With risk assets rallying sharply this week on optimism over potential US-China trade and Brexit deals, there could well be some follow-through in early next week – especially with the Fed set to re-start expanding its balance sheet from Tuesday by purchasing $60 billion Treasury bills per month until at least into the second quarter.
As far as the US-China trade talks were concerned, well “good things” were happening said Donald Trump in a tweet. Apparently, China has invited Lighthizer, Mnuchin and other top US officials for talks ahead of next months' APEC summit in Chile. Details of the talks were slowly coming out at the time of writing. US Treasury Secretary Mnuchin was expected to hold a press conference at 1:45pm (18:45 BST) on Friday.
In terms of Brexit, we have heard lots of positive things from the UK, Ireland and EU which suggest a deal may be imminent. While short on details, investors were happy to buy the pound ahead of the EU summit, which starts on Thursday 17th October.
The week ahead also features lots of key economic data from important regions of the world, including China and the US. Growth concerns could come back into focus should we see disappointing numbers. Here are the key highlights:
- The markets may gap at the Asian open on Monday following Friday’s outsized moves.
- We also have Chinese trade figures and Eurozone industrial production data to look forward to.
- But it could be a quieter session in the afternoon with many investors out celebrating Columbus Day in the US and Thanksgiving in Canada.
- There are some important macro pointers from Asia first thing on Tuesday, including RBA’s last policy meeting minutes, Chinese CPI and a speech by Bank of Japan governor Kuroda.
- Meanwhile, Bank of England’s governor Mark carney is due to testify on the Financial Stability Report Tuesday morning, when we also have some important UK data – namely, average earnings index and jobless claims.
- There won’t be much in the way of Eurozone data, although it will be interesting to see how the German ZEW survey has fared after it showed a surprise improvement to -22.5 from -44.1 previously.
- From the US, we will have speeches by FOMC members George and Bullard, as well as the Empire State Manufacturing Index
- New Zealand CPI will be the main event for Asian traders first thing Wednesday. A disappointing reading here could encourage the RBNZ to cut rates even more, having already loosened its policy three times this year.
- UK CPI, due for publication Wednesday morning UK time, would usually be a major market mover. But with Brexit at the forefront, it will probably not cause too much of a reaction this time.
- Canadian CPI and US retail sales will be among the day’s key North American data to watch. Any signs of weakness in consumer spending could boost expectations over a rate cut by the Fed and undermine the dollar.
- Australian employment figures will be watched closely by FX traders. The AUD/USD has posted some bullish-looking price action over the past couple of weeks and if we start to see some improvement in Aussie data then this could help to fuel a more profound recovery in the exchange rate, as investors price out the risks of further RBA rate cuts.
- There will be plenty of US data on Thursday and a couple Fed speeches. Among the day’s data releases, we will have the latest industrial production figure, building permits, housing starts and the Philly Fed Manufacturing Index. On their own, none of these are likely to move the markets too much. Collectively, however, they may cause a reaction – especially if they paint a bearish picture of the economy.
- China will release its quarterly GDP estimate on Friday, along with industrial production and retail sales.
- There won’t be anything significant from other regions of the world.