Week ahead: A big week for the US economy

Week Ahead

Another busy week in the world of finance is ahead. Top topics this week include US economic indicators advanced GDP readings for Q3 and September’s core PCE data. On the central bank front, the ECB and Bank of Canada speak as markets speculate on potential rate hikes. Earnings season rolls on too with the busiest week of the quarter so far. 

US recovery in focus with Q3 GDP and Core PCE prints 

Inflation has been the hot button issue in global and American economics for most of the year. It’s taken on an extra level of importance as economies begin to transition out of the pandemic. 

The Fed’s favourite inflation indicator, the Core PCE index, is released on Friday, gauging consumer good inflation for September. 

August showed a 0.4% increase in personal consumption expenditure, which was broadly in line with expectations. Stripping out food and energy, then core PCE inflation stood at 0.3% in the last month. It was up 3.6% year-on-year in August too. 

Official advice from the Fed is that any price jumps are temporary. They might have a point. Monthly PCE gains have basically halved since April’s 0.6% surge. Other indicators, such as the slowing rate of consumer price index growth, back up this claim. 

Another key metric in the US’ economic recovery is released this week. Quarterly advanced GDP figures for Q3 will be published on Thursday. The Fed and the White House will no doubt be hoping growth will come in above expectations after a disappointing second quarter. 

Q2 GDP figures initially showed the US gross domestic product expanded 6.3%, although this has been revised up for a final reading of 6.7%. Dow Jones had forecast growth of 8.2% in the second quarter. 

Predictions for Q3 2021 are mixed to say the least. The Atalanta Fed, previously forecasting around 5.7% growth, has slashed its predicted third quarter growth down to just 0.5%.  

Goldman Sachs is a lot more optimistic but has still dropped its predicted growth forecast. Goldman had previously forecast 6.2% growth in the third quarter. Now, the level is more like 5.7%. 

Sticking with Goldman, the bank cites soft jobs reports and the impact of the Delta variant as reasons for slowing growth. Realistically, US GDP was always going to slow as the economy reaches some semblance of pre-pandemic normality.  

Central bank watch: ECB and Bank of Canada speak this week 

The European Central Bank seems like it’s in a bit of a pickle, if reports are to be believed. According to a Deutsche Bank survey of 600 investors, 42% expect the ECB to remain too dovish for too long. 

Andrea Enria, Chair of the ECB’s advisory board, said that caution is still the watchword, despite indicating that the European Union’s economic outlook is brightening.  

Unpublished internal models suggest inflation could reach the ECB’s illusive 2% target by 2025. Based on these, then rates may rise earlier than expected. Some investors have started to price in higher rates at the start of 2023.  

ECB policymaker Pablo Hernandez De Cos says no rate hike is on the way just yet. He doesn’t foresee any changes to the bank’s base rate until 2023 at the earliest. Some investors may have already started to price this in.  

This might cause problems for some Southern European states who, according to Markus Frühauf of Germany daily Fez, are unable to afford to hold rates low for much longer. 

Is a credibility crisis brewing for the European Central Bank? The inflationary surge is allegedly impacting poorer EU constituents than richer states. Independent central banks, like the Fed or Bank of England, have the luxury of being able to essentially look out for themselves, rather than toe the financial line drawn by Brussels. 

It will be interesting to see how the Bank handles these challenges, and indeed if any indication of a rate change, will happen at Wednesday’s ECB press conference. 

Speaking of early interest rate hikes, the Bank of Canada could possibly be lining one up. We’ll know more about the BoC’s stance on Wednesday, but economists believe April is when we’ll see things change in the Great White North. 

David Wolf of Fidelity and a former advisor to the Bank of Canada believes we’ll see the rate hike then. Strong job reports and hot inflation – currently sitting at double the BoC’s 2% target – may force Governor Tiff Macklem’s hand. 

Wells Fargo also thinks we’ll see Canadian rate movement next year. 

“We also expect the Bank of Canada to begin raising its policy interest rates in 2022, starting with an initial 25 bps rate increase to 0.50% at the July 2022 monetary policy meeting and another 25 bps rate increase during Q4-2022,” the investment bank said in a statement. “Regarding the initial rate hike, we believe the risks are tilted towards an earlier rather than later increase. We also see multiple rate hikes in 2023 and anticipate a cumulative 75 bps of tightening during that year.” 

Hawkish voices are calling for a rate adjustment. Let’s see what the Bank of Canada has to say this week. 

A bumper week ahead for earnings 

Don’t forget that it’s still earnings season on Wall Street. This week should be the busiest five reporting dates for the quarter ahead, with many large tech firms reporting in. 

Watch for Amazon, Apple, Twitter, Facebook, and Spotify are amongst the big technology companies reporting this week. We’ll also see many FMCG businesses reporting too, such as Coca-Cola. 

For more information on which companies are reporting and when be sure to check out our US earnings season calendar. 

Major economic data 

Date  Time (GMT+1)  Asset  Event 
Mon 25-Oct  9:00am  EUR  German ifo Business Climate 
Tue 26-Oct  3:00pm  USD  CB Consumer Confidence 
  3:00pm  USD  Richmond Manufacturing Index 
Wed 27-Oct  1:30am  AUD  CPI q/q 
  1:30pm  AUD  Trimmed Mean CPI q/q 
  1:30pm  USD  Core Durable Goods Orders m/m 
  1:30pm  USD  Durable Goods Orders m/m 
  3:00pm  CAD  BOC Monetary Policy Report 
  3:00pm  CAD  BOC Rate Statement 
  3:30pm  CAD  Overnight Rate 
  3:30pm  OIL  US Crude Oil Inventories 
  Tentative  CAD  BOC Press Conference 
Thu 28-Oct  Tentative  JPY  BOJ Outlook Report 
  Tentative  JPY  Monetary Policy Statement 
  Tentative  JPY  BOJ Press Conference 
  12:45pm  EUR  Monetary Policy Statement 
  12:45pm  EUR  Main Refinancing Rate 
  1:30pm  EUR  ECB Press Conference 
  1:30pm  USD  Advance GDP q/q 
  1:30pm  USD  Advance GDP Price Index q/q 
  1:30pm  USD  Unemployment Claims 
  3:00pm  USD  Pending Home Sales m/m 
  3.30pm  GAS  US Natural Gas Inventories 
Fri 29-Oct  9:00am  EUR  German Prelim GDP q/q 
  1:30pm  CAD  GDP m/m 
  1:30pm  USD  Core PCE Price Index m/m 
  2:45pm  USD  Chicago PMI 
  3:00pm  USD  Revised UoM Consumer Sentiment 


