Key Events: Fed Minutes to Explain 50bp Cut as CPI Looms

Key Events

G10

In the US, there are two key data releases:

1. CPI and PPI – Thursday and Friday. As always, the Fed will focus on the PCE estimate to be derived from CPI and PPI rather than on CPI. The PCE estimate is unlikely to be large enough to prevent the Fed from cutting twice more. And given Powell’s recently more hawkish tone, a low PCE estimate is unlikely to prompt more than two cuts this year.
2. U. Mich. consumer confidence – Friday. Monitor inflation expectations, especially long-term ones that remain stuck above pre-pandemic levels.

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

1. Germany final Sep. inflation – Friday. Will offer insight into what drove September’s decline below 2% inflation. We will monitor whether wage-intensive sectors have continued to drive services inflation more broadly.
2. UK August GDP – Friday. Consensus expects a strong outturn after recent stagnation driven by broad-based strength across construction, goods and services. The outturn in services, which provides the bulk of growth, and has stagnated in recent months.

Elsewhere in G10:

1. Japan wage data – Tuesday. Expect more of the same. While a slight slowdown since last month is possible, overall wage gains should remain robust.
2. Canada employment data – Friday. Headline jobs data may beat, but focus will be on rising unemployment. A further increase could solidify a 50bp cut in October.

EM

1. China financing data – TBD. The data will not capture recent stimulus and the RMB 2tn special bond issuance. We would look through a weak print.
2. Hungary inflation – Thursday. Disinflation to continue on a helpful base effect and lower oil prices.
3. Czechia inflation – Thursday. Base effects will push CPI further above target.
4. Mexico inflation – Wednesday. Base effects and non-core components will help headline fall to ~4.6%, tracking Banxico’s forecast. More encouraging would be if core services keep dropping (August was 4%) as Banxico is sensitive to this.
5. Brazil inflation – Wednesday. Power tariffs rose in Sep. due to drought, which should add 20bps to CPI. Consensus expectation of +0.5% MoM looks fair.

Central Banks in Action

1. Fed minutes – Weds. We will get more info on why the Fed felt compelled to start easing with a 50bp cut.
2. Fed Williams, Musalem speak – Thursday, Monday. Williams (NY Fed pres., dove) is a permanent member of the FOMC so relatively more influential. Musalem (St Louis Fed pres., hawk) is one of the more macro FOMC members. Other speakers include Bowman, Kashkari, Bostic, Kugler, Collins, Logan, Goolsbee, Daly, Barkin.
3. RBNZ to cut 50bps – Wednesday. A 50bps makes little sense when you realise the data has come in better than forecasted, but it is priced by markets and expected by the chorus of economists.
4. RBI to shift bias with risk of 25bps cut – Wed. RBI will shift bias from tightening to neutral and could surprise the market with a 25bps cut. Inflation is below target. Despite headline growth being strong, the labour market appears weak.
5. BoK to cut 25bps – Thursday. With inflation below 2% target and govt. implementing tighter regulations on property market, BoK now has air cover to start its long overdue easing cycle.
6. ECB speakers include Lane, Cipollone and Escriva (Monday). Given recent comments from the latter two, they are likely to add further weight to the need for an imminent ECB cut. With the market already market pricing as much, this should have little effect on pricing.

Markets to Watch

• China Equity Flow. This week, even as China was closed for holiday, offshore listed China focused ETFs received USD 7.2bn inflow – a 5-sigma event. Watch cash equity inflows to China reflecting similar sentiment, which should provide support for CNY.
• EUR/CHF down range lows should remain supported. With further SNB dovishness due, steady growth continuing, and the possibility of FX intervention, the pair should trade higher. SNB’s Martin this week will be key to watch and could support the weak CHF tone.
• AUD/NZD is back above 1.10 and heading higher. We have been dubious of chasing rallies and, instead, prefer to fade range extremes; 1.12 could be attractive entry with the RBNZ already priced dovishly.
• NOK/SEK pushed higher as oil found room to rally. Middle East developments will be pivotal to the pair with oil fundamentals proving weak. An oil related sell-off could provide far more attractive levels to be long NOK/SEK.

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