Breaking News
LAST CHANCE for Cyber Monday SALE: Up to 54% off InvestingPro! Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Week Ahead Preview: UK Budget; BoC, BoJ, ECB policy decisions; EZ CPI

By Newsquawk Voice Ltd (Ryan Anderson)Market OverviewOct 25, 2021 08:59
uk.investing.com/analysis/week-ahead-preview-uk-budget-boc-boj-ecb-policy-decisions-ez-cpi-200500514
Week Ahead Preview: UK Budget; BoC, BoJ, ECB policy decisions; EZ CPI
By Newsquawk Voice Ltd (Ryan Anderson)   |  Oct 25, 2021 08:59
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

NOTE: Previews are listed in day-order

AUSTRALIAN CPI (WED)

Aussie bank Westpac is expecting CPI will rise +0.8% in Q3, matching the Q2 pace, and sees the annualised measure paring back to 3.1% Y/Y from 3.8% in Q2; the bank estimates that the trimmed mean core measure of inflation will rise +0.5% in the quarter, pushing the annualised core rate up to 1.9% Y/Y from 1.6%. The largest contributor to inflation in the quarter is likely to be transport costs, Westpac says, adding 0.2ppts; Housing may add just under that amount, while food inflation may add 0.1ppts. The bank notes that "dwelling prices remain 4.7% below where they would be due to HomeBuilder grants," and "as the grants expire dwelling prices in the CPI will rise." Westpac explains that "a 4% rise dwelling prices would boost the rise in the CPI to +1.0%, and given the ABS is imputing some services prices from the headline CPI, the trimmed mean could rise 0.6%."

UK BUDGET (WED)

The Chancellor’s upcoming budget announcement is set to see the Treasury take a cautious approach on spending, with the release taking place against the backdrop of potential imminent monetary tightening from the BoE. With market pricing currently reflecting expectations that the MPC will lift rates by year-end as the Bank attempts to cool inflationary pressures in the economy, officials at the Treasury will be cognizant of the ramifications of higher rates on debt-servicing costs.

The tone of the announcement is likely to follow suit from the Conservative Party conference, where Chancellor Sunak noted that the government would continue to invest in public services, businesses and jobs while keeping finances on a stable footing. The Office for Budget Responsibility (OBR) forecasts, which will underpin the release, are likely to show upgrades to the short- and medium-term growth outlook and will therefore have a positive impact on the borrowing outlook. That said, the impact on borrowing levels will be reduced by the OBR, not including the notable upward revision to Q2 GDP in its upcoming forecasts.

BNP Paribas (PA:BNPP) estimates that the forecasts will amount to a GBP 22bln reduction in borrowing this year and another GBP 15bln cumulatively over the next two years. Accordingly, the French bank looks for a reduction in the FY21/22 Gilt remit to GBP 230.8bln from GBP 252.6bln. Any positivity from the better-than-previously-thought growth outlook is unlikely to materialise in any major new spending, with BNP of the view that around GBP 5bln will be allocated over the next three years to projects such as ‘levelling up’ and the green transition. Instead, Sunak will likely wait for a more opportune time (i.e., closer to the next general election) to turn on the spending taps. From a taxation perspective, no major adjustments are expected on this front (beyond a potential reduction in VAT on household energy bills) given the previously announced national insurance contribution increase.

Elsewhere, press reports have recently noted that next week is set to see a six-month extension to the coronavirus loan guarantee scheme, while Sunak has also faced increasing pressure to cut business rates, however, an announcement on this front is less clear-cut. Alongside, the budget, the Chancellor is set to release the first multi-year departmental spending review since 2015, and is expected to also announce a series of new fiscal rules which could reveal a commitment to stop borrowing to fund day-to-day spending within three years, according to the FT.

BOC (WED)

The Bank of Canada is expected to maintain the overnight rate at the effective lower bound of 0.25%. Weekly asset purchases are likely to be tapered once again, reduced to a rate of CAD 1bln/week (from the current CAD 2bln/week). ING suggests the programme will likely conclude in December as the market increasingly prices in 2022 rate hikes, where three hikes are now priced for next year due to recent rises in inflation.BoC Governor Macklem recently warned that supply chain issues and bottlenecks were not easing as quickly as initially hoped, but he did however state that medium-term inflation expectations were well-anchored, and he was not seeing evidence of sustained inflation just yet. Currently, the bank’s guidance is for rate lift-off to occur sometime in the second half of 2022, and with money markets pricing in a more hawkish course for the BoC, focus will be on any language changes to this guidance.ING does not expect a tweak to guidance at this meeting, which may disappoint those looking for a hawkish shift from the central bank, seeing such changes as more likely in December as the taper process is concluded. Since the last MPR meeting in July, economic data has been mixed: inflation continues to pick up, as illustrated by the pick-up in the average of the three BoC core inflation measures, which has risen to 2.67% from 2.57% in the latest month, while headline CPI was 4.4% Y/Y, an 18-year high. Meanwhile, GDP data has disappointed expectations since the July MPR meeting, though StatsCan estimates a +0.7% M/M gain in August data. Employment, however, has been solid. Analysts think the BoC will raise inflation forecasts within its updated projections, and continue to reiterate its ‘transitory’ view of price pressures.

