Weekly Market Outlook (09-13 October)

UPCOMING EVENTS:

• Tuesday: US
  NFIB Small Business Optimism Index.
• Wednesday: US
  PPI, FOMC Minutes.
• Thursday: Japan
  PPI, UK GDP, ECB Minutes, US CPI, US Jobless Claims, NZ Manufacturing PMI.
• Friday: China
  CPI, China Trade data, Eurozone Industrial Production, US University of
  Michigan Consumer Sentiment.

This weekend, Hamas
launched a massive attack against Israel
which draws parallels between October 2023 and October 1973. The implications
for global markets are still uncertain, but the Oil market is the first one
that comes to mind. Javier Blas published a nice article
on Bloomberg where he highlights the likely implications and how the situation
can turn uglier.

Wednesday

The US PPI Y/Y is expected to match the
prior reading at 1.6%, while the M/M reading is seen at 0.3% vs. 0.7% prior.
The Core PPI Y/Y is expected at 2.3% vs. 2.2% prior, while the M/M figure is
seen at 0.2% vs. 0.2% prior. This report might not be that much marker moving
as the market is more likely to focus on the CPI report the following day.

The FOMC Meeting Minutes generally cause
some reaction in the markets, but the moves are usually faded soon after as the
contents are three-weeks old and mostly known. As
a reminder, the Fed left the FFR at
5.25-5.50% as expected with growth and inflation projections revised higher and
the unemployment rate revised lower. The Dot Plot showed that the FOMC still
expects another 25 bps hike by the end of the year but “surprisingly” sees only
50 bps of rate cuts in 2024, where previously it was 100 bps.

Thursday

The ECB Monetary Policy Meeting Accounts,
similar to the FOMC Minutes, are released roughly four weeks after the ECB
Policy Decision and they generally aren’t market moving. As
a reminder, the ECB hiked interest
rates by 25 bps at the last meeting with the market seeing a 50/50 chance back
then of either a hike or a pause. In the statement, the ECB added that it
“judges that rates have reached levels that, maintained for a sufficiently long
duration, will make a substantial contribution to the timely return of
inflation to the target”. This is basically them saying that they are done
with the tightening cycle, which is also what the ECB members have been
signalling in their speeches following the monetary policy meeting.

The US CPI Y/Y is expected at 3.6% vs.
3.7% prior, while the M/M reading is seen at 0.3% vs. 0.6% prior. The Core CPI
Y/Y is expected at 4.1% vs. 4.3% prior, while the M/M figures is seen at 0.3%
vs. 0.3% prior. Given the overall strong economic data and the beat in the NFP
report last Friday, a hot CPI report might force the Fed to proceed with a 25
bps hike at the November meeting.

The US Jobless Claims keep on beating
expectations week after week as the US labour market remains solid. This week
the consensus sees Initial Claims at 210K vs. 207K prior with no consensus at
the moment for Continuing Claims, although the prior reading was 1664K.

Friday

The
Chinese CPI Y/Y is expected at 0.2% vs. 0.1% prior, while the M/M reading is
seen at 0.3% vs. 0.3% prior. The PPI Y/Y is expected to remain in negative
territory at -2.4% vs. -3.0% prior. The Chinese inflation rate slipped into
deflation in July before returning in positive territory the next month as
officials kept on rolling out easing measures to prop up their ailing economy.

The
University of Michigan Consumer Sentiment is expected to tick lower to 67.4 vs.
68.1 prior. Consumer sentiment has been rising since October of last year as
consumers’ finances improved due to lower inflation and higher wages. More
recently, higher energy prices weighed on the sentiment, but the good news is
that inflation expectations haven’t gone up as one would have expected.