The Forex Week Ahead

The Forex Week Ahead September 25th – 29th

Forex Week Ahead North America Fiscal policy risks and a heavy line-up of Fed-speak will be the main sources of market risk over the coming week. Data risk should be fairly minor. Fiscal policy risks to markets will heat up next week with a likely further attempt to repeal-and-replace Obamacare and to put more meat on the bone in terms of tax reforms absent material details to date. Data risk should be relatively modest on balance with only a handful of possible exceptions and particularly the Fed’s preferred inflation gauge. Here’s the line-up by day. Tuesday: New home sales fell 9.4% m/m in July but then the late August effects of Hurricane Harvey could further impact figures for the south. Given renewed increases of late, the Conference Board’s consumer confidence gauge is a hair beneath the alltime record in March so whether it eclipses that record or not in the face of hurricanes will be an added focus. That same day has markets bearing witness to the latest S&P CoreLogic Case-Shiller repeat-sales home price measure for July and the Richmond Fed’s regional manufacturing gauge. This combines with the recent increase in the Philly Fed measure as the one-two-punch to forecasting ISM-manufacturing. Wednesday: Durable goods orders during August could stabilize after the large nearly- 7% MoM drop in July that was due to a plunge in aircraft orders. Pending home sales for August will be a fresher reading of hurricane effects on the resale side of the market since they are deals that get inked but with the paperwork closing 30–90 days later on balance. Thursday: Another Q2 GDP revision this time incorporates fuller data on quarterly services spending with the expectation that it remains near the second estimate of 3% growth. Friday: The fun continues with monthly consumer spending, incomes and the Fed’s preferred inflation measure for August. A flat consumption figure could follow the already known mild dip in retail sales during August. Key, however, will be whether the PCE core inflation measure begins to show signs of stabilising in sync with core CPI.

Europe New information that could materially inform risks into the hotly anticipated October 26th meeting of the European Central Bank arrives over the coming week. It starts with Monday’s 9amET talk by ECB President Mario Draghi. He will present his third Monetary Dialogue this year and markets will be sensitive to any hints he drops ahead of the policy meeting. Then hard inflation data takes over. Eurozone CPI for the month of September will be released on Friday. Eurozone inflation has been slightly on the mend of late while market-based inflation expectations have been fairly firm. With inflation subdued and the euro having appreciated by about 15% versus the USD this year as Q3 German economic data covering the industrial and export sectors deteriorates, it’s hard to believe in the story line that says Draghi will be pleased enough to sound the all-clear and carve out a clear exit path with no mitigating policy tools next month. Consumer spending updates from France, Germany and Spain and the German IFO gauge of business confidence round out data risk. UK markets only face Q2 GDP revisions and a monthly services gauge.

Asia Data risk should be of the relatively subdued variety until next Friday night and hence into the following week’s Asian market open. China releases industrial profits for August on Tuesday evening (eastern time), the private sector’s purchasing managers’ index for the manufacturing sector on Thursday evening and then the state PMIs on Friday night. Japan releases CPI Thursday night and, quell surprise, it’s expected to be weak. Headline national CPI might inch higher from 0.4% YoY the prior month while core CPI is expected to remain near-zero in year-ago percentage terms. Japan also releases household spending, retail sales, industrial production, housing starts and the jobless rate on Thursday evening.

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