Weekly Review And Upcoming Weekly Events Calendar
Goldman's weekly review and outlook for the upcoming week.
Week in Review
Payrolls and QE2 US payrolls on Friday came in rather mixed with softer guts as seen in the rise in the U-6 rate and hours worked stagnating. The November FOMC meeting remains very much the likely expected commencement date of Fed QE2. Stocks received a slight boost from this and the Dollar was slightly weaker, with $/JPY notably dipping below the 82 level.
IMF/G7 meetings and ‘currency wars’ The meetings in Washington this weekend garnered agreement for greater IMF surveillance on exchange rates but did not yield any ‘grand statement’ on broad Dollar weakness and global FX coordination. One of the reasons why significant action here on these issues was unlikely (as we flagged in last Friday’s FX Views) is because the G7 has all but ceased to become the main channel for official statements on currencies, with the focus shifting mainly to the G20 (the next finance minister’s meeting is scheduled for Oct 22 before the November G20 leader’s summit in Seoul).
New forecasts Last week, we changed our Dollar forecasts across the board. One thing we highlighted in particular is that there will be limited trade weighted impact on most currencies if all share at least part of the USD weakness.
Key US data--FOMC minutes, retail sales, CPI, trade balance. The minutes of the Sep 21 FOMC meeting out on Tuesday will be worth watching closely for anything special about the rationale for highlighting the low level of inflation and also to gauge how strong the support was for the decision to signal readiness to make further asset purchases. Speeches by Fed officials Dudley and Bernanke on Monday and Friday respectively will also be watched.
Other key releases are retail sales and inflation. Following reports of increases in auto sales and chain store results, our US economists expect retail sales to show solid gains (we are above consensus at +0.6%mom for headline and ex-autos). On CPI and PPI, we expect the disinflation trends to remain intact with benign core prints (+0.1% in line with consensus). Other noteworthy items for the week are the usual Claims on Thursday and Empire and the preliminary Michigan sentiment reading on Friday.
Central bank meetings—Singapore, Korea, Turkey, Mexico and Chile We have a few key central bank meetings in NJA. First, the biannual Singapore MAS meeting (and the advanced Q3 GDP print) on the 14th where our Singapore economist believes they will likely maintain its current policy stance of “modest and gradual appreciation” of the SGD NEER policy band. This is likely due to the MAS’ view of a slowdown in external demand in 2H2010 and inflation tracking broadly in line with their expectations. In Korea, our Korea economist is expecting a 25bps hike versus consensus expectations of no change. The rationale for this view is the likely need to temper inflation expectations on the back of the surge in inflation in September and the BOK’s long-held policy stance to normalize the rate gradually.
Mexico and Chile also hold their central bank meetings, both on the 15th, which would be relevant for our current short MXN/CLP tactical trade. No change to rates expected in Mexico while we expect a hike in Chile but possibly at a reduced 25bps pace, below consensus of 50bps. The overall rationale of differential exposure to the US is still very much intact though and with our commodities team’s recent upgraded forecasts on Copper, we expect this trade idea to remain relatively well supported. Finally, we expect rates to be left unchanged in Turkey.
China data In addition to all the all-important CNY fixing, markets will pay attention to China trade (13th), M2 and credit data (10-15th) to be released this week. Our China economists expect the amount of CNY loans made in September to be between Rmb550-600 billion. CNY loan growth and M2 growth is expected to stay largely unchanged at 18.5% yoy and 19.1% yoy respectively. On trade, we expect September exports growth to soften to 28.0% on a yoy basis, from 34.4%. Meanwhile, we believe imports growth will soften to 29.0% yoy, from 35.2% yoy in August. There will likely be added focus on the China trade balance given the current spotlight on global imbalances and exchange rate inflexibility. We expect the trade surplus will likely narrow to around US$15.2 billion, down from US$20.0 bn in August.