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This Week: Quieter data week doesn’t mean less volatility

“What a time to be alive” is a phrase we have heard slightly more of over the last few weeks and months. There is so much going on in markets right now, so many different drivers and themes, both short term and on a wider basis. Central to this is growing US inflation pressures with the latest data and particularly the core readings, much bigger than expected.

But before we discuss about US inflation and other key themes that have influenced sentiment, here are the scheduled economic data releases/events in the coming week:

Monday, 17 October

  • USD: Empire manufacturing
  • EUR: ECB Vice President Luis de Guindos, ECB Chief Economist Philip Lane speech

 

Tuesday, 18 October

  • CNH: China 3Q GDP, Retail sales, industrial production
  • AUD: Reserve Bank of Australia minutes 
  • EUR: Germany ZEW survey expectations
  • USD: Industrial production, NAHB housing market index

 

Wednesday, 19 October

  • EUR: Euro area inflation
  • GBP: UK inflation
  • USD: Chicago Fed President Charles Evan, Minneapolis Fed President Neel Kashkari, St. Louis Fed President James Bullard speech

 

Thursday, 20 October

  • CNH: China loan prime rates
  • EUR: Germany PPI
  • GBP: Gfk consumer confidence
  • USD: US existing home sales, initial jobless claims 

 

Friday, 21 October

  • EUR: Euro area consumer confidence
  • GBP: UK retail sales

 

These miserable inflation figures saw a sharp, short squeeze in stock markets and an intraday move which was one of the largest in recent history, but many are questioning how long this rebound will last. One thing we do know is that the Fed is determined to press ahead with further jumbo-sized rate hikes. This should continue to underpin support for the dollar and hinder longer term moves north in risky assets.

A 75-basis point is a done deal now for the November FOMC meeting. Another three-quarter point move in December, which would be the fifth in a row, is now given a near 70% chance by money markets. The peak rate in the US is closing in on 5% so it is noteworthy in some ways that even though there is an underlying bid in the greenback, the bulls have not made new highs.

We note that since the 1990s, gains of 20% or a little more over a 12-month period have been consistently where dollar strength has topped out. That said, there is still no real alternative to USD while global growth continues to lag behind with numerous headwinds across the globe.

UK markets remain uncertain

Self-made headwinds are apparent in the UK currently, with politics entwined with financial markets – never a good mix! The new U-turn by the Truss government and sacking of the finance minister has not seemed to have calmed the gilt market, so-called for being a source of stability in times gone by. Credibility is tough to gain in markets, and very easy to lose.

The end of the Bank of England intervention in the bond markets will be a focus this week. Whether a fresh market selloff forces the Old Lady to continue with this is an open question. High UK inflation figures are forecast with the core of particular interest as rate hikes could be expected to influence these figures the most. The ratings reviews for the UK by the S&P and Moody’s scheduled next Friday will add to the volatility melting pot for GBP.

Talking technicals, the GBPUSD remains in a wide range on the daily charts. Resistance can be found at 1.1500 and support around 1.0925. A break back above 1.1300 could trigger an incline towards 1.1500. Should prices struggle to push higher, bears are likely to target 1.0925.

GBPUSD

China 20th Communist Party Congress in focus

The twice-a-decade gathering is likely to see current leader Xi Jinping reappointed for a precedent-breaking third term. China-watchers will be interested in who is tapped as the next premier. Most experts anticipate no significant policy changes at the meeting, particularly to the zero-Covid strategy and curbs on China’s property sector.

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