Key earnings data 

Mon 25 Oct  Tue 26 Oct  Wed 27 Oct  Thu 28 Oct  Fri 29 Oct 
  3M Co (MMM)  Automatic Data Processing (ADP)  Caterpillar Inc (CAT)   AbbVie (ABBV)  
  General Electric (GE)   Boeing (BA)  Keurig Dr Pepper (KDP)   Alibaba (BABA)  
  Advanced Micro Devices (AMD)  CME Group (CME)  Mastercard (MA)   Aon (AON) 
  Alphabet Inc C (GOOG)  Coca-Cola Co (KO)  Merck & Co Inc (MRK)   Chevron (CVX)  
  Alphabet Inc A (GOOGL)  General Motors (GM)   Newmont Goldcorp (NEM)   Exxon Mobil (XOM)  
Facebook (FB)  Microsoft Corp (MSFT)  The Kraft Heinz Co (KHC)   Shopify (SHOP)   Berkshire Hathaway (BRK.B) 
  QuantumScape (QS)  McDonald’s Corp (MCD)   Takeda Pharmaceutical (TAK)    
  Twitter Inc (TWTR)  Spotify Technology SA (SPOT)   Amazon.com Inc (AMZN)    
  Visa Inc Class A (V)   Ford Motor Co (F)   Apple Inc (AAPL)    
    Pinterest (PINS)  Gilead Sciences Inc (GILD)    
    Teladoc Health (TDOC)  Starbucks Corp (SBUX)    
    Twilio (TWLO)     

The markets month ahead: key events for your trading diary in October

Get a look at the coming month’s important market-moving events with our October trading preview. 

Economic events to watch in October 

OPEC-JMMC meetings – Monday 4th October  

The month begins in earnest with OPEC-JMMC meetings. OPEC+ comes together for its monthly policy talks. No shocking surprises are expected this month. Instead, we’ll probably see a rubber-stamping of the planned output increase of 400,000 bpd.  

RBA rate statement – Tuesday 5th October  

The Reserve Bank of Australia releases its newest rate statement at the start of the month. Markets forecast no hike for the foreseeable future. The cash rate will probably stay at its historic low. 

RBNZ rate statement – Wednesday 6th October  

Joining its Australian cousin in starting the month with a rate decision is the Reserve Bank of New Zealand. Economists think an increase in the 0.2% cash rate will come – but not the 0.5% increase forecast. 

US nonfarm payrolls – Friday 8th October 

Jerome Powell and the Fed, plus the wider markets, will be watching the month’s NFP data carefully. August’s data missed the mark by miles – will September’s stats point towards a US labour market surge? 

US CPI data – Wednesday 13th October 

Consumer Price Index rises cooled in August, backing the Fed’s stance that current high prices are all transitionary. Month-on-month price gains slowed to 0.3%. September’s CPI stats are released on Wednesday 13th of October. 

US retail sales data – Friday 15th October 

Retail sales across America picked up an unexpected bump in August. Sales were up 0.7% according to the Census Bureau. Observers were calling for a 0.7% decline, driven by rising Delta-variant COVID cases. Will we see an upward swing in September too? 

UK CPI data – Tuesday 20th October 

UK inflation is running hot. Last month’s report showed it growing at the fastest rate since records began, rising at 3.2%. It may be all transitionary, but if inflation punches above the Bank of England’s 4% target, then the UK’s central bank may be forced to act. 

European PMIs – Friday October 22nd 

Brace for the monthly European flash PMI blitz with all the key economic activity indicators from France, Germany, and the EU all inbound. Eurozone composite PMI readings for September missed expectations of 58.5 coming in at 56.1. Still in growth, but it looks like activity is starting to slow. 

Bank of Canada rate statement – Wednesday October 27th 

The first rate statement of Justin Trudeau’s third term comes this month. Governor Tiff Macklem and co. stuck to their guns in September, keeping the 0.25% rate in place and the QE pace the same. It’s probable October’s statement will bring much the same. 

ECB Press Conference – Thursday October 28th  

The European Central Bank scaled back its bond-buying programme in September in a bid to cool soaring inflation. Its October moves will likely all come down to how EU CPI reacted to the change. Rates stayed at 0% and it’s likely they will in the mid-term. 

