The US dollar and the yen retreated in a mild “risk on” week. Rate decision in the US and Canada, as well as initial GDP estimates for Q3 from the US and the UK are among the major events on our table this time. Here is an outlook on the main market-movers coming our way this week.
The EU Summit didn’t provide any breakthroughs on the debt crisis, with Greece still urging for more cash and Spain still taking its time, as the banking union isn’t getting closer. In the US, Initial jobless claims in the US rose to 388K, higher by 46,000 than last week’s reading. The surge in the number of claims should be regarded with caution since last week’s reading was equally distorted due to technical reasons. Meantime Manufacturing in the Philadelphia region grew in October for the first time in six months reaching 5.7 from minus 1.9 in September. Will we see an acceleration in growth?
- Canadian rate decision: Tuesday, 13:00. The BOC decided to maintain its overnight rate at 1.0% for the sixteenth consecutive month, in line with predictions. The Governor of the Bank of Canada, Mark Carney stated Canadian growth prospects continue to expand despite the ongoing recession in Europe and the slowdown in China. Canadian pace of growth meets expectations, despite increasing domestic household debt. A change in policy will be carefully examined in the context of both domestic and global economic developments. Rates are predicted to remain at 1.0% this time. The Canadian dollar could reached its peak.
- Euro-Zone German Ifo Business Climate: Wednesday, 8:00. German business sentiment declined for a fifth straight month in September to 101.4 from 102.3 in August, due to weaker economic activity. The EU debt crisis begins to affect German economic activity in light of decreased demand from European partners. However, economist Gerd Hassel believes the ECB’s bond-buying plan will turn things for the better and raise the Ifo climate index in the coming months. A small rise to 101.9 is expected this time, especially after ZEW exceeded expectations.
- Mario Draghi speaks: Wednesday, 12:00. European Central Bank president Mario Draghi will speak at the Bundestag in Berlin about the EU debt crisis. He will discuss the ECB bond buying option to aid struggling countries, but governments have to agree to the ECB’s conditions before implementing this program.
- US New Home Sales: Wednesday, 14:00. New home sales posted another elevated reading of 373,000 in August from an upwardly revised 374,000 in July. The reading was less than the 381,000 units predicted by analysts. Nevertheless the housing market undergoes a solid recovery. From a year ago, sales were up 27.7 % last month. A further increase to 386,000 is forecast.
- US FOMC Statement: Wednesday, 18:15. The Fed is likely to refrain from any big moves on its October meeting. The main reason is the big decision taken in September: QE3 / QE-infinity has just begun and the Fed isn’t likely to move before giving enough time to analyze the impact. The second reason is the upcoming elections which are just too close. In addition, some recent economic indicators have improved. The big decisions will probably wait for the end of the year, when the extension of Operation Twist expires, and when Congress is expected to reach a deal on the fiscal cliff. The fiscal cliff is taking its toll due to the uncertainty it creates, but it’s hard to believe that the politicians will leave the situation unchanged – a deal will is expected in the last moment.
- New Zealand rate decision: Wednesday, 20:00.New Zealand left its interest rate at an 18-month low, to boost the economy, in light of the slowdown and the grim outlook of its trading partners. The kiwi advanced 5.6 % this year against the U.S. dollar adding pressure on exporters. Domestic demand increased, expanding imports of goods and services. No change is predicted now. Note that the kiwi is more technically friendly now.
- UK GDP: Thursday, 8:30. The British economy contracted more than expected in the second quarter, down 0.4%, Despite the release of the £375 billion quantitative easing program and the £80 billion ‘funding-for-lending’ scheme, it is widely anticipated that the BOE will lower rates, in case the quantitative easing measures do not succeed. A big comeback is now expected for the British economy: growth of 0.6%, quarter to quarter, that will end the recession.
- US Core Durable Goods Orders: Thursday, 12:30. New orders for U.S. durable merchandise declined sharply in August by 13.2%, following a revised 3.3% increase in the preceding month, due to a plunge in orders for transportation equipment. Meantime Core orders excluding transportation equipment dropped more moderately by 1.6% in August from a 1.3% decline in July. A climb of 0.7% is expected now.
- US Unemployment claims: Thursday, 12:30. The number of initial claims for U.S. state unemployment benefits jumped up sharply by 46,000 to 388,000 last week following a steep decline to342,000 in the preceding week. Analysts claim the readings were distorted by technical factors and that the reading is broadly within expectations. The seasonally adjusted 4-week moving average reached 365,500, higher by 750 from the previous week. A decline to 366,000 is forecasted this time.
- US Pending Home Sales: Thursday, 14:00. The number of contracts for the purchase of existing U.S. homes dropped in August by 2.6% due to a shortage of lower priced inventory. The reading followed a 2.6% increase in the preceding month. Economists expected a lower decline of 0.4%. Another advance of 2.1% is predicted.
- US Advance GDP: Friday, 12:30. The US economy continued on the path of slow growth in Q2, growing at an annual rate of 1.3%. The initial estimates were higher than this final number. Personal Consumption Expenditure (PCE) increased by 1.5%, above consensus estimate of 1.3% compared to 2.4% in the previous quarter. A higher yet still unsatisfying growth rate of 1.8% is now predicted.
*All times are GMT.
That’s it for the major events this week. Stay tuned for coverage on specific currencies