Weekly Market Outlook — The US inflation figures for October are expected to dominate economic releases this week. In the meantime, the UK releases GDP figures for the third quarter, and Germany releases industrial production numbers as well. There will be a series of central banker appearances following this week’s FOMC meeting, including those from the US Federal Reserve. As the British pound has experienced heightened volatility, the market will also look forward to the UK’s monthly output numbers.
Key Data to watch on the Economic Calendar this week
Monday, 7 November
- EUR: Germany Industrial Production (SEP)
- NZD: Business Inflation Expectations (Q4)
Tuesday, 8 November
- USD: US 2022 Midterm Elections
- EUR: EU Retail Sales (SEP)
Thursday, 10 November
- USD: US CPI (OCT)
Friday, 11 November
- GBP: UK GDP Growth Rate Prelim (Q3)
- GBP: UK Manufacturing Production (SEP)
- USD: Prelim UoM Consumer Sentiment (NOV)
USD: US October inflation data, UoM sentiment
As the market continues to be caught between elevated inflation pressures and tighter monetary conditions, October’s US CPI data due on Thursday will be of vital importance. To tame inflation, the US Fed raised interest rates by 75 basis points last week and signaled further increases at smaller magnitudes. Post-November Fed meetings, smaller rate hikes are widely expected, however, the magnitude of these rate hikes will ultimately be driven by inflation and therefore closely monitored.
As of now, consensus expectations point towards a faster 0.7% increase in headline CPI month-over-month (MoM), while core CPI growth is expected to slow to 0.5% MoM. According to the S&P Global US Composite PMI, price pressures for the private sector eased in October, although interest rates remained high.
US Mid-term Elections
On Tuesday, Democrats and Republicans will fight for control of the Senate and the House of Representatives. As each House seat is up for re-election every two years, all 435 seats are up for grabs. A slim margin of 221 seats currently favors the Democrats in the House. While the Republicans hold 212 seats. When necessary, Vice-President Harris casts the deciding vote when the Senate is split 50/50. Republicans winning either the House or Senate will make President Biden’s agenda more difficult to pass. Economic issues, inflation, gun control, and abortion rights are key concerns for voters.
GBP: UK monthly output figures
During last week’s BOE meeting, a majority of 7-2 voted to increase interest rates by 75bps. Interest rates rose to 3% as a result of the large increase. According to the Committee, the peak interest rate is likely lower than implied by markets. There is also a possibility of a two-year recession ahead. According to the Committee, inflation will peak at 10.9%. Even so, Bailey believes it will be lower than that, with markets projecting a terminal rate of 5.25%. According to him, the economy contracted by -0.5% in Q3.
This Friday, the UK will release its monthly output figures for September along with its Q3 growth figures. The S&P Global / CIPS UK Composite PMI data showed a decline in private sector output during a quarter characterized by political uncertainty. Thus, there is a likelihood of a third-quarter contraction, while GDP is certain to decline in the following quarter. According to PMI indications, the manufacturing sector may also fare worse.
EURO: Focus on retail sales and CPI
For the euro, retail sales and CPI from Germany dominate the economic calendar.
Euro rose at the end of last week following a better-than-expected services PMI figure for October and relatively hawkish remarks from ECB President Christine Lagarde. On Friday, Christine Lagarde alluded to past trends showing that slowing growth has little impact on inflationary pressures. To bring inflation down to 2%, all tools at their disposal must be utilized once again.
After the US Non-Farm Payroll (NFP) figures were released at the end of the European session, despite employment beating estimates, unemployment came in higher, which pushed the euro higher. Energy prices are expected to continue to fall in November and possibly December due to the warmer weather in the eurozone. Price declines should support the EUR against the USD, but do not negate the region’s other economic challenges.
AUD: RBA is expected to hike rates further
RBA boosted its cash rate last week by 25 basis points to 2.85%, as expected. Additionally, the central bank now expects inflation to peak around 8% this year, up from 7.75% previously. In addition, the Committee raised its inflation outlook for 2023 to 4.75%, as well as its inflation outlook for 2024 to 3%.
Incoming data and the RBA’s assessment of inflation and the labor market’s outlook will determine the size and timing of interest rate increases in the period ahead. According to Governor Lowe, the RBA could resume larger rate hikes if deemed necessary, but it may also remain on hold if needed.
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