UK inflation and wage prints, New Zealand CPI, other key data in focus
Next week’s market movers
- • In the UK, inflation and wage growth data could play a major role in shaping market expectations regarding whether the BoE will hike rates at its upcoming meeting in November.
- • In New Zealand, CPI prints for Q2 are likely to determine whether the RBNZ will tilt hawkish anytime soon, or whether it will retain its neutral bias.
- • We also get key economic data and releases from China, Australia, the UK, and Canada.
On Monday, during the Asian day, China’s CPI and PPI data for September are due out. The forecast is for the CPI rate to have pulled back, while the PPI rate is expected to have held steady. We view the risks surrounding both of these forecasts as being tilted to the upside, considering the results of the Caixin manufacturing and services PMI. The surveys showed that inflationary pressures accelerated at a composite level, with input price inflation reaching an eight-month high while selling prices increased at the fastest pace since last December.
Tuesday, during the Asian morning, the RBA releases the minutes of its latest policy meeting. In the statement accompanying that decision, the Bank was relatively optimistic on the economy, but reiterated its concerns over the Aussie’s exchange rate, noting that the higher AUD is expected to contribute to subdued price pressures and that it is weighing on the outlook for output and employment. As such, we will dig into the minutes once again to see how big of a concern the strong AUD is for policymakers, but we don’t expect any signals with regards to future policy. We maintain our view that officials are likely to remain on hold for the foreseeable future amid subdued wage pressures. Having said that, we think that one of the main determinants of whether the Bank will begin to appear somewhat hawkish in the months to come is the wage price index for Q3, which comes out on the 15th of November.
We also get New Zealand’s CPI data for Q3. No forecast is available for the YoY rate, but the quarterly rate is expected to have slid to +0.2% QoQ from +1.0% QoQ previously. Nevertheless, given that this is still higher than the October 2016 print of 0.0% QoQ, it could still drag the YoY rate up. Our view for a higher YoY inflation rate is also supported by the ANZ inflation gauge, which accelerated on a yearly basis throughout the quarter. Even though an acceleration in inflation could heighten speculation for a more hawkish stance by the RBNZ, we remain somewhat sceptical on the prospect. We think that whether or not the Bank will tilt hawkish may depend primarily on the subcomponents of the inflation report. Specifically, whether the acceleration in prices is owed primarily to rapidly rising house prices, or whether it reflects improvements in the economy as a whole.
In the UK, CPI data for September is due for release. In the absence of a forecast, we see the case for both the headline and the core CPI rates to have risen even further above the BoE’s target of 2%. We base our view on the nation’s services PMI for the month, which showed that prices charged rose at the fastest rate since April. Given that the service sector accounts for the vast majority of UK GDP, we think this is a decent gauge of the broader economy. In our view, a further surge in the UK CPI rates will most likely solidify the case for a November rate hike by the BoE. At the time of writing, the probability for such an action rests at roughly 70%, according to the UK OIS.
On Wednesday, the UK employment report for August is due for release, though no forecast is available yet. Our own view is that the unemployment rate likely held steady, with risks tilted to the downside, while average weekly earnings may have accelerated somewhat. Our unemployment rate view is based on the nation’s services PMI for August, which showed the rate of job creation reaching a 19-month high. Meanwhile, the Markit UK Report on Jobs showed that growth of permanent starting salaries accelerated for the 4th straight month, enhancing the case for a similar reaction in the official wage prints. Coming on top of a potential acceleration in inflation, further speed-up in UK wages would likely seal the deal for a November rate hike, we think, considering the continued signals by the BoE that wage growth is critical for any near-term rate hike.
On Thursday, during the Asian morning, we get China’s GDP data for Q3. We will also get the nation’s industrial production, retail sales and fixed asset investment, all for September. Industrial production and retail sales are forecast to have accelerated, while fixed asset investment is expected to have lost some steam from the previous month. Meanwhile, even though no forecast is available for the GDP print, we see the case for a mild slowdown, considering that all three of the aforementioned indicators slowed notably in the first two months of the quarter.
In Australia, the employment data for September are due out. Our own view is that gains in the labour market may have eased somewhat, following very robust gains in August. We base this on the ANZ job ads indicator, which was flat on a monthly basis. Nonetheless, we doubt that this will be particularly discouraging for RBA policymakers, considering that some moderation in employment gains is to be expected following a particularly strong year so far for the nation’s labour market.
In the UK, retail sales for September are due out, though no forecast is available yet for this indicator. We see the case for retail sales to have risen again, but possibly at a slower pace than the robust +1.0% mom in August. The nation’s consumer confidence indices for the month did not paint a clear picture. The TR/IPSOS print declined and the Gfk index ticked up. However, the fact that the BRC retail sales monitor accelerated suggests to us that we could get another solid retail sales print.
Finally, on Friday, Canada’s inflation prints for September are coming out. Without a forecast available yet, we see the prospect for both the headline and the core CPI rates to have risen, perhaps notably so. Our view emanates from the nation’s manufacturing PMI, which showed prices charged rising at the strongest pace since 2014. Further acceleration in inflation would likely confirm the BoC’s view that with Canada’s output gap now almost closed, inflation is set to pick up. At the time of writing, the implied probability for another BoC rate hike this year is roughly 70% according to Canada’s OIS, and we believe that a strong rebound in inflation could lead market participants to push that percentage even higher.
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