Major economic data 

Date  Time (GMT+1)  Asset  Event 
Mon Oct-04  8:00am  EUR  Spanish Unemployment Change 
  All Day  All  OPEC Meetings 
  All Day  All  OPEC-JMMC Meetings 
Tue Oct-05  4:30am  AUD  RBA Rate Statement 
  4:30am  AUD  Cash Rate 
  Tentative  JPY  BOJ Gov Kuroda Speaks 
  3:00pm  USD  ISM Services PMI 
Wed Oct-06  2:00am  NZD  Official Cash Rate 
  2:00am  NZD  RBNZ Rate Statement 
  1:15pm  USD  ADP Non-Farm Employment Change 
  3:30pm  OIL  Crude Oil Inventories 
Thu Oct-07  1:30pm  USD  Unemployment Claims 
  3:00pm  CAD  Ivey PMI 
Fri Oct-08  1:30am  AUD  RBA Financial Stability Review 
  1:30pm  CAD  Employment Change 
  1:30pm  CAD  Unemployment Rate 
  1:30pm  USD  Average Hourly Earnings m/m 
  1:30pm  USD  Non-Farm Employment Change 
  1:30pm  USD  Unemployment Rate 
  Tentative  USD  Treasury Currency Report 
Tue Oct 12  3:00am  CNH  GDP q/y 
  3:00am  CNH  Retail Sales y/y 
  10:00am  EUR  ZEW Economic Sentiment 
  10:00am  EUR  German ZEW Economic Sentiment 
  3:00pm  USD  JOLTS Job Openings 
  6:00pm  USD  10-y Bond Auction 
Wed Oct-13  1:30pm  USD  CPI m/m 
  1:30pm  USD  Core CPI m/m 
  6:01pm  USD  30-y Bond Auction 
  7:00pm  USD  FOMC Meeting Minutes 
Thu Oct-14  1:30am  AUD  Employment Change 
  1:30am  AUD  Unemployment Rate 
  1:30pm  USD  PPI m/m 
  1:30pm  USD  Core PPI m/m 
  1:30pm  USD  Unemployment Claims 
  4:00pm  OIL  Crude Oil Inventories 
Fri Oct-15  7:00am  GBP  Retail Sales m/m 
  1:30pm  USD  Core Retail Sales m/m 
  1:30pm  USD  Retail Sales m/m 
  1:30pm  USD  Empire State Manufacturing Index 
  3:00pm  USD  Prelim UoM Consumer Sentiment 
Mon Oct-18  2:15pm  USD  Industrial Production m/m 
  3:30pm  CAD  BOC Business Outlook Survey 
Tue Oct-19  1:30am  AUD  Monetary Policy Meeting Minutes 
Wed Oct-20  7:00am  GBP  CPI y/y 
  1:30pm  CAD  CPI m/m 
  1:30pm  CAD  Common CPI y/y 
  1:30pm  CAD  Core Retail Sales m/m 
  1:30pm  CAD  Median CPI y/y 
  1:30pm  CAD  Retail Sales m/m 
  1:30pm  CAD  Trimmed CPI y/y 
  3:30pm  OIL  Crude Oil Inventories 
  10:45pm  NZD  CPI q/q 
Thu Oct-21  1:30pm  USD  Philly Fed Manufacturing Index 
  1:30pm  USD  Unemployment Claims 
Fri Oct-22  8:15am  EUR  French Flash Manufacturing PMI 
  8:15am  EUR  French Flash Services PMI 
  8:30am  EUR  German Flash Manufacturing PMI 
  8:30am  EUR  German Flash Services PMI 
  9:00am  EUR  Flash Manufacturing PMI 
  9:00am  EUR  Flash Services PMI 
  9:30am  GBP  Flash Manufacturing PMI 
  9:30am  GBP  Flash Services PMI 
  2:45pm  USD  Flash Manufacturing PMI 
  2:45pm  USD  Flash Services PMI 
Mon Oct-25  9:00am  EUR  German ifo Business Climate 
Tue Oct-26  1:30pm  USD  Core Durable Goods Orders m/m 
  1:30pm  USD  Durable Goods Orders m/m 
  3:00pm  USD  CB Consumer Confidence 
Wed Oct-27  1:30am  AUD  CPI q/q 
  1:30am  AUD  Trimmed Mean CPI q/q 
  3:00pm  CAD  BOC Monetary Policy Report 
  3:00pm  CAD  BOC Rate Statement 
  3:00pm  CAD  Overnight Rate 
  3:30pm  OIL  Crude Oil Inventories 
  Tentative  CAD  BOC Press Conference 
Thu Oct-28  Tentative  JPY  BOJ Outlook Report 
  Tentative  JPY  Monetary Policy Statement 
  Tentative  JPY  BOJ Press Conference 
  12:45pm  EUR  Monetary Policy Statement 
  12:45pm  EUR  Main Refinancing Rate 
  1:30pm  EUR  ECB Press Conference 
  1:30pm  USD  Advance GDP q/q 
  1:30pm  USD  Advance GDP Price Index q/q 
  1:30pm  USD  Unemployment Claims 
  3:00pm  USD  Pending Home Sales m/m 
Fri Oct-29  8:00am  EUR  German Prelim GDP q/q 
  1:30pm  CAD  GDP m/m 
  1:30pm  USD  Core PCE Price Index m/m 
  2:45pm  USD  Chicago PMI 
  3:00pm  USD  Revised UoM Consumer Sentiment 
Sat Oct-30  Day 1  All  G20 Meetings 
Sun Oct-31  1:00am  CNH  Manufacturing PMI 
  Day 2  All  G20 Meetings 

Week Ahead: Central banks take centre stage

The week ahead is dominated by central bank statements. We’ve got three lined up, with the first coming from the ECB. Its dovish outlook runs counter to the Reserve Bank of Australia and Bank of Canada who’ve taken on a more hawkish character of late. We’re not expecting major policy shifts – but surprises are never far away in the world of economics. 

The last glimpse inside the European Central Bank’s thinking we got came in the form of its July meeting minutes. In a world where central banks are starting to take more hawkish footings, the ECB is still relatively dovish. 

The ECB announced its first major strategic financial policy in July. Inflation targets were revised away from trying to keep it below 2% by adopting a specific 2% headline inflation target. Since then, inflation in the Euro area has risen to a decade high of 3%, which is likely to encourage hawks on the Governing Council.  

