The Forex Week Ahead

The Forex Week Ahead 16 – 20th October

The Forex Week Ahead North America The upcoming week will be focused upon ongoing speculation over potential candidates for the job of Fed Chair, modest data risk and the expected conclusion of the fourth round of NAFTA talks in Washington. Like many rushed and self-imposed deadlines set by this administration, the search for the next Fed Chair is being pushed out to later than the initial guidance offered by President Trump. On September 29th, Trump said the decision would be made in two to three weeks. On October 12th, Treasury Secretary Mnuchin noted that the President is “trying to make a decision in the next month, although we don’t have a specific deadline.” That same day, White House Chief of Staff John Kelly noted that the decision was “some time away.” Kelly also noted that “All of the people who’ve been in to interview have been first-round draft choices. We still have more to come.” Guidance from both officials clearly kills speculation that a speech cancellation by Governor Powell indicated he was already the chosen one.

Data risk should be fairly modest. We’ve already heard Fed economists warn about data quality issues related to hurricanes ahead of Tuesday’s industrial production figures and so markets will likely ignore the release. Housing starts are expected to remain elevated just shy of the 1.2 million mark and have been little changed over the past couple of years within a 1.1–1.2 million range. Housing data continues on Friday with existing home sales for the month of September that are expected to continue tracking pending home sales lower, given that completed resales track pending home sales with a 30–90 day lag. The Philly Fed’s business outlook survey for October arrives on Thursday. It is largely impossible to predict with much confidence given its volatility, but the Philly and later Richmond Fed measures serve as leading indicators for the ISM manufacturing report due out on November 1st.

Europe The EU Leaders’ Summit next Thursday and Friday follows in the wake of remarks by the EU’s Chief Negotiator Michel Barnier that “we have reached a state of deadlock” in reference to negotiations pertaining to the UK’s exit penalty from the EU. EU leaders are therefore unwilling to engage the UK on talks over Brexit transitional issues and a trade agreement and therefore the Summit has become a symbol of so-called “hard Brexit” concerns until at least the next Summit on December 14–15. The second swing at estimating Eurozone inflation due out on Tuesday adds value not just through possible revisions but more so through greater detail that permits calculation of so-called ‘supercore’ measures. Supercore CPI measures are a) more directly related to slower-moving and longer-lived drivers like capacity pressures and b) less prone to distortions like the impact of packaged holiday prices with the different than usual timing of Easter this year. Eurozone investor confidence as captured by the ZEW metric for October will be released on Tuesday along with the widely followed German measure.

UK CPI also arrives on the same day as the Eurozone figures. UK inflation is getting close to peaking, curiously just as the Bank of England may be on the verge of tightening policy as soon as at its November 2nd meeting while staring at “hard-Brexit” risks. CPI for September could rise to the even 3% YoY mark with core CPI only a smidge behind. Consensus expects CPI to ease off to about 2.3% YoY by the end of next year. BoE Governor Carney testifies before the Treasury Committee on Tuesday just as the inflation data hits the tapes. Thursday’s retail sales growth during September will be challenged to stay out of the red following the large rise in August.

Asia The 19th National Congress of the Communist Party of China starts on Tuesday evening eastern time. It occurs every five years and the main purpose is to elect individuals to lead or reaffirm leadership roles including through multiple powerful committees and to assign policy priorities over the coming five years. Much is focused upon one issue this time, however, and that is the likelihood that President Xi Jinping’s grip on power will be solidified and for much longer yet.

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