There are plenty of events happening this week which could affect markets. Chances are that volatility remains elevated. The BOC, ECB, and BOJ all meet this week. With Japan’s intervention last Friday, the BOJ could be the most interesting of the central bank meetings! In addition, Liz Truss is out as Prime Minister of the UK due to her unsuccessful “mini-budget”, which crippled the UK bond markets. Who will be the next PM? An answer is expected by the end of the week. Also, end-of-month data will be closely monitored, including initial estimates of Q3 GDP from the US and Germany, as well as, the US Core PCE. Finally, we are in the heart of earnings season which means heavy hitters will be reporting this week, including TWTR, MSFT, META, AAPL, and AMXN. Get ready for another exciting week!

Central Banks

The Bank of Canada is widely expected to hike rates by 75bps on Wednesday. September CPI was released last week and although the headline print decreased slightly from 7% YoY to 6.9% YoY, it was higher than expectations. In addition, the Core CPI increased from 5.8% to 6% in September. With the inflation still frothy, the BOC is likely to hike 75bps to bring its overnight rate to 4%.

The ECB is also expected to increase interest rates by 75bps when it meets on Thursday this week. Inflation for September was 9.9% YoY vs an August reading of 9.1% YoY. The Core CPI for September was 4.8% YoY vs an August reading of 4.3% YoY. Given the large jump in the inflation data, the ECB is likely to hike rates 75bps to bring the key rate to 2%.

Japan is on the opposite side of the coin. The county is dealing with inflation of only 3% YoY. The Core CPI, which excludes fresh fish but not fuel costs, is also 3%. Therefore, fresh food has had no impact on inflation. The Bank of Japan says that inflation is primarily due to rising energy costs. As a result, the central bank has maintained an easing bias over a number of years. However, could that change at the meeting on Friday? Last week, USD/JPY reached its highest level since 1990 just under 152.00. Japan intervened in the fx market and brought the pair as low as 146.16. In addition, the BOJ intervened in the bond market the day prior, as it bought bonds in order to keep the cap at 0.25% for 10-year JGBs. Could the central bank raise the cap of the 10-year JGB, or even remove it all together? This would result in higher yields and a stronger Yen, which would lower the rate for Yen pairs. Some are expecting that the BOJ may make this bold move, however, at the last meeting, BOJ governor Kuroda said that they would not change monetary policy for 2-3 years! Therefore, expect that the central bank will keep rates at -0.1% and maintain the cap on 10-year JGBs at 0.25%.

The UK’s next PM is…

After only 45 days on the job, Liz Truss has resigned as the Prime Minister of the UK.  Truss proposed a “mini-budget” as she tried to implement her economic plan.  However, with huge tax cuts, markets began to fret as to where the funds would come from to cover the costs.  The result: 30-year Gilt yields above 5% and GBP/USD to its lowest point ever.  However, the BOE intervened in the bond market to help stabilize the economy. Yields moved lower and GBP/USD moved higher. Truss initially sacked her head of Treasury, Kwasi Kwarteng, hoping this would safe her.  However, it the end, the cost was just too much, and she was forced to resign last Thursday. 

What now?  A new PM will be announced on Friday, October 21^st.  Candidates will need 100 nominations by Monday to be considered for the Prime Minister position.  There are 357 Conservative MPs.  Therefore, the maximum number of candidates can only be 3.  The candidates with the best odds as of Friday include ex-PM Boris Johnson, ex-Chancellor Sunak, and Leader of the House of Commons, Penny Mordaunt. Rank and file members will then select their choice for the next PM during the week. Bookmakers have Johnson and Sunak in a close race, with Morrdaunt a distant third.  However, if only 1 candidate receives 100 nominations by Monday, the UK will have its next PM after this weekend. There will be no need to wait until next Friday. By the way, current Chancellor Hunt is expected to give his medium-term fiscal plan on October 31^st and the Bank of England meets on November 3^rd.  Watch for volatility as the PM picture unfolds.**

Earnings

This week is one of the most important weeks of earnings season, as many big tech companies are due to report earnings.  How well did these companies do during the period of rising interest rates and presumed slowing demand? FAANG companies, minus Netflix, all report this week.  In addition, heavy hitters such as 3M, Boeing, Intel, Caterpillar, and Exxon will also release their quarterly reports.  Watch for volatility surrounding these announcements.  Other companies reporting Q3 earnings this week are as follows:

TWTR, MMM, GOOG, BIIB, GE, MSFT, KO, GM, UPS, META, META, TXN, V, AAPL, BA, F, AMZN, INTC, MCD, CAT, MA, XOM,

Economic Data

End of the month brings with it end-of-the-month data, and it could be market-moving this week.  On Monday, preliminary global manufacturing and services PMIs will be released for October.  In addition, China’s delayed data dump is expected to be released.  On Wednesday, Australia will release its Q3 CPI.  Towards the end of the week, both the US and Germany will release their first look at Q3 GDP, while the US will also release Core PCE.  Other major economic data releases this week are as follows:

Saturday

• ECB President Lagarde Speech

  Monday

• China: GDP Growth Rate (Q3)
• China: Industrial Production (SEP)
• China: Retail Sales (SEP)
• China: Fixed Asset Investment (YTD) (SEP)
• China: Unemployment Rate (SEP)
• Global: Manufacturing and Services Prel PMIs
• Mexico: Mid-month CPI (OCT)
• US: Chicago Fed National Activity Index (SEP)

Tuesday

• Germany: Ifo Business Climate (OCT)
• US: S&P/Case-Schiller Home Price (AUG)
• US: CB Consumer Confidence (OCT)
• US: Richmond Fed Manufacturing Index (OCT)

Wednesday

• New Zealand: ANZ Business Confidence (OCT)
• Australia: CPI (Q3)
• Canada: BOC Interest Rate Decision
• US: New Home Sales (SEP)
• Crude Inventories

Thursday

• UK: Gfk Consumer Confidence (NOV)
• EU: ECB Interest Rate Decision
• US: GDP Growth Rate Adv (Q3)
• US: Durable Goods Orders (SEP)
• US: Core PCE Prices Adv (Q3)
• US: Kansas Fed Manufacturing Index (OCT)

Friday

• Japan: Unemployment Rate (SEP)
• Japan: Tokyo CPI (OCT)
• Australia: PPI (Q3)
• Japan: BOJ Interest Rate Decision
• Switzerland: KOF Leading Indicators (OCT)
• Germany: GDP Growth Rate Flash (Q3)
• EU: Economic Sentiment (OCT)
• Germany: CPI Prel (OCT)
• Canada: GDP (SEP)
• US: Core PCE Price Index (SEP)
• US: Personal Income (SEP)
• US: Personal Spending (SEP)
• US: Employment Cost Index (Q3)
• US: Pending Home Sales (SEP)
• US: Michigan Consumer Sentiment Final (OCT)

Chart of the Week: Daily USD/JPY

(Click on image to enlarge)

Source: Tradingview, Stone X

USD/JPY has been moving aggressively higher in an upward-sloping channel since early March. On September 23^rd, USD/JPY was trading near the top of the channel at 145.90 and Japan intervened in the fx markets and bought yen. The pair moved lower from 145.90 down to 140.35. USD/JPY made its way higher, defying Japan and pushed the pair back above 145.90. For 12 days, USD/JPY had been moving higher, until Friday. Japan intervened once again as the pair broke above the top trendline of the channel and reached an intraday high of 151.94. They sold the pair down to a low of 146.16 (just 26 pips shy if where they intervened the first time). If the markets defy Japan again, the pair could be back at Friday’s high, soon. Above there is the 38.2% Fibonacci retracement level from the highs of 1982 to the lows of 2011 near 153.05. Price can then run to 160.40, which is the highs of 1990. However, if USD/JPY continues to move lower, first support is at the prior highs of 145.90, then the lows of October 5^th at 142.53. Below there, USD/JPY can fall to the lows from the first intervention at 140.35.

The Bank of Canada, the ECB, and the Bank of Japan all meet this week to discuss interest rate policy. Watch the accompanying statements for any signs of a “pivot” from these central banks. In addition, by Friday, markets should know who the next Prime Minister of the UK will be. Also, watch earnings and economic data throughout the week, as the results could throw some additional volatility into the markets. And as always, traders need to keep an eye on Japan to see if it intervenes in the fx markets again, especially Monday morning during the Asian session when the liquidity and volume are low.

More By This Author:

Is The Fed About To Slow The Pace Of Tightening?
Truss Out As UK Prime Minister. What’s Next For GBP/USD?
Canadian Inflation Higher Than Expected. Should The BOC Be Concerned?