- Falling Economic Sentiment in Germany could knock Euro
- US inflation in focus as Fed policy tightening moves ever closer
- UK employment in focus but numbers still masked by government furlough
Tuesday
Tuesday morning sees the latest UK employment statistics being released, although with the last elements of government furlough support only having been withdrawn at the end of September, there’s still a real risk that these numbers are unrealistically flattering. The Claimant Count for September is expected to show another contraction of around 50,000, which would make for the seventh consecutive month of good news here. Markets may be unwilling to read much into this however given the fact that October’s print could spike significantly higher. Headline Unemployment Rate for August is expected to be at or slightly below the 4.6% posted in July, whilst Average Earnings growth is set to drop slightly from July’s 6.8% although the fact it will remain well above inflation will be welcomed by politicians and central bankers alike.
Also on Tuesday, look for the German ZEW Economic Sentiment Index. This forward-looking indicator is seen as especially useful, although the fact that it’s set to post a fifth consecutive decline emphasises the challenges facing Europe’s biggest economy. Supply chain issues and a general consensus that the post-COVID rebound won’t be as impressive as had been hoped are clearly weighing. This, combined with sluggish jobs growth and rising inflation leaves policymakers with something of a dilemma – it’s hardly the time to be winding in stimulus measures.
Wednesday
US Inflation data for September will be released on Wednesday. This has proved to be something of a headache for the Fed who have to date been keen to benefit from the inflationary bounce whilst not wanting to snuff out the economic recovery with higher interest rates. With a print at or around the August figure of 5.3% expected and hiring evidently continuing apace – at least according to the ADP numbers – assuming there’s no surprise on the downside that’s going to add to sentiment that tapering will start before the year end and the first rate hike will take place in 2022 – a combination which would be dollar positive and a drag on stocks.
The FOMC Meeting Minutes will also be published on Wednesday. Following on from the above, expect the focus here to be on clues as to the timing of policy tightening and although we’ve previously flagged the threat this poses to emerging market economies, given other central banks are already starting to hike rates, the risks here are somewhat diminished.
Thursday
Keeping state-side, Thursday sees the publication of US PPI data for September. This reflects the input prices paid by manufacturers and inevitably manifests itself in the shape of lower profits or increased sales prices. An annualised reading of 8.4% is expected, which is admittedly below numbers being printed in Europe and China, but even this figure will be difficult for the Fed to defend.
Friday
Friday’s release of the US Retail Sales for September will be scrutinised to see how much fall out from supply chain problems has been evidenced. There’s a risk that the month-on-month figure could dip into negative territory but so long as this has been a result of supply issues rather than waning confidence, the market may be happy to overlook downside pressures here.
That leads us nicely into the US Michigan Consumer Sentiment reading for October. Assuming any dip in sales has come from distribution problems, this number should be heading higher. Forecasts suggest that September’s 72.8 will be comfortably eclipsed with a move towards 75. Any shortfall here however would send a dark signal and have the potential to leave investor rushing for the exits ahead of the weekend break.
