The Week Ahead – Brexit and Budgets and the U.S and China in the Spotlight

It may well be make or break for the Pound and the British PM and the for the EUR as Italy faces up to the Establishment on Monday.
Bob Mason

On the Macro

For the Dollar, stats through the week are on the heavier side, with key stats including September retail sales and August business inventory numbers on Monday, industrial production and the JOLTs job openings on Tuesday, housing sector numbers on Wednesday and Friday, along with the all-important FOMC meeting minutes, with October’s Philly FED Manufacturing figures and weekly jobless claims numbers on Thursday. The Dollar Spot Index ended the week down 0.42% to $95.221.

For the EUR, Outside of finalised September inflation figures for the Eurozone, it’s down to October economic sentiment numbers out of Germany and the Eurozone and the Eurozone’s August trade figures on Tuesday, with stats on the lighter side through the week. Focus will be on the sentiment numbers, though Trump may have a look through the trade figures… The EUR/USD ended the week up 0.31% to $1.1560.

For the Pound, Tuesday’s wage growth and employment numbers, September inflation figures and Thursday’s retail sales figures will certainly have an impact on the Pound, though the BoE is unlikely to make a move until there is some clarity on Brexit, leaving Brexit chatter as the key driver. BoE Governor Carney could also provide some direction on Friday. The GBP/USD ended the week up 0.25% to $1.3153.

For the Loonie, it’s a busier week ahead, the BoE Business Outlook Survey due out on Monday, August manufacturing sales on Wednesday and September inflation and August retail sales figures on Friday the key drivers. With the USMCA now pending ratification, its back to the numbers and sentiment towards BoC monetary policy, solid figures supporting a rate hike before the end of the year. The Loonie ended the week down 0.66% to C$1.3024 against the U.S Dollar.

Out of Asia, it’s a busy week ahead.

For the Aussie Dollar, economic data is on the lighter side, with stats limited to September’s employment numbers due out on Thursday. Outside of the stats, the RBA meeting minutes will also be in focus on Tuesday, though few surprises are expected, the ongoing trade war between the U.S and China and possible impact on the Australian economy being another reason for the RBA to remain in the holding pattern, the ongoing trade war considered a negative for the Aussie. Economic data out of China on Friday and any rise in tension between the U.S and China will also be a factor. The AUD/USD ended the week up 0.88% to $0.7114.

For the Japanese yen, economic data scheduled for release includes August industrial production numbers on Monday, September trade figures on Thursday and inflation numbers on Friday. Outside of the stats, market risk appetite and a BoJ Gov. Kuroda speech on Friday will also influence. The Japanese Yen ended the week up 1.33% to ¥112.21 against the U.S Dollar.

For the Kiwi Dollar, stats are limited to 3rd quarter inflation figures on Tuesday, which could give the Kiwi Dollar a boost, though economic data out of China and any build up in tension between the U.S and China will likely overshadow the numbers. The Kiwi Dollar ended the week up 0.99% to $0.6507.

Out of China, it’s 3rd quarter GDP numbers that are due out on Friday alongside September industrial production and retail sales figures that will be the key drivers on the data front, inflation figures on Tuesday unlikely to have a material impact. Outside the numbers, a possible build-up in tensions with the U.S. could also be an influence on risk sentiment, with the markets also mindful of the direction in the Yuan.

Geo-Politics

Brexit: With November rapidly approaching, expect Brexit chatter to build through the week as the British government talk Brexit with the EU in Brussels, any improvement in hopes of a deal to provide strong support for the Pound and for the British PM. Lack of positive news and the Pound could take a big hit, the week ahead considered to be one of the last opportunities for the British and EU to salvage a deal.

U.S – China Trade War:  While we can expect the markets to continue to focus on trade war chatter, tensions between the two economies have risen, with spy allegations now doing the rounds that could lead to more tariffs and possibly sanctions. The U.S Treasury’s currency report submitted to Congress found that China was not a currency manipulator, while remaining on monitoring list, the outcome considered a positive for the markets in the week ahead.

Italy: Its judgement day for the Italian coalition government, with the deadline for budget plans to the European Commission being this Monday. Immediate focus will be on whether the European Commission announces its intention to reject the budget, which would rile the markets. We can expect more chatter and impact on government bond yields and risk appetite over the 2nd half of the week, with EU leaders expected to bring up Italy in Brussels.

The Rest

On the monetary policy front, it’s a quieter week ahead…

  • For the U.S. Dollar, the FOMC meeting minutes are due out, which will provide some direction, though unlikely to deliver too many surprises.

For the Aussie Dollar, the RBA minutes on Tuesday will likely be a nonevent, following the financial stability review released last week and the Central Bank’s intent to hold firm.

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