All very well and good, but what about COVID-19? The pandemic is by no means over, but some key ECB board members are confident even the impact of the Delta variant can’t stunt Europe’s return to the black. 

Limited headwinds are expected. The sentiment is positive. 

“I would say we’re broadly not too far away from what we expected in June for the full year,” Philip Lane, the ECB’s chief economist, told Reuters on Wednesday. “It’s a reasonably well-balanced picture.” 

Importantly, the ECB has said it will keep a “persistently accommodative” stance going forward. Interest rates are likely to stay at their current exceptionally low levels. We’re not expecting to see a shift towards a more hawkish position any time soon. 

Moving to Australia, the RBA has been fairly bullish in its most recent communications. A new rate statement will come the Reserve Bank of Australia on Tuesday morning and we’re not expecting the bank to stray too far from its current course. 

That is to say, tapering of the RBA’s bond buying programme will continue with the aim of scaling it back from September onwards. Rates will probably stay low too. We’re not expecting a hike until late 2022 at the earliest. 

Much depends on how robust Australia’s economy fares in light of rising coronavirus cases and localised lockdowns.  

“The board would be prepared to act in response to further bad news on the health front should that lead to a more significant setback for the economic recovery,” the RBA said in its August meeting minutes. “Experience to date had been that, once virus outbreaks were contained, the economy bounced back quickly.” 

Governor Lowe and his colleagues have said a recession is not very likely, although growth prospects have been revised for 2021. This year, the RBA expects annual growth to be around 4%, lower than the 4.75% previously forecast, but will rise to 4.25% by the end of 2022. 

Rounding off the week’s cavalcade of central bank statements is the Bank of Canada. The BOC is one of the more hawkish of the world’s central banks and has moved towards bond-buying tapering quite quickly, even though it is holding its overnight rate at 0.25%. 

The BOC did point out that a fresh wave of infections and lockdowns in Q2 did inhibit growth, but the bank is confident growth will expand rapidly towards the end of the year.  

The central bank said Canada’s economy is now expected to grow 6.0% in 2021, down from the April forecast of 6.5%, while it revised up its 2022 growth estimate to 4.6% from 3.7%. 

Hot inflation is still floating in the air, with readings expected to stay at or above 3% through to 2022. Quite hot – and at the top of the BOC’s 1-3% range. However, the bank is confident this is all transitionary. It is unlikely to force a policy rethink. 

Major economic data 

Date  Time (GMT+1)  Asset  Event 
Tue 7-Sep  5.30am  AUD  RBA Rate Statement 
  5.30am  AUD  Cash Rate 
  10.00am  EUR  ZEW Economic Sentiment 
  10.00am  EUR  German ZEW Economic Sentiment 
Wed 8-Sep  3.00pm  CAD  BOC Rate Statement 
  3.00pm  CAD  Ivey PMI 
  3.00pm  CAD  Overnight Rate 
  Tentative  CAD  BOC Press Conference 
Thu 9-Sep  12.45pm  EUR  Monetary Policy Statement 
  12.45pm  EUR  Main Referencing Rate 
  1.30pm  EUR  ECB Press Conference 
  1.30pm  USD  Unemployment Claims 
  3.30pm  GAS  US Natural Gas Inventories 
  4.00pm  OIL  US Crude Oil Inventories 
Fri 10-Sep  1.30pm  CAD  Employment Change 
  1.30pm  CAD  Unemployment Rate 
  1.30pm  USD  PPI m/m 
  1.30pm  USD  Core PPI m/m 
  Tentative  GBP  Monetary Policy Hearings 

Week Ahead: Big banks kick of US earnings blitz

Week Ahead

US earnings season kicks off this week. The large caps will be sharing their earnings reports for Q2 2021. This throws up exciting trading opportunities for investors, as ever, but this quarter’s may be one of the best seasons yet from a corporate perspective. 

Analyst sentiment suggests a bumper quarter is on the way for the large caps. FactSet forecasts suggest a 61.9% growth rate for S&P 500 firms. That would be the highest year-on-year growth rate reported by the index since 2009. 

Big banks dominate earning season’s opening salvos. JPMorgan Chase, Goldman Sachs, Wells Fargo, and Citigroup are amongst those reporting in the first week. 

Earnings season takes on renewed importance this quarter. The market will be using it to gauge which companies are poised to power out of the pandemic economy toward something like normal operating procedures – and which have struggled. 

We’ve put together a US earnings season calendar detailing the large caps sharing earnings reports this quarter. Check it out to see which companies are reporting to plot your trades for the coming season. 

Away from earnings and turning to data, this week sees the release of June’s US consumer price index reading. 

Headline consumer prices rose 5% year-on-year in May – the fastest rate since August 2008. This was also higher than Wall Street expectations. Core inflation, a measure that doesn’t include food or energy prices, was up 3.8%. That was the sharpest rise for nearly three decades. 

May’s data, compiled by the Bureau of Labour Statistics, instigated a debate around whether the Fed should let the economy run hot. Inflation is one of the Fed’s key metrics, so similar readings in June may prompt a policy change or a rate hike in order to cool the hot post-lockdown economy. 

Fitch suggests CPI will continue to spike well into 2022. The ratings agency believes supply line issues won’t alleviate any time soon, thus will continue to drive prices of consumer goods upward.  

Fitch’s forecasts call for an overall 4.5% yearly rise in core CPI inflation by year’s end 2021, with non-core coming in at 4.1%. Core inflation would then drop to 2.5% by mid-2022. 

We’ll also see the latest US retail sales data this week. The markets will be looking to see if the 1.3% drop in overall sales and 0.7% drop in core retail sales registered in May was a blip, or whether the trend will have continued into June. 

Despite these small monthly decreases, retail sales are up 28.1% on a yearly basis.  

