What mattered last week:
- The month of October again lived up to its a reputation for being a challenging month for equity markets.
- In the U.S., the S&P500 Index suffered its largest two day drop since early February and closed the week -6.0% below its recent high.
- The ASX 200 fell over -4.5% and is now -7.5% from its highs in August.
- Rising U.S. Treasury bond yields, a result of strong U.S. economic data and a more hawkish Fed as well as the deepening U.S.- China trade conflict were the main catalysts for the rout in stocks.
- FX traders responded to the increased equity market volatility by reducing their FX positions whether long or short.
- With the market positioned short AUDUSD and NZDUSD at the beginning of last week, the bounces in both currencies is explained by traders “de-risking” as the AUDUSD closed the week above .7100c and NZDUSD back above .6500c.
- The same could be said for Gold. With a large short position in Gold, the fall in equities resulted in traders reducing shorts as well as some “safe haven” type buying taking place, Gold closed the week back towards U.S. $1220.00.
For the week ahead, the key events are:
Australia: RBA meeting minutes (Tuesday), labour force data (Thursday).
- The September labour market report is expected to show job growth of +15k after the economy added +44k new jobs in August. The unemployment and participation rates are both expected to remain stable at 5.3% and 65.7%, respectively.
New Zealand: Q3 inflation data (Tuesday) followed by the Global Dairy Trade auction (Wednesday).
- The market is looking for a rise in the Q3 inflation rate to 0.7% which takes the YoY rate to 1.7% from 1.5% in Q2.
China: CPI, PPI (Tuesday) followed by retail sales, industrial production, fixed asset investment and Q3 GDP (Friday).
- The Chinese economic data will again be closely watched for the impact of U.S. tariffs on the Chinese economy. Q3 GDP data is expected to slow to 6.6% YoY (from 6.7% in the June quarter), while retail sales growth is forecast to remain stable at 9.0% and IP to also fall marginally to 6.0%.
Japan: Balance of trade (Thursday) and nationwide CPI (Friday).
- Core inflation (ex food and energy) is expected to rise by +0.4% YoY, still well short of the 2% inflation target.
U.S.: Retail sales, Empire state survey (Monday), industrial production, building permits and housing starts (Wednesday), FOMC minutes, Philly Fed manufacturing (Thursday) and existing home sales (Friday).
- Retail sales are expected to rise by +0.6% in September following a soft number (+0.1%) the previous month.
- On the other hand, housing data is expected to continue to soften. Following a flat reading in August, existing home sales are expected to fall -0.3% in September which would be the lowest reading since the early months of 2016.
Fed speakers include Brainard, Bullard, Quarles and Bostic.
September quarter earnings reports continue with corporate tax cuts and strong economic conditions expected to see solid earnings growth.
Canada: BoC business outlook survey (Tuesday), manufacturing sales (Wednesday) followed by CPI and retail sales (Friday).
- A gain of +0.1% m/m in headline CPI is expected for September, which would result in the YoY rate falling back to +2.7%.
- The market is looking for a fall of -0.2% in retail sales in August, driven by falls in both gasoline station receipts (on lower prices) and auto sales.
Euro Area: German ZEW business survey, EA balance of trade (Tuesday), final inflation data (Thursday) and current account data (Friday).
UK: Labour market data (Tuesday), CPI, PPI (Wednesday) retail sales (Thursday).
- The unemployment rate is expected to remain stable at 4.0%, at near to 40-year lows.
- After a stronger CPI number in August fuelled by one-offs and stronger than usual seasonal factors, the market is looking for a rise of +0.2% in September which will see a fall in the annual rate to 2.6% YoY.
Disclaimer
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