Fed’s meeting minutes and CPI rates to keep the market moving

We are reaching the end of a week which seemed to be characterised by worries for inflation and the US debt ceiling, along with an energy crunch. At the same time, we must note that the release of the US employment report for September is still pending as these lines are written and could create additional mayhem in the markets. Opening a window to see what next week has in store for the markets, we highlight the release of the Fed’s meeting minutes on Wednesday in regards of the monetary front. Also, a substantial number of monetary policymakers from the US as well as other countries are scheduled to speak and could create substantial interest among market participants. As for financial releases after a rather quiet Monday, on Tuesday we get UK’s employment data for August. On Wednesday we note UK’s GDP rates for August and most importantly the US CPI rates for September. On Thursday we note the release of Australia’s employment data for September and later on the US weekly initial jobless claims figure, while on Friday we get the preliminary US University of Michigan consumer sentiment for October and the US retail sales for September.

USD – Fed’s meeting minutes and CPI rates eyed

The USD seems to have been confined in a sideways motion against its counterparts in the past few days. The resolution of the US debt ceiling, even temporarily, seems to have brought a more optimistic mood in the markets on Thursday. US lawmakers voted to extend the limitation on the US government’s borrowing in order to avoid a possible default of the US government. The extension is to span until early December, bringing a relief in the markets. We must also note that the US yields are at rather high levels and seem to be rising even further and if so, could provide further support for the USD, while have an adverse effect for US stockmarkets especially the high tech sector. Also, the price of gold could drop should US yields rise as rising yields could prove enticing for non-interest bearing gold holders. In international politics, we note that tensions in the US-Sino relationships seem to ease given that Biden and Xi plan U.S.-China virtual summit before year’s end according to media. Should there be further easing in the tensions of the US-Sino relationships, we may see the USD experiencing some safe-haven outflows. On the monetary front we highlight the release of the Fed’s September meeting minutes and should the document reaffirm the bank’s hawkish turn we may see the greenback getting some support. Also, the worries about inflationary pressures in the US economy are still present, therefore we expect the release of the US CPI rates for September also on Wednesday to be closely watched. On Thursday we note the release of the US PPI rates for September and the weekly initial jobless claims figure. On Friday we get the retail sales growth rate for September and the NY Fed Manufacturing Index as well as the preliminary University of Michigan consumer sentiment, both being for October.

GBP – Employment data and GDP rates in trader’s focus

The pound seems to have gained somewhat against the USD, EUR, and JPY in the past few days albeit the bulls action seem to remain somewhat capped. Fundamentally the situation in the UK remains worrying as there seem to be shortages from time to time in food and fuel as well as other consumer goods. Shortages seem to be caused by a lack of heavy goods vehicle drivers as well as other overseas workers due to Brexit and the situation got even worse by the Covid pandemic. UK PM Johnson promised change, yet such a restructuring of the UK economy may take time, which in turn could have adverse effects on its recovery. Also, inflationary pressures seem to be present for the UK economy and businesses are reported to expect further price hikes for their end products, implying that the issue is far from over. The situation seems to intensify BoE’s dilemma to tighten its monetary policy as on the one hand, hiking rates could tame inflation yet at the same time could undermine the economic recovery. On UK’s fundamentals we also must note some tensions with the EU about their post Brexit relationship, as France was reported threatening the UK with a power cut in order to leverage better access to fishing waters. As for financial releases GBP traders are to have a rather interesting week as on Tuesday, we get the UK employment data and on Wednesday we note the release of the UK GDP rates and manufacturing output rates all being for August.

JPY – Worries for tax hikes

JPY seems about to have its fifth consecutive week of losses against the USD, despite some strengthening at the beginning of the week and since Monday is also losing ground against the EUR and GBP. It should be noted that Japan’s parliament elected Mr. Kishida as its new Prime minister on Monday, yet there seem to be worries about his ideas for a “new capitalism” as included in past week’s report. Its characteristic that Nikkei had some sharp losses on Monday, suffering a “Kishhida shock”, as the new leader was reported to have suggested tax hikes. On the other hand a wide number of Abe’s associates are within Kishida’s current team, which could moderate any policy shifts. We must also bear in mind that the Japanese Yen, besides a national currency is also considered to be a safe haven, hence we would not be surprised to see it also reacting to any tensions in the international politics, as well as any problems in the global economic recovery. On the monetary front BoJ Governor Kuroda, is reported to have stated that Japan’s labour practices keep wage pressures under control, which in our opinion could have an adverse effect on inflation. The situation for Japan’s economy seems to be gloomier in the eyes of the BoJ as supply bottlenecks seem to limit -production output and thus exports, according to a quarterly report of the bank, which is vital for the Japanese economy. As for financial releases we would like to note the release of the corporate goods prices for September on Tuesday, while on Wednesday we get the machinery orders growth rate for August.