A part explanation for the dip was a trend of consumers turning away from buying goods and finished products and instead turning to experiences. With freedom of movement returning to near normalcy in the United States, spenders are preferring to go out, plan trips, and spend on services, rather than dabbling in some retail therapy. 

Another reason was a 3.4% drop in receipts at car dealerships. The global semiconductor shortage is impacting delivery of new vehicles; thus, sales have started to stall. 

Interestingly, April’s retail sales were revised up at May’s printing. Instead of staying static as was first thought, they actually increased 0.8% month-on-month. 

The Bank of Canada’s newest rate statement is also due. Governor Tiff Macklem confirmed in June that the overnight rate was holding steady at 0.25%, and no changes to the rate were coming any time soon. 

Macklem also committed the Bank to CAD$3bn in weekly Canadian government bond purchases but reiterated that the pace of these would subside as economic recovery progresses. 

Canada was one of the first major economies to begin scaling back its bond purchases in April. Despite this, the economy retracted in April and May, and Q1 GDP growth of 5.6% did not meet expectation, mainly due to winter lockdowns. 

However, the Bank of Canada’s economists are confident recovery will pick up the pace in the coming months. High commodity prices and growth in foreign demand are expected to act as economic tailwinds going forward. 

A tapering of bond purchases is expected with July’s statement on the 14th 

Major economic data 

Date  Time (GMT+1)  Asset  Event 
Tue 13-Jul  1.30pm  USD  CPI m/m 
  1.30pm  USD  Core CPI m/m 
Wed 14-Jul  3.00am  NZD  RBNZ Rate Statement 
  3.00am  NZD  Cash Rate 
  1.30pm  USD  PPI m/m 
  1.30pm  USD  Core PPI m/m 
  3.00pm  CAD  BOC Monetary Policy 
  3.00pm  CAD  BOC Rate Statement 
  3.00pm  CAD  Overnight Rate 
  3.30pm  OIL  Crude Oil Inventories 
  Tentative  CAD  BOC Press Conference 
Thu 15-Jul  2.30am  AUD  Employment Change 
  2.30am  AUD  Employment Rate 
  3.00am  CNH  GDP q/y 
  1.30pm  USD  Philly Fed Manufacturing Index 
  1.30pm  USD  Unemployment Claims 
  3.30pm  GAS  US Natural Gas Inventories 
  11.45pm  NZD  CPI q/q 
Fri 16-Jul  1.30pm  USD  Retail sales m/m 
  1.30pm  USD  Core retail sales m/m 


Key US earnings data 

Tue 13 Jul  Wed 14 Jul  Thu 15 Jul 
JPMorgan Chase & Co   Bank of America Corp    
Goldman Sachs Group Inc   Citigroup Inc   Morgan Stanley  
PepsiCo Inc      
Wells Fargo & Co      

Week ahead: Inflation steals show as ECB & BoC speak

Week Ahead

Inflation is everywhere this week. Two major central bank rate decisions, from the European Central Bank and Bank of Canada, are due as inflation starts to bite. Looking at data, the big release is May’s US CPI numbers following April’s surging prices.

Starting with the ECB, higher-than-expected inflation in May means the central bank’s inflation target has been breached.

Eurozone inflation hit 2% for the first time this year in May. The ECB’s policy mandate is to keep inflation close but below that level. Previously, the ECB had predicted that inflation will peak 2% in the last quarter of 2021, then coming down throughout 2022.

Will the fact the 2% target has been reached force a change?

Moody’s doesn’t think so. The ratings agency believes no rate hike will come for several years at least, despite the recent pick up in inflation.

“After economic activity resumes as normal, the inflation rate will likely start to weaken in the second half of 2022 as the effects of one-off price increases begin to disappear from inflation data,” Moody’s said.

While no rate change is forecast, markets will still be watching closely to see if there are any tweaks in ECB policy at Wednesday’s press conference.

The central bank’s more hawkish council members have been hoping for a relaxation of PEPP, the EU stimulus package, by the second half of 2021. Certainly, if inflation continues to mount, then the bank may be forced to make a change. It all depends on economic conditions from here on out.

“The envelope can be recalibrated if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation,” the ECB said in a statement following May’s meeting.

Contrasting with the cautious ECB, the Bank of Canada is a bit of a Covid economics trailblazer. It’s the first central bank to actively begin paring back its bond buying programme and could be one of the first to raise its central bank rate.

That said, the 0.25% rate probably isn’t moving in June. A rate hike will come in H2 2022 at the earliest. June’s statement, by all accounts, is gearing up to be more of a preview of July’s potential changes.

Inflation is still being carefully monitored. In April, inflation was at the higher end of the Bank of Canada’s 1-3%, so economic conditions may force Canada’s central bank’s hand to move a little quicker on rates if we see similar action when May’s data is reported.

At this time a rate hike is unlikely. Instead, the focus is on QE.

According to Reuters, analysts across six of Canada’s top retail banks believe the BoC is gearing up to further slow bond purchases. Forecasts estimate bond buying to be scaled back to C$2 billion ($1.65 billion) per week from the current level of C$3 billion per week next month. Further reductions could come in August.

Looking at data, the May US Consumer Price Index printing is released on Thursday. As a key inflation metric will be carefully monitored by the markets, following April’s higher-than-expected reading.

Economists surveyed by Dow Jones were anticipating a 3.6% CPI rise last month. The final reading clocked in 4.2% year-on-year – the fastest rate of growth since 2008.

Much of this was from baseline economic factors, rather than completely spiralling inflation. Prices in April 2020 had fallen through the floor thanks to the first wave of lockdowns. As the US economy strengthened, consumer prices have risen too.

As such, the Fed called April’s numbers “transitory” and is still sticking to the script. The Federal Reserve believe inflation will cool off as the year progresses, falling back to its targeted 2% level.

