October 14, 2024

“The focus is on the major central banks this week. The ECB is widely expected to up the pace of rate cuts to back-to-back moves, the BoE will be closely watching some labour market and inflation data in the UK, and for the Federal Reserve it is all about the resilience of the consumer with Thursday’s retail sales report.”

Sam Cornford – Head of Trading

USD

The dollar continues to be propped up by a cooling in expectations for the volume of Federal Reserve rate cuts arriving over the coming months. Today is a US bank holiday and that should thin liquidity as traders look to a speech from the Fed’s Waller this evening. His speeches always garner attention, because he is typically assumed to be close in thinking to Chair Powell – markets will be searching for clues on the likelihood of a rate pause in the next two meetings here. Remember that it is the growth and labour market data that is primarily determining the pace of rate cuts now, and that makes Thursday’s retail sales report the biggest market mover for the week. The consensus is for a 0.3% rise in September, which should be enough to convince policymakers that the US economy is still chugging along fine for now.

GBP

The UK data calendar kicks into high gear this week, and the focus is on the Bank of England story. The market has been receiving mixed signals recently from Bailey, who reckons rate cuts could become ‘a bit more progressive’ so long as the data cooperates, and Pill, who is still set on a ‘gradual withdrawal’ of policy restrictiveness. The September wage growth, unemployment, and CPI inflation data will weigh in on the debate this week. Ex bonus wage growth is expected to cool from 5.1% to 4.9% first thing tomorrow morning, which broadly supports a downward path for rates but is not yet enough to point towards rapid cuts. Services inflation on Wednesday – probably the most important figure for the Bank of England – is expected to return to 5.2% after spiking to 5.6% in August.

EUR

The market is near certain that the ECB will cut interest rates this Thursday. A disappointing string of growth and confidence data over the past few months have even convinced some of the most hawkish policymakers that cuts need to come more quickly than the market was previously expecting. With the move fully priced into the euro, the focus will be on how their reasoning is explained in the statement and the press conference, and what the prospect is for a cut in December. Minutes from the last meeting emphasised a preference for giving little guidance and retaining full optionality, however, although that never appears to last long once officials start giving their views.

Markets

The US bank earnings season got off to a good start last week, with the likes of JP Morgan pointing to consumer resiliency as one factor driving the upbeat earnings surprise. In China, diverging confidence in the potential for stimulus measures to rescue growth between domestic and foreign investors saw mainland stocks surge again this morning while Hong Kong’s Hang Seng index slipped.

Main Economic Events (All Times CET)

3:00pm: Fed’s Kashkari speaks
9:00pm: Fed’s Waller speaks

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