BCB POLICY DECISION (WED)

At its previous meeting, the Copom raised rates by 100bps and flagged the possibility of a further hike of the same magnitude at the October meeting. However, heading into the meeting, BCB Director Kanczuk said the central bank had considered a 125bps rate rise at the meeting, with members opting for a 100bps move after concluding that it was possible for the central bank to move towards its inflation goal, hitting next year's target with just a 1ppt move. The director pledged that the BCB would not allow inflation to get out of control by any means, adding that if the rate of inflation rises faster than expected, he may be of the view that the current pace of rate hikes of 100bps increments would not be enough.

Recent inflation data showed consumer prices rising in September, with the headline picking up to 10.3% Y/Y from 9.7% in August (the BCB targets a long-term rate of 3.0%); and ahead, risks appear to the upside, analysts have been suggesting, given the rise in global energy prices, while core inflation is also picking up. Kanczuk was speaking at an event hosted by JPMorgan (NYSE:JPM), and after the event, the bank's economists said they were expecting the central bank to lift rates by 125bps (vs its original estimate of +100bps), and now sees the Selic ending this year at 9.75% (vs current 6.25%, and its previous forecast of 9.00%).

ECB POLICY DECISION (THU)

Policymakers are expected to stand pat on rates once again, and are likely to keep the size of its PEPP envelope unchanged at EUR 1.85trl, with purchases set to run until at least the end of March 2022. With the Q4 pace of PEPP purchases decided at the September meeting, and an absence of staff economic projections, the upcoming meeting is expected to be more a case of managing expectations ahead of an anticipated December policy showdown.

The meeting takes place against the backdrop of headline Eurozone inflation running at 3.4% Y/Y in September (vs 3.0% Y/Y in August), albeit the Governing Council is likely to continue classifying price pressures are transitory in nature, as opined by President Lagarde in a speech in September; Lagarde said that the key challenge is for the ECB to not “overreact”. That said, given increasingly hawkish impulses from other global central banks, market expectations have become more hawkish, and now price rate lift-off of 10bps in late 2022. Desks note that such market pricing is unlikely to chime with current ECB guidance, which looks for an unwind in APP/PEPP before rate lift-off.

Although the future of APP/PEPP is yet to be determined, market pricing, when allied with sequencing and the ECB’s recent strategy update/new inflation target, is perhaps too aggressive. Accordingly, Chief Economist Lane this week said that it is challenging to reconcile this pricing with ECB forward guidance. On APP/PEPP, the future of these programmes will be a topic of discussion in December. However, the October press conference might provide some hints on what to expect at the final meeting of the year. A recent report citing ‘sources’ suggested that the central bank was looking to formulate a new bond-buying scheme that would replace PEPP, while complimenting APP by adopting greater flexibility than the latter programme.ECB speakers have recently focused on the flexibility that any PEPP replacement should with the more dovish elements of the GC naturally favouring a more flexible approach than their hawkish counterparts. Again, this is likely to be more of a focus for the December meeting, but it will be interesting to see if any signs of friction on the GC begin to emerge ahead of the final meeting of the year. That said, Danske Bank believes the ECB will attempt to make the meeting as uneventful as possible.

BOJ POLICY DECISION (THU)

The Bank of Japan is expected to maintain its policy settings with the Bank Rate to be kept at -0.10% and QQE with yield curve control maintained to target the 10yr JGB yield at 0.0%, while the central bank will also release its latest Outlook Report which contains Board Members’ median forecasts for Real GDP and Core CPI. BoJ officials have continuously reiterated their view that Japan's economy is picking up as a trend but the situation remains severe due to the coronavirus and that they won't hesitate to ease further if necessary, while Governor Kuroda also noted that exports are firm and consumption is 'still very weak' but added that GDP could recoup the pandemic loss by late this year or early next year, which suggests a lack of urgency to act.

The recent key data releases have been mixed and therefore support the case for a pause with last month’s Exports topping estimates at 13% vs exp. 11% and with the latest Tankan survey printing mostly better than expected in which the Large Manufacturers Index rose for a fifth consecutive quarter to its highest since 2018. Conversely, Household Spending in August fell 3.9% M/M and Machinery Orders also contracted by 2.4% which prompted the government to cut its assessment on Machinery Orders in which it stated that the recovery was stalling, while the most recent inflation data printed inline with expectations with Core CPI at 0.1% which was the first expansion since March last year but remains a far distance from the 2% target.