But if a similar reading comes in May, the Fed may be forced into action.

Major economic data

Date Time (GMT+1) Asset Event
Wed 9-Jun 3.00pm CAD BoC Rate Statement
  3.00pm CAD Overnight Rate
  Tentative CAD BoC Press Conference
  3.30pm Oil US Crude Oil Inventories
Thu 10-Jun 12.45pm EUR Main Referencing Rate
  12.45pm EUR Monetary Policy Statement
  1.30pm EUR ECB Press Conference
  1.30pm USD CPI m/m
  1.30pm USD Core CPI m/m


Key earnings data

Date Company Event
Mon 7-Jun Marvell Technologies Q1 2022 Earnings
Tue 8-Jun GameStop Q1 2021 Earnings
Wed 9-Jun Inditex Q1 2021 Earnings

Week Ahead: ECB speaks amidst vaccine pressure

Week Ahead

Rate statements from the European Central Bank and Bank of Canada are this week’s big stories. Will we see any major policy tweaks? UK retail sales are also in focus as the country emerges from lockdown. Elsewhere, earnings season rolls on on Wall Street.

Vaccine rollout puts pressure on ECB ahead of press conference

Another month, another ECB press conference.

The European Central Bank is, again, unlikely to make any major policy changes this month.

Instead, we’re probably looking at how the bank plans on keeping things steady. The big issue facing economic recovery is still vaccine rollout throughout the EU. At least, it looks like a key concern for ECB bigwigs according to March 11th’s meeting minutes.

The minutes underline ECB council members’ feeling that near-term economic growth depends on how the pandemic evolves.

“Reference was made to the slow pace of vaccination compared with other parts of the world,” the minutes stated. “Questions were raised as to how realistic it was to assume that containment measures would be reduced as early as the second quarter. Weakness in activity might continue well into the second quarter and beyond.”

There is a feeling that persistently high Covid-19 infection rates across Europe, spread of mutant strains, and prolonged lockdown restrictions are negatively the bloc’s recovery. GDP growth may come in lower than previously forecast in the next quarter too.

That said, the base rate probably won’t rise. Keeping borrowing costs low for banks throughout the EU is also a top priority, as the recent ramp in bond yields colours policymakers’ decision making.

Governing council member and Dutch central bank president Klaas Knot has said he doesn’t want to see a run up on government bond yields, as this may lead to a tightening of economic conditions throughout the EU. As the bloc recently committed to increase its bond buying programme, this is something the central bank will be very keen to avoid.

Are policy tweaks ahead as Bank of Canada makes rate statement?

Another rate decision will be coming from the Bank of Canada this week. Chances are no major changes are coming to Canadian rate policy, but we might some tweaks.

One thing that is unlikely to change is the BOC’s policy rate, which is pretty much frozen at 0.25% until 2023 when economic slack is absorbed.

Instead, Canada’s central bank is exploring changes to its policy frameworks, including average inflation targeting, a dual mandate targeting employment and inflation together, nominal GDP targeting, and price-level targeting.

This comes after it appears consumers and banks are feeling calm, despite historically low interest rates.

“Overall, inflation has not become a bigger concern for Canadians, and the pandemic has not dramatically changed consumers’ views on inflation,” the BOC said in its latest quarterly survey of consumer expectations, published on April 12th.

“Canadians are cognizant that inflation hurts others differently,” Governor Macklem said. “That is informing our research agenda. We are working with Statistics Canada on getting measures of inflation that are targeted more to specific groups. That has come directly out of speaking with Canadians.”

One thing we do know is that the bank is considering tapering off its quantitative easing programme, so we may see a more concrete strategy regarding this with the latest rate statement.

UK retail sales look to post strong March gains

The UK has opened non-essential shops, so we’re probably bracing for a bit of a boom when April’s stats roll in. March’s month-on-month retail sales are reported this week, and indicators look like retail is still strong, despite the pandemic’s challenging conditions.

We can see two-year increases in the latest reports from the British Retail Consortium and KMPG monthly sales monitor. This report is released ahead of month-on-month stats which come out this week but will give an indicator to the state of the UK’s retail health.

For context, the IRC has decided to compare sales data from 2019 and 2021 due to the disruption caused by the pandemic in 2020.

UK retail sales increased 8.4% on a like-for-like basis from March 2019, when they had decreased 1.1% from the preceding year.

Over the three months to March on a two-year basis, in-store sales of non-food items declined 44.4% on a total and 44.0% on a like-for-like basis. This is worse than the 2019 Total average decline of 3.1%.

For March, the two-year like-for-like excluding temporarily closed stores remained in decline. This is probably to be expected. Until last week, UK non-essential shops had been shuttered, so the high street has pretty much been dead.

Online sales continued to grow quickly during March, the final month of lockdown 3.0. The BRC says almost 60% of sales were online during the month. IMRG, which is continuing to compare 2021 figures with those of 2020, says that in March, online sales were 71.7% up compared to the same time last year.

We’ll be able to see more on a month-by-month basis when data is released this week.

Wall Street earnings season rolls on

After the big banks kicked off proceedings last week, earnings season is in full swing on Wall Street. The large caps are circling, and they’re bringing reports with them.

We’ll be able to see with more clarity which companies continue to be pandemic winners, and which may have struggled in the tough conditions it threw up.

Amidst the large caps reporting this week are Coca-Cola, Johnson and Johnson, Intel, Netflix, SAP, and a host of others. See below for a roundup of the large caps sharing earnings reports this week.

