The US economy looks to be hitting new heights, while Europe remains plagued by politics. Throw into the mix the strongest US wage growth figures since the global financial crisis, and it's hard to see the US dollar not staying strong in the short-term. The stories driving the markets are slightly older ones, meaning that the market may have already priced in some of the price action.
Following a strong US Gross Domestic Product (GDP) number, the US data focus for the week ahead shifts to the October jobs report. Our economists expect a strong employment rebound after a weather-depressed September reading caused by Hurricane Florence.
The question this week is whether the Italian coalition government will back down over the budget it submitted to the EU. Italy’s position seems unmoved with both deputy prime ministers Salvini and Di Maio stressing their reluctance to change their current stance. The issue for the coalition government is that their budget includes election promises, that if broken could turn the already fragile mood against the leaders. The issue for the EU is if they play hardball for too long then they risk the possibility of non-binding referendum’s and votes, potentially on EU and single currency membership.
With this issue hanging over the Euro we can expect some downside, as the markets hate political uncertainty. The upside, if any, could come from either big data prints this week with both Gross Domestic Product and inflation due for release.
It's a big week of event risks for GBP - with the November Bank of England meeting and the Chancellor's Autumn budget on the agenda. But make no mistake, they'll be no hiding from Brexit, and we suspect the UK's future relationship with the EU will be firmly in the spotlight at both of these events.
With so much unknown surrounding Brexit, it’s likely that chancellor Phillip Hammond will be reluctant to change too much and come out with any dramatic ideas on Monday afternoon. However, the issue is that just last week there were announcements on a boost to spending and an end to the austerity program. Such announcements could be seen as sweeteners to a Budget that could be particularly non-committal.
In terms of the Bank of England meeting this week, expectations are for a unanimous 9-0 vote on a no change in rates. The markets do not expect rate movement in the UK until at least May 2019, with a yearly rate hike looking likely if the UK remains on its current economic path.
Last week’s Bank of Canada rate was a little more hawkish in tone than expected. However, there had been so much talk about this rate hike, it was almost impossible for the Bank of Canada not to hike, despite the weaker economic data in the run up.
As for the week ahead, the focus will be on August Gross Domestic Product and the October Canadian jobs report. The forecast is expected to be no change from July in the August growth figure; but at an estimated 2.4% YoY, the growth story is still upbeat as Canada continues to reap benefits from the strong foreign demand. As for jobs expectations, the unemployment rate is to remain stable at 5.9%.
The downside for the Australian dollar continues at haste, but the RBA is quite happy with a weaker AUD - and despite some likely good inflation data this week (3Q CPI due on Wednesday), we doubt that investors will have any solid reasons to chase the currency higher. An uptick in Australian CPI should be short-lived, with higher oil prices the main reason for stronger inflationary pressures.
Unfortunately we cannot look past any headline around the US and China, as the G20 meeting where we could see a meeting between Xi Jinping and Donald Trump approaches. Any shake up in the news flow would be the last thing Aussie bulls need.
It's another quiet week in the New Zealand calendar - although it's probably worth keeping an eye on October business confidence data (Wed). The kiwi could be quite sensitive to this release - not least given that rising speculation of an Reserve Bank of New Zealand rate cut in recent months has been largely due to waning business confidence.
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Ongoing rate curve repricing and risk asset reaction perfectly illustrate how worryingly reliant investors have become on easy money policies