The looming election in Japan also provides the BoJ with room to remain on hold as the ruling LDP is expected to continue dominating national politics and widely anticipated to stay in power to give PM Kishida the mandate to push ahead with an additional budget and carry out his pledge for tens of trillions of yen in stimulus. Attention will also be on the latest forecasts from the Outlook Report as a source report previously noted the BoJ is likely to cut its growth forecast as supply constraints hit output and will also likely reduce consumer inflation forecasts for year-ending March, with the current forecasts for Real GDP at 3.8% for fiscal 2021, 2.7% for fiscal 2022 and 1.3% for fiscal 2023, while the most recent estimates for Core CPI were at 0.6% for fiscal 2021, 0.9% for fiscal 2022 and 1.0% for fiscal 2023.

US GDP ADV (THU)

The consensus expects advance US GDP data for Q3 to show +3.2% growth (prev. +6.7%). However, judging by the latest Atlanta Fed GDPnow tracker, risks are to the downside; the model is currently tracking real GDP growth of +0.5% in Q3, with nowcasts for real personal consumption expenditures growth and real gross private domestic investment growth easing after recent data metrics from 0.9% and 10.6%, respectively, to 0.4% and 8.4%, respectively.Analysts have recently suggested that consumer spending slowed in Q3 on the back of delta fears and supply shortages. RBC's economists will be closely watching the inventories metric: "The delta during the last quarter was significant," the bank writes, "we expect the drawdown to be less this quarter (which in GDP accounting terms means inventories will add to growth), but this is a definite wild card for this Q3 report."

EZ FLASH GDP AND CPI (FRI)

Next week’s tier one data out of the Eurozone are set to be released the morning after the ECB policy announcement, and therefore will take more of a backseat than it would typically do so. Nonetheless, headline CPI is expected to advance further to 3.7% Y/Y from 3.4%, with the core metric (ex-food & energy) seen remaining at 1.9% Y/Y. The advances in the headline reading relative to the core is set to be a continuation of the trend seen in the September data where price pressures were predominantly driven by upside in energy prices.

An outturn of 3.7% would clearly be above target once again for the ECB, however, a lot of the messaging from the central bank is likely to emphasise that current inflation levels are transitory and that market pricing for rate lift-off based on inflationary pressures is at odds with the Bank’s forward guidance. As such, the release will likely have little sway on the immediate policy outlook. From a growth perspective, Q3 GDP is seen rising by 1.9% Q/Q vs 2.2% seen with the annual rate at 3.5% Y/Y vs prev. 14.3%. Ahead of the release, RBC notes that growth will likely mirror the pattern seen in Q2, where upside was driven primarily by the services sector amid looser lockdown restrictions in the region. But given the backwards-looking nature of the data, some investors may prefer timelier indicators to gauge the health of the Eurozone economy, with the flash PMIs for October seeing a decline in the EZ composite metric to 54.3 from 56.2; alongside the release, IHS Markit noted that “after strong second and third quarter expansions, GDP growth is looking much weaker by comparison in the fourth quarter.”

US PERSONAL INCOME AND SPENDING (FRI)

The consensus looks for personal consumption to rise 0.2% M/M in September after +0.3% in August. Credit Suisse (SIX:CSGN) says real spending remained sluggish in the month, as auto sales declined as supply chain woes continued to limit production, while Delta concerns remained an issue for discretionary services spending through at least the first half of the month, the bank says. "We expect goods demand to remain under pressure, but high-frequency indicators already indicate some improvement in services, and barring a new wave of COVID cases, we expect ongoing recovery through the end of the year." Meanwhile, the jobs report suggests that personal income metrics will rise in the month, after the BLS reported average earnings growth of +0.6% M/M in September, with the annual rate staying at 4.6% Y/Y, while the BLS' consumer prices report noted real weekly earnings had picked up to +0.8% M/M in September from +0.3%; but CS reminds us that the expiration of enhanced unemployment insurance benefits led to a large fall in transfer payments.

US PCE (FRI)

Although the two series' methodologies are different, the CPI report for September would imply an 'in line' reading for PCE in the month, having reported US CPI +0.4% M/M (exp. +0.3%), with the annual rate rising to +5.4% Y/Y from 5.3%; the core measures were in line with expectations at +0.2% M/M and +4.0% Y/Y (the latter unchanged). Nevertheless, many analysts have taken the data -- and some other recent inflation gauges -- as vindication for the 'transitory' narrative. For the PCE data, the easing is likely to continue, with the consensus expecting core PCE prices to rise +0.2% M/M in September from a pace of +0.3% M/M in August; if the September's data is in line with the consensus, it would represent the slowest growth in prices since February. Base effects may also play a role in the core PCE Y/Y reading remaining unchanged at 3.6%, but the headline PCE may rise from August's +4.3% Y/Y due to higher food and energy prices.

Week Ahead Preview: UK Budget; BoC, BoJ, ECB policy decisions; EZ CPI
 

Related Articles

Week Ahead Preview: UK Budget; BoC, BoJ, ECB policy decisions; EZ CPI

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email