Major economic data

Date Time (GMT+1) Currency Event
Tue 20-Apr 11.45pm NZD CPI q/q
Wed 21-Apr 2.30am AUD Retail Sales m/m
7.00am GBP CPI y/y
1.30pm CAD CPI m/m
  3.00pm CAD BOC Monetary Policy Report
3.00pm CAD BOC Rate Statement
3.00pm CAD Overnight Rate
3.30pm USD Crude Oil Inventories
4.00pm CAD BOC Press Conference
Thu 22-Apr 12.45pm EUR Main Referencing Rate
12.45pm EUR Monetary Policy Statement
1.30pm EUR ECB Press Conference
1.30pm USD Unemployment Claims
3.30pm USD US Natural Gas Inventories
Fri 23-Apr 7.00am GBP Retail Sales y/y
8.15am EUR French Flash Services PMI
8.15am EUR French Flash Manufacturing PMI
8.30am EUR German Flash Manufacturing PMI
8.30am EUR German Flash Services PMI
9.00am EUR Flash Manufacturing PMI
  9.00am EUR Flash Services PMI
9.30am GBP Flash Manufacturing PMI
9.30am GBP Flash Services PMI


Key earnings data

Date Company Event
Mon 19-Apr Coca-Cola Q1 2021 Earnings
IBM Q1 2021 Earnings
Prologis Q1 2021 Earnings
United Airlines Q1 2021 Earnings
Tue 20-Apr Johnson & Johnson Q1 2021 Earnings
Proctor & Gamble Q3 2021 Earnings
Netflix Q1 2021 Earnings
Philip Morris Q1 2021 Earnings
Lockheed Martin Q1 2021 Earnings
Wed 21-Apr ASML Q1 2021 Earnings
NextEra Energy Q1 2021 Earnings
Anthem Inc. Q1 2021 Earnings
Canadian Pacific Railway Co. Q1 2021 Earnings
Ericsson Q1 2021 Earnings
Thu 22-Apr Intel Corp. Q1 2021 Earnings
AT&T Q1 2021 Earnings
Union Pacific Q1 2021 Earnings
Snap Inc. Q1 2021 Earnings
Blackstone Q1 2021 Earnings
LG Chem Q1 2021 Earnings
Volvo AB Q1 2021 Earnings
Fri 23-Apr Industrial & Commercial Bank of China Q1 2021 Earnings
Agricultural Bank of China Q1 2021 Earnings
Honeywell Q1 2021 Earnings
Bank of China Q1 2021 Earnings
PetroChina Q1 2021 Earnings
American Express Q1 2021 Earnings
Daimler Q1 2021 Earnings

Week Ahead: ECB speaks, US CPI released & BoC makes statement

Week Ahead

We’ve a busy week ahead for European economics with the ECB press conference and rate statement. Are changes to economic policy coming to halt steepening yields? In the US, CPI data is released, gauging the effects of inflation. The Bank of Canada will also be making its overnight rate statement, and a strong economic outlook for Canada could mean a change in bond-buying policy. 

Will ECB tweak its bond buying programme to tackle steepening yields? 

Bond yields have coloured a lot of monetary policy talks in recent weeks, and we’ll be looking to the European Central Bank’s response to steepening curves in this week’s ECB statement and press conference. 

We’ve previously seen Executive Board Member Fabio Panetta make the case for continuing bond purchases and keeping financial support going while the pandemic continues. 

“The steepening in the nominal GDP-weighted yield curve we have been seeing is unwelcome and must be resisted. We should not hesitate to increase the volume of purchases and to spend the entire PEPP envelope or more if needed,” Panetta said on Tuesday 2nd March. 

“Policy support will have to remain in place well beyond the end of the pandemic,” he added. “Risks of providing too little policy support still far outweigh the risks of providing too much. By keeping nominal yields low for longer, we can provide a strong anchor to preserve accommodative financing conditions.” 

Despite this, we saw a slowing in the ECB’s bond-buying programme on Monday 1st March. Then, the Bank had settled €12bn in bond purchases, against €17.5bn the previous week. The decline is due to much higher redemptions, Bloomberg reports. A sign of a policy readjustment to come perhaps? 

This may run counter to Panetta’s wishes: “We must establish the credibility of our strategy by demonstrating that unwarranted tightening will not be tolerated.” 

We have ways to react to this,” Jens Weidmann, Governor of Germany’s Bundesbank, told CNBC. “The PEPP comes with flexibility and we can use this flexibility to react to such a situation.” 

The EU’s emergency bond buying programme will last until March 2022 as it stands, with total purchases coming in at €1.85tn. Weidmann indicated that the ECB may step up purchases again in the wake of rising yields. 

“This is one element that is on the table, to use the flexibility we have in implementing the PEPP,” Weidmann said. “But again, the first step is to analyse the root causes and also to see what effect we have on our ultimate objective which is price stability.” 

Yields and the ECB’s response will take centre stage when it makes its next announcement on March 11th. 

US CPI, yields, and inflation

We’ll also get to see if inflation is really starting to bare its teeth in the US with the release of the latest Consumer Price Index (CPI) report from the Bureau of Labor. 

Rising US bond yields have essentially been the talking point for the last couple of weeks, as they have affected financing global. Yields on the benchmark US 10-year Treasury Note passed 1.3% on February 17th and have since jumped to almost 1.6%. 

Yields tend to rise with inflation expectations as bond investors become less inclined to sit on low or negative-yielding assets in real terms. Higher yields can also mean more debt servicing for major firms. This tends to knock stock markets as traders reassess the environment for investing.  

Prior to this, January’s CPI actually showed a retraction, when inflation declined to 0.3%. Year on year, the CPI stayed flat at 1.4%. Core CPI, which excludes volatile food and energy prices, edged lower to 1.4% in January from 1.6% in December and came in lower than the market expectation of 1.5%. 

Price pressures are likely to have been stronger in February.  

The higher yields and inflation levels are also being watched under the context of further stimulus. Joe Biden’s $1.9 trillion package is very likely to be passed soon, which will induce, it’s hoped, more spending and consumption throughout the US economy. With more readily available cash, inflation may edge higher. 

