There is so much going on right now in markets, with several competing drivers and themes. Central bank policies and interest rate expectations, Middle East tensions and the oil price, China’s stimulus measures, plus an incoming earnings seasons and coin flip US Presidential election, all need to be considered. And yet, US stock markets continue to make fresh record highs as the soft landing plays out, boosted by the Fed’s recent half-point rate cut and a blockbuster jobs report. As one investment bank economist recently wrote rather aptly, “if all else fails, central bankers come to the rescue”.

We get to hear from the ECB on Thursday, with the bank fully expected to reduce rates by another 25bps. Forward guidance has been non-existent, but markets are convinced that growth is tilting further to the downside, suggesting that both headline and core inflation could be lower than previously expected. In fact, futures price in four back-to-back 25bp rate cuts from this meeting. That means, the bank would be pivoting to a faster easing cycle amid a high level of macro data uncertainty. But we are likely to hear that President Lagarde and co are ‘data dependent’ and have a meeting-by-meeting’ approach. Explicit mention of more rate cuts could see more EUR downside with the support area around 1.09 tested.

Sticking in Europe, two of the region’s biggest companies, LVMH and ASML are due to report results this week, kicking off earnings season on the continent. While the bloc’s economy stumbles in stagnation, corporate earnings are seen growing for a second straight quarter for the first time since Q1 2023, according to LSEG Data. That makes for a high bar to hurdle. However, as earnings expectations have been lowered coming into reporting season, analysts are still optimistic that Europe Inc will clear it.

Finally, it’s the middle of the month which signals a data heavy week of UK economic releases. This will guide the Bank of England’s next rate decision in early November. Pay growth is likely to soften on the back of a cooling labour market. A material drop in headline CPI, with the first sub-2% reading since April 2021, and services inflation should cement a 25bps rate cut in a few weeks time. A zone around 1.30 in GBP/USD may offer decent support to much weaker data.

In Brief: major data releases of the week

Tuesday, 15 October 2024

– UK Jobs: Markets will focus on wage growth and the average weekly earnings. These continue to ease, though some on the MPC are concerned that wage setting behaviour has changed for good.

– Canada CPI: The BoC’s preferred core measures of inflation ticked down in August, closer to their 2% target. The headline print saw the slowest pace of growth since February 2021 due to falling gasoline prices. There is around a one in three chance of 50bps cut at the BoC’s next meeting.

Wednesday, 16 October 2024

– New Zealand CPI: Annual inflation is predicted to drop to 2.2% which would be the first time it’s been below 3% since 2021. It would also be below the RBNZ’s forecast from its August statement. Lower prices for fuel and imported durable items are helping.

– UK CPI: Expectations are for a headline reading of 1.9% and core to print at 3.5%. Services inflation will be key with the latter remaining too sticky for some MPC hawks. The next rate cut is 80% priced in at the November BoE meeting.

Thursday, 17 October 2024

– Australia Jobs: Consensus sees 22k jobs added and the unemployment rate steady at 4.2%. Stronger growth in labour supply has lifted the jobless figure, rather than an increase in redundancies.

– ECB Meeting: Another 25bps rate cut is nailed on by money markets. Falling inflation and downside risks to subdued growth have likely triggered a back-to-back move. Little to no forward guidance is expected.

– US Retail Sales: Headline sales are forecast to rise 0.3% m/m and core at 0.1%. Strong auto sales should help, along with solid consumer credit card borrowing numbers. 

Friday, 18 October 2024

– Japan CPI: Core inflation is forecast to ease to 2.3% in September from 2.8% in August. Services prices will be the focus and whether hikes accelerate in October as businesses adjust for higher labour costs amid rising wages. The next rate hike is seen in December or January.

– China Data: GDP is expected to remain below the key 5% target. The monthly activity data is also released. Retail sales are forecast to remain sluggish, with the housing contraction side still weighing on overall fixed asset investment.

– UK Retail Sales: Expectations are for a m/m flat reading, which is a sharp fall from August. Typically, a strong summer can be followed by a retracement. That would be more in line with other more downbeat surveys of consumer sentiment.