Weekly Recap, And Upcoming Calendar - Here Are The Main Events To Look For
Week in Review – Markets on a Soul Searching Mood
After a number of weeks of equity strength, USD weakness and US rate declines, the market paused it’s correlated asset price shifts to do some soul-searching ahead of significant events. The G20 finance ministers meeting this weekend was a source of uncertainty as markets observed the increasing tension for FX appreciation against the USD across the world and the heavy intervention from local policy makers to offset that risk.
Markets also tried to digest the impact of the surprising Chinese rate hike. In addition, the debate about how much QE is priced already has heated up as the market tries to forecast the Fed’s actions in early November. And finally, it is worth pointing out that all this debate is taking place against the backdrop of heavy positioning especially in short dollar trades.
Against all these sources of uncertainty, macro data continued to send some positive signals. European business surveys continued to surprise on the upside, Chinese data was in line with expectations, and even the Philly Fed came only slightly short of consensus expectations.
All in all, markets remained broadly range bound but price action became increasingly choppy throughout the week. The USD strengthened slightly on a trade weighted basis, stocks drifted higher and yields rose slightly.
Week Ahead – More on QE2, Asian FX and Business Surveys
Following the weekend’s meeting by the G20 finance ministers the markets will likely come to realize that the immediate impact on current trends in FX will be limited. It is therefore likely that attention will shift back to data once again and on the likely course of action by the Fed.
On the data front, we have a heavy data week in the US with GDP, Chicago PMI, durable goods and consumer confidence. Overall and on balance we are less positive than consensus albeit by a smaller number.
Potentially hawkish comments from central bank meetings in Poland and Sweden could be catalysts for FX appreciation.
Finally, data out of Europe includes another German employment report and a UK GDP. We expect both to show further improvements.
Monday Oct 25
US Existing Home Sales (Sep):We anticipate a positive print, slightly above consensus (GS: +6.0% mom, consensus: 4.1%, last +7.6%)
Hungary Monetary Policy Meeting:We are in line with consensus in expecting no change in Hungary’s monetary policy; NBH is set to keep rates at 5.25%.
Tuesday Oct 26
Korea (Q3):Given our long KRW (vs INR) recommendation we will be watching Korean data closely. We expect GDP to slow to 5%yoy from 7.2%yoy previously.
Sweden MPC Meeting:We expect Riksbank to hike rates by 25bps to 1% in the upcoming meeting. The bank’s outlook on growth and inflation is key to watch – we remain above consensus in our own relevant forecasts.
UK GDP (Q3 prelim):Along with our broader view of the UK economy we are slightly above consensus in our Q3 GDP forecasts (0.6% vs consensus of 0.4% and prior of 1.2%)
US Conference Board Consumer Confidence Survey:We expect an improvement in consumer confidence albeit very close to what consensus expects (GS: 50 vs consensus 49.5, and previous 48.5).
Wednesday Oct 27
Norway MPC Meeting: Given the recent softer data on activity we do not expect Norges bank to raise rates above the current level of 2pct.
Poland MPC Meeting: Given the recent stronger data on Polish inflation there is a risk for an earlier hike by NBP even by 50bps but we do not think there will be a shift in the policy stance at this week’s meeting yet.
US Durable Goods Orders:We expect an improvement in durable goods orders although we will be watching closely the new orders to inventories ratio and cross-check it against the ISM’s relevant datapoint (GS: 1.5 vs. Consensus 2.0% and previous -1.3%) .
Thursday Oct 28
Japan MPC Meeting:We continue to expect an overall dovish tone from Japan’s central bank on the back of ongoing deflation.
Germany Unemployment (Oct):The recent strong performance of the German labour market is bound to extend in October albeit at a slower pace (GS: -20k mom relative to consensus of -30k vs previous -40k mom).
ECB’s quarterly Bank Lending Survey: On recent trends, some minor net tightening might occur. It will also be interesting to see responses to the forward-looking question of how banks plan to change standards over the next 3 months.
Friday Oct 29
Swiss KOF Index (Oct): We think the index will ease only marginally to about 2.19 (from 2.21); consensus thinks it’ll drop to 2.16.
US GDP (Q3 Advance):We are slightly below consensus in our GDP estimate. That said, there is some upside risk from inventory accumulation (GS:1.5, consensus: 2.0, previous: 1.7).
Chicago PMI:Chicago PMI has held up better than other regional business surveys (GS:57, consensus: 58, previous: 60.4).
From Goldman Sachs