EUR – The energy crunch bites

The single currency’s weakening against the USD seems to be unstopable. This is its fifth week in the reds. European fundamentals cannot be iterated without mentioning the energy crunch suffered by the continent. Despite comments made by European Energy Commissioner Simson, that the area has enough gas in storage to last through the winter, worries are still present. Its’ characteristic that Germany’s DAX dropped substantially on Wednesday, yet recovered on Thursday as Russian President Vladimir Putin stated that they are ready to help stabilize the global energy markets. The statements caused a temporary correction of Dutch and UK natural gas prices, yet the market seems to remain rather volatile and uncertain. However, a substantial increase of Russian exports of natural gas to Europe may entail a quick certification of Nord Stream 2, which was halted by the European courts and some European states may be unwilling to allow. Overall the situation underscored the energy dependency of Europe to Russia. On the monetary front reports that the ECB is studying a new bond buying program when the PEPP program is to be phased out next year, highlighted the bank’s dovish inclination. As for financial releases we note on Tuesday Germany’s ZEW indicators for October and on Wednesday Eurozone’s industrial production for August. Also on Wednesday and on Friday we get Germany’s and France’s final HICP rates for September, albeit the preliminary releases may have allready absorbed most of the market’s reactions.

AUD – Employment data in the epicenter.

The Aussie seems to be in a sideways movement against the USD for a third week in a row. It should be noted though, that against the Kiwi the Aussie seems to be strengthening notably. On AUD’s fundamentals we note the possible easing of the tensions in the US-Sino relationships that could benefit the commodity currency, as China is one of the main trading partners of Australia. It should be noted that China’s energy crunch could expand more the Sino- Australian trading relationships as Australia could provide the coal needed. On the other hand iron ore seems to have stabilised at low levels, which could be adverse for Australias’ exports. On the monetary front RBA’s widely expected decision to keep rates unchanged at 0.10%, a record low passed largely unnoticed by Aussie traders. The bank also is to purchase
government securities at the rate of AU$4 billion a week until at least mid February. Overall the bank’s dovishness seems to be steady and may weigh somewhat on the Aussie. As for financial releases, Aussie trader’s focus is expected to be on the release of Australia’s employment data for September on Thursday. Aussie traders may also be on the look out for China’s trade data for September on Wednesday and CPI rates for the same month on Thursday.

CAD – Fundamentals and oil prices to move the Loonie

The CAD seems to have escaped its inactivity of the prior week and seems to be strengthening against the USD in the past few days. The improvement of the market sentiment in the past days seems to have benefited the commodity currency and should market optimism characterise the coming week, we may see the CAD getting some further support. On the other hand, oil prices remained a fundamental issue for Loonie traders in the past two days, as the Canadian economy exports a high amount of the commodity. Oil prices seemed to suffer a bit on Wednesday as surpluses of US crude oil inventories were reported by both API and EIA for the past week. It should be noted that oil prices rebounded on Thursday and seem to be aiming for a new multi year high. A further rise of oil prices could provide some support for the Loonie. On the other hand, news that the US is considering selling oil from its oil reserves did not go down well among oil traders. On the monetary front, BoC governor Tiff Macklem stated yesterday that inflation could be “a little more persistent” but assured Canadians that the bank will control inflation. As for financial releases, Loonie traders are to have a rather light calendar ahead, as we get on Thursday the Manufacturing Sales and on Friday the Wholesale growth rates for August.

General Comment

As a closing comment we expect volatility to be maintained given the high amount of financial releases, while at the same time some degree of uncertainty remains in the fundamentals. The release of the US employment report today, depending on the whether the rates and figures take the markets by surprise could create volatility in the coming week and alter the market’s sentiment. Please note that the release is expected to be closely watched also by FOMC policymakers. The USD possibly could maintain the initiative over other currencies, given the gravity of the US fundamentals and financial releases. Yet other currencies could
also be in the spotlight from time to time, as high impact data are expected also from other economies. Fundamentals mentioned at the beginning of the report such as the energy crunch, worries for inflation, the Fed’s intentions and US yields could continue to affect the markets as well in the coming week with various degrees of intensity, depending on how the issues play out. Should market optimism prevail though, then we may see US stockmarkets getting some support. On the other hand, gold prices may have on display once again their negative correlation with the USD.

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