Key Events: ECB to Cut 25bp, But Market Still Too Dovish?

Key Events

G10

In the US, the main data is:

1. Retail sales – Thursday. Consensus for the control group (used to build GDP estimates) is 0.3% MoM or 0.1% real (based on CPI). The consensus forecast seems both attainable and in line with recent data suggesting a resilient consumer.

In the Eurozone and UK, the main events will be:

1. UK labour market – Tuesday. Markets expect slowing wage growth to continue. Unemployment has dropped but shown volatility. Consensus expects it to remain steady at 4.1%, but we see rises ahead given accelerating unemployment claims.
2. UK CPI September – Wednesday. Consensus expects +1.9% in headline, +3.4% in core and +5.3% in services. We see downside risk: +1.8% in headline, +3.3% in core and +5.1% in services. Surveys suggest weaker furniture prices. The BoE expects headline of +2.0% and services at +5.5%, so risk exists of a dovish result for them.
3. EZ Final CPI September – Thursday. We expect the print to confirm prelims, with wage-intensive inflation momentum continuing to fade. We think it could reaccelerate in 2025.
4. UK September retail sales – Friday. Poor weather may have weighed on the September reading. More broadly, it is hard to see reasons to be bullish the UK consumer until households begin to run down savings rates.

Elsewhere in G10:

1. New Zealand CPI – Tuesday. Consensus expects inflation to return to the RBNZ’s target range in Q3 and non-tradables inflation to increase +1.3% through the quarter, below the RBNZ’s +1.4% forecast. This will keep the RBNZ dovish.
2. Australia Labour force Survey – Thursday. Consensus expects unemployment (4.2%) and participation (67.1%) unchanged. So far, labour market weakness has been driven by an influx of supply, rather than firing.

EM

1. China MoF Press Conference – Saturday. After NDRC press conference disappointment, market expectations are low. We do not expect ‘new’ news – but officials will manage sentiment and indicate RMB 1-2tn additional borrowing and emphasise coordination between PBoC and MOF.
2. China CPI and trade – Monday. CPI: more of the same with YoY stuck below 1% and PPI staying below -2%. Consensus expects exports to grow 6% YoY, but lower global Mfg PMIs indicate pressure for a downside surprise. Slower exports will put more pressure on authorities to act on the economy.

Central Banks in Action

1. ECB policy decision – Thursday. We expect the ECB to cut 25bp as telegraphed. However, we see risks to the four cuts in four meetings priced by markets if the labour market remains resilient and inflation continues to follow the 2023 pattern.
2. Fed Governor Waller, SF Fed Daly – Tuesday, Wednesday. Waller is one of the more influential FOMC members. Daly, hitherto one of the more dovish members, turned hawkish this week.
3. MAS to ease S$NEER policy (close call) – Monday. We expect MAS to ‘reduce slightly’ the slope of S$NEER, against market expectations of an unchanged decision. The MoM run rate of core CPI is tracking well below 2%, and headline CPI is tracking in line with MAS forecast.
4. BoT to hold rates at 2.5% – Wednesday. BoT considers the current rate neutral and is waiting for fiscal policy to do the heavy lifting.
5. BSP to cut rates by 25bps to 6% – Wednesday. Headline inflation fell below 2-5% target in September. BSP has signalled it will cut in 25bp increments and has scope for RRR cuts.
6. BI to hold rates at 6.0% (close call) – Wednesday. BI’s tightening cycle was aimed at IDR stability, and the recent pullback in FX and diminished expectations of outsized cuts from the Fed may prompt them to turn cautious and hold rates.
7. CBRT to hold rates at 50% – Thursday. So far CBRT is resisting pressure to cut rates and tightening through alternative tools. Liquidity tightening like an RRR hike is possible.
8. BCCH to cut rates by 25bps to 5.25%. We are in line with market, expecting a 25bps cut and data dependent guidance.

Markets to Watch

• AUD/NZD is approaching 1.11 on the back of Australian yields overtaking NZ ones. This week could spur a move to the level. A push towards 1.12 is likely worth fading.
• ECB pricing appears reasonable (pricing a reduction to 2% towards the end of next year). However, this follows the post-NFP rates sell-off. If this starts to reverse (i.e. more cuts priced) without fundamental reason, we would see value fading the move.

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