Weekly Market Outlook (21-25 October)

UPCOMING
EVENTS:

• Monday: PBoC LPR.
• Tuesday: Canada PPI.
• Wednesday: BoC Policy Decision.
• Thursday: Australia/Japan/Eurozone/UK/US Flash PMIs, US
  Jobless Claims.
• Friday: PBoC MLF, Tokyo CPI, German IFO, Canada Retail
  Sales, US Durable Goods Orders.

Monday

The PBoC is expected
to cut the LPR rates by 20 bps bringing the 1-year rate to 3.15% and the 5-year
rate to 3.65%. This follows the recent announcement by governor Pan Gongsheng on Friday which aims to
achieve a balance between investment and consumption.

He also added that
monetary policy framework will be further improved, with a focus on achieving a
reasonable rise in prices as a key consideration. China is in a dangerous deflationary spiral and they must do whatever it takes to avoid
Japanification.

Wednesday

The Bank of Canada
is expected to cut interest rates by 50 bps and bring the policy rate to 3.75%.
Such expectations were shaped by governor Macklem mentioning that they could
deliver larger cuts in case growth and inflation were to weaken more than
expected.

Growth data wasn’t
that bad, but inflation continued to miss expectations and the last report sealed the 50 bps cut. Looking ahead, the market
expects another 25 bps cut in December (although there are also chances of a
larger cut) and then four more 25 bps cuts by the end of 2025.

Thursday

Thursday will be
the Flash PMIs Day for many major economies with the Eurozone, UK and US PMIs
being the main highlights:

• Eurozone Manufacturing PMI: 45.3 expected vs. 45.0
  prior.
• Eurozone Services PMI: 51.6 expected vs. 51.4 prior.
• UK Manufacturing PMI: 51.4 expected vs. 51.5
  prior.
• UK Services PMI: 52.4 expected vs. 52.4 prior.
• US Manufacturing PMI: 47.5 expected vs. 47.3
  prior.
• US Services PMI: 55.0 expected vs. 55.2 prior.

The US Jobless
Claims continues to be one of the most important releases to follow every week
as it’s a timelier indicator on the state of the labour market.

Initial Claims
remain inside the 200K-260K range created since 2022, while Continuing Claims
after an improvement in the last two months, spiked to the cycle highs in the
last couple of weeks due to distortions coming from hurricanes and strikes.

This week Initial
Claims are expected at 247K vs. 241K prior, while there’s no consensus for Continuing
Claims at the time of writing although the last week we saw an increase to 1867K vs. 1858K prior.

Friday

The Tokyo Core CPI
Y/Y is expected at 1.7% vs. 2.0% prior. The Tokyo CPI is seen as a leading
indicator for National CPI, so it’s generally more important for the market
than the National figure.

The latest news we
got from the BoJ is that the central bank is likely to mull changing their view
on upside price risks and see prices in line with their view, thus enabling a
later hike.

Therefore, a rate
hike can come only in 2025 if the data will support such a move.