There’s a lot to be gleaned from this month’s US CPI release. 

BoC rate statement – no major changes expected 

The Bank of Canada will set out its latest rate policy this week. Could we see an easing of economic support? Preliminary GDP reports suggest Canada’s economic outlook is relatively healthy, so a reduction in bond purchases could be on the horizon.  

In a January press release, Canada’s central bank stated it will hold current level of policy rate until its inflation objective is achieved, while continuing its quantitative easing programme, purchasing CAD$4bn worth of bonds each week. 

However, Canada’s latest GDP figures show a resilient economy. The Canadian economy grew at an annualized rate of 9.6% in the fourth quarter, data from Statistics Canada showed on Tuesday March 2nd, beating analyst expectations of 7.5%. 

Interest rates are likely to stay at near-zero until 2023. Mortgage rates have started to creep up, however, in response to steepening yield curves, but the base rate will stay low for another couple of years, says BoC Governor Tiff Macklem. 

Despite some observers believing the stronger economic outlook maybe about to signal a cut in bond purchases, BoC has sped up purchases of provincial bonds as part of an overall strategy to counter rising yields, as well as provide more liquidity to provinces to bolster its economy against the ongoing Covid-19 pandemic. 

The central bank bought CAD$436.5 million of bonds via its Provincial Bond Purchase Program last week – the most since the start of that effort in May 

Like all economies, though, it’s probably unlikely that Canada will make any seismic changes during when it makes its rate statement decision on March 10th 

Major economic data 

Date  Time (GMT  Currency  Event 
Wed 10 Mar  1.30pm  USD  CPI m/m 
  1.30pm  USD  Core CPI m/m 
  3.00pm  CAD  BoC Rate Statement 
  3.30pm  CAD  Overnight Rate 
  3.30pm  USD  US Crude Oil Inventories 
Thu 11 Mar  12.45pm  EUR  Main Refinancing Rate 
  12.45pm  EUR  Monetary Policy Statement 
  1.30pm  EUR  ECB Press Conference 
Fri 12 Mar  1.30pm  CAD  Employment Change 
  1.30pm  CAD  Unemployment Rate 


Key earnings data 

Date  Company  Event 
Tue 09 Mar  Deutsche Post  Q4 2020 Earnings 
  Continental  Q4 2020 Earnings 
Wed 10 Mar  Oracle  Q3 2021 Earnings 
  Adidas  Q4 2020 Earnings 
  LUKOIL  Q4 2020 Earnings 
  Legal & General  Q4 2020 Earnings 
  Campbell Soup  Q2 2021 Earnings 
  Prada  Q4 2020 Earnings 
Thur 11 Mar  Rolls Royce  Q4 2020 Earnings 

Stocks firm, earnings unmask weakness, OPEC+ decision eyed

Morning Note

European markets moved up again this morning after stocks rallied on Wall Street and futures indicate further gains for US equity markets despite big bank earnings underlining the problems on Main Street. Sentiment recovered somewhat after Moderna’s vaccine candidate showed ‘promising’ results from phase 1 trials. It is too early to call a significant breakthrough, but it’s certainly encouraging.

Cyclical components led the way for the Dow with top performers the likes of Caterpillar and Boeing, as well as energy names Exxon and Chevron up over 3% as the index rose over 500pts, or 2.1%, its best day in over two weeks. Apple shares regained some ground to $388 ahead of an EU court ruling today on whether the company should repay €13bn in unpaid taxes.

Asian markets were mixed, with China and Hong Kong lower as US-China tensions rose, but shares in Japan and Australia were higher. European shares advanced around 0.75% in early trade, with the FTSE reclaiming 6,200 and the DAX near 12,800.

However, Tuesday’s reversal off the June peak may still be important – lots of things need to go right to extend the rally and you must believe this reporting season will not be full of good news, albeit EPS estimates – such as they are – may be relatively easy to beat.

My sense is what while the stock market does not reflect the real economy, this does not mean we are about to see a major drawdown again like we saw in March. The vast amount of liquidity that has been injected into the financial system by central banks and the fiscal splurge will keep stocks supported – the cash needs to find a home somewhere and bonds offer nothing. It will likely take a significant escalation in cases – a major second wave in the winter perhaps – to see us look again at the lows.

For the time being major indices are still chopping around the Jun-Jul ranges, albeit the S&P 500 and DAX are near their tops. Failure to breakout for a second time will raise the risk of a bigger near-term pullback, at least back to the 50% retracement of June’s top-to-bottom move in the second week of that month.

Trading revenues, loan loss provisions surge at US banks

US bank earning highlighted the divergence between the stock market and the real economy. JPMorgan and Citigroup posted strong trading revenues from their investment bank divisions but had to significantly increase loan loss provisions at their consumer banks. Wells Fargo – which does have the investment banking arm to lean on – increased credit loss provisions in the quarter to $9.5bn from $4bn in Q1, vs expectations of about $5bn.

This begs the question of when the credit losses from bad corporate and personal debt starts to catch up with the broader market. Moreover, investors need to ask whether the exceptional trading revenues are all that sustainable. Shares in Citigroup and Wells Fargo fell around 4%, whilst JPMorgan edged out a small gain. Goldman Sachs, BNY Mellon and US Bancorp report today along with Dow component UnitedHealth.

UK retail earnings

In the UK, retail earnings continue to look exceptionally bleak. Burberry reported a drop in sales of 45% in the first quarter, with demand down 20% in June. Asia is doing OK, but the loss of tourist euros in Europe left EMEIA revenues down 75% as rich tourists stayed clear of stores because of lockdown. Sales in the Americas were down 70% but there is a slight pickup being seen. Encouragingly