The dollar continued its broad-based recovery against the majors last week. GBP, JPY, and CAD outperformed while NOK, SEK, and CHF underperformed. The data continue to show a robust U.S. economy that is not in any need of aggressive Fed easing. Preliminary October PMIs should show continued economic divergences that will feed into monetary policy divergences, all of which should favor the dollar.
AMERICAS
The Fed Beige Book for the upcoming November 6-7 FOMC meeting will be released Wednesday. The September Beige Book painted a mixed picture of labor market conditions and economic activity. “Five Districts saw slight or modest increases in overall headcounts, but a few Districts reported that firms reduced shifts and hours, left advertised positions unfilled, or reduced headcounts through attrition—though accounts of layoffs remained rare.” That Beige Book further noted that more Districts (9 vs. 5 previously) reported flat or declining economic activity than in the prior reporting period. However, “District contacts generally expected economic activity to remain stable or to improve somewhat in the coming months.” Given the recent data, we see risks that this Beige Book points to some modest improvements.
There are plenty of Fed speakers this week. Logan, Kashkari, Schmid, and Daly speak Monday. Harker speaks twice Tuesday. Bowman and Barkin speak Wednesday. Hammack speaks Thursday. At midnight Friday, the media blackout goes into effect and there will be no Fed speakers until Chair Powell’s press conference November 7.
U.S. data highlight will be S&P Global preliminary October PMIs Thursday. Manufacturing is expected to rise two ticks to 47.5 and services is expected to fall two ticks to 55.0. if so, the composite would likely be little changed from 54.0 in September.
September Chicago Fed National Activity Index will also be reported Thursday. In August, the 3-month moving average stood at -0.17, which remains far from the -0.70 threshold that typically signals recession.
U.S. growth remains robust. The Atlanta Fed’s GDPNow model is tracking Q3 growth at 3.4% SAAR and will be updated Friday after the data. Elsewhere, the New York Fed’s Nowcast model is tracking Q3 growth at 3.0% SAAR and Q4 growth at 2.6% SAAR and will also be updated Friday. Momentum in the economy remains strong and so a sharp slowdown is unlikely to be seen as we move into 2025.
Regional Fed surveys will continue to roll out. Philly Fed non-manufacturing will be reported Tuesday and is expected at 4.1 vs. -6.1 in September. Richmond Fed reports both manufacturing and services Tuesday. Kansas City Fed manufacturing will be reported Thursday and its services will be reported Friday.
Bank of Canada meets Wednesday and is expected to cut rates 50 bp to 3.75%. However, nearly a third of the 22 analysts polled by Bloomberg look for a smaller 25 bp move. There’s a high risk of a 50 bp cut because inflation is undershooting the BOC’s projection even as business conditions and consumer sentiment remain subdued. The swaps market implies 90% probability of a 50 bp rate cut this week. New macro forecasts will be published in the Monetary Policy Report.
Canada reports August retail sales Friday. Statistics Canada’s advanced retail indicator suggests sales increased 0.5% m/m after rising 0.9% in July. Going forward, business surveys suggest sales growth will strengthen over the coming year but remain soft overall.
EUROPE/MIDDLE EAST/AFRICA
European Central Bank easing expectations have picked up after last week’s 25 bp cut. The swaps market is pricing in 175 bp of tightening over the next 12 months that would see the policy rate bottom near 1.5% vs. 2.0% at the start of last week. There are many ECB speakers this week and many are likely to push back against such dovish market expectations. Simkus speaks Monday. Centeno, Knot, Holzmann, Lagarde (twice), Villeroy, Rehn, and Panetta speak Tuesday. Lagarde, Lane, Cipollone, Escriva, Knot, and Centeno speak Wednesday. Kazaks and Lane speak Thursday. Villeroy speaks Friday.
Eurozone highlight will be preliminary October PMIs Thursday. Headline manufacturing is expected at 45.1 vs. 45.0 in September, services is expected at 51.5 vs. 51.4 in September, and the composite is expected at 49.7 vs. 49.6 in September. Looking at the country breakdown, the German composite is expected to rise a tick to 47.6 and the French composite is expected to rise four ticks to 49.0. Italy and Spain will be reported with the final PMI readings in early November.
German IFO survey for October Friday will also be important. Headline is expected at 85.6 vs. 85.4 in September. Current assessment is expected to remain steady at 84.4 while expectations is expected at 87.0 vs. 86.3 in September. Germany remains the weak link in the eurozone.
ECB reports September inflation expectations Friday. Both 1- and 3-year expectations are anticipated to fall a tick to 2.6% and 2.2%, respectively. Easing inflation expectations leaves plenty of room for the ECB to keep cutting interest rates. Indeed, the ECB noted “the disinflationary process is well on track.”
U.K. highlight will be preliminary October PMIs Thursday. Headline manufacturing is expected to remain steady at 51.5, services is expected to remain steady at 52.4, and the composite is expected to remain steady at 52.6. The CBI October distributive trades survey is also due Thursday.
BOE Governor Andrew Bailey speaks four times this week. He is scheduled for Tuesday, Wednesday, Thursday, and Saturday. Bailey will have an opportunity to share his view on the softer than expected U.K. September CPI data. In a newspaper interview earlier this month, Bailey held out the prospect of the Bank becoming a “bit more aggressive” in cutting interest rates provided the news on inflation continued to be good. There are many other Bank of England speakers as well. Greene and Breeden speak Tuesday. Breeden speaks Wednesday. Mann speaks Thursday.
ASIA
Japan highlight will be October Tokyo CPI data Friday. Headline is expected at 1.8% y/y vs. 2.1% in September, core (ex-fresh food) is expected at 1.7% y/y vs. 2.0% in September, and core ex-energy is expected to remain steady at 1.6% y/y. If so, Tokyo core CPI would be the lowest since April and below the 2% target, which bodes well for the national CPI data.
Preliminary October PMIs Thursday will also be important. The composite PMI fell to the lowest since June and further losses are likely given the trajectory for softer data.
Australia highlight will be preliminary October PMIs Thursday. The composite fell back below 50 in September but may be buoyed temporarily by mainland China’s stimulus push. Given recent firmness in the data, the market has pushed out the first RBA cut to February.