growth without stoking inflation? The PPI’s August downtick predicted a slowdown in inflation for the month. Could the cryptic cycle of Fed tightening, a stronger dollar, and lower US non-oil import prices be keeping inflation tame? Or is it the result of a bigger structural shift? Whatever the reason, US inflation is an important input into expectations for Fed policy tightening. The US October 5th MBA Mortgage Applications and August final Wholesale Inventories will also be released. Canada’s August Building Permits will show how higher interest rates are impacting the sector.

The Fed’s centrist James Bullard and doves Charles Evans and Raphael Bostic speak on relevant topics on the economy and monetary policy. The Reserve Bank of Australia’s (RBA) Assistant Governor Luci Ellis speaks in the evening.

Thursday

Overnight, Japan announces its September Producer Price Index. In the European morning, the Bank of England (BoE) releases its health check on the banking sector and credit conditions. Recent trends have shown increasing levels of bank funding, although investor demand for UK banks’ debt continues to fall – Brexit may be a factor. Increasing default rate on household credit cards is also a rising concern.

The main release of the day, arguably the week, is the US Consumer Price Index (CPI) for September. An upward trend in US inflation since early 2018 stumbled in August, meaning the September CPI figure will take on greater importance. The August drop was led by goods sector deflation. A stronger Dollar is depressing import prices, even after the imposition of trade tariffs, leaving the Fed in the enviable position of an economy outperforming while inflation remains contained. The Fed’s Loretta Mester noted last week that the pace of rate hikes will depend on inflation, meaning the CPI print has trumped employment figures in terms of importance. The October 6th Initial Jobless Claims, September 29th Continuing Claims, September Budget Statement, and October Bloomberg Consumer Confidence data will also be released in the US. New Zealand will report September’s Performance of Manufacturing Index.

Friday

There will be a host of releases overnight, with the highlights being Japan’s September Money Stock and August Tertiary Industry Index, as well as Australia’s August Home Loans and Investment Lending. The Eurozone’s August Industrial Production reading will be released in the morning session. In the afternoon, the usually overlooked US Import and Export Price indices take on increased importance due to trade tariffs and a stronger USD depressing import prices. Import prices have declined month-on-month for the last three months as the deflationary effect of a strong Dollar offsets higher trade tariffs. The October release of the University of Michigan’s Consumer Sentiment provides an important insight into US households. In September, the index topped 100.0 for only the third time since January 2004. Interestingly, the increase was driven by consumers within the lower third of the income distribution. As US President Donald’s Trump traditional political base, this could suggest an outturn in his favour at the US mid-terms.

On the speakers’ calendar for the day ahead, two Federal Reserve doves feature. Charles Evans takes part in a discussion at an investment conference while Raphael Bostic discusses economics later in the session.