RBC Capital Markets

Week ahead: The last US presidential debate before the election occurs this Thursday. US House Speaker Pelosi set a Tuesday deadline for agreement on pre-election stimulus. The major US data releases are housing starts (Tuesday) and existing home sales (Thursday). European flash PMIs, UK CPI and Canada CPI are also due this week (see EUR, GBP & CAD). Meanwhile, the equity earnings season rolls on.

EUR: Euro area services PMI had begun to slow in September, and the situation is likely to have worsened as social restrictions were ramped up this month. This suggests a further contraction in the October services PMI (Friday). Looking ahead, government restrictions are likely to tighten further, leading to an outright contraction in euro area GDP in the fourth quarter.

CNY/JPY: China loan prime rates are widely expected to be unchanged (Tuesday). Japan September CPI data are likely to show further disinflationary pressures (Friday). GBP: UK CPI inflation has exceeded expectations in recent months. The drag from hotels and restaurants should ease this month, as will that from clothing and footwear, which we think should push September headline CPI inflation to 0.4% y/y (Wednesday). The flash PMIs (Friday) will reveal how much damage the Covid-19 resurgence has wrought on the recovery, though interpreting the PMI surveys has been more difficult lately. The restrictions will be mainly felt in services, and we anticipate a fall in the services PMI to 54.5.

AUD/NZD: The RBA October minutes (Tuesday) will err dovish, but they have been largely superseded by Governor Lowe’s speech last week. AG Kent and DG Debelle are scheduled to deliver speeches during the week, and both will be viewed through the prism of likely imminent further easing. The weekly payrolls and wages data (Tuesday) have struggled to rise further after initial easy gains over May and June amid lessening restrictions. Meanwhile, New Zealand Q3 CPI will be released Thursday.

CAD: Today’s BoC’s Business Outlook Survey is likely to show strong improvement in the regular data questions after the massive deterioration in the previous iteration reflecting pandemic restrictions. The likely survey period of mid-August to mid-September will not reflect much of the recent new restrictions that have been put in place, implying that the commentary will therefore be particularly meaningful. Our economists are forecasting September headline CPI inflation to be flat, which would see the annual rate rise to 0.6% y/y (Wednesday). Core prices likely saw only a marginal increase, while gasoline prices edged up (0.6% m/m) and food prices should see some seasonal decline. The strength of the BoC’s core measures—averaging 1.70% in August—has been notable and well above what the still-elevated degree of labour market slack would suggest. Government support programs have clearly buoyed consumer demand and prices. Nevertheless, we do expect a modest softening of the core measures from September onwards.

Goldman Sachs

USD: Choppiness ahead of the votes and vaccines. The broad Dollar recovered some lost ground over the past week, gaining 0.6-0.7% on standard indices. The moves appeared related to three factors: (i) negative news on covid vaccines and treatments, including safety-related delays for the J&J vaccine and Eli Lilly antibody treatment, as well as a report from the WHO expressing doubts about the effectiveness of the remdesivir treatment; (ii) rising covid case numbers in a number of regions and renewed restrictions in Western Europe; and (iii) pushback on currency appreciation by a few central banks, including explicit comments on the exchange rate from Taiwan’s central bank governor and signals from the RBA consistent with easing next month. Despite the setback for our Dollar short recommendations, we do not see reason to change our broader views at this stage: the latest news did not affect the outlook for the leading vaccines (from Pfizer and Moderna), and easing space is very limited across G10 central banks, unless policymakers show more openness to cutting policy rates below (or more deeply below) zero. Over the coming week we will be primarily focused on the FDA advisory committee meeting on October 22, which may contain information on the vaccine approval process and timeline, as well as the (possible) second presidential debate the same evening (although given the current wide Biden lead in the polls, market attention has pivoted to the tight Senate races). As we argued last week, we see the risk/reward around the major Q4 risk events as favoring broad USD shorts (our preferred crosses remain EUR, CAD, and AUD in G10, and MXN, ZAR, and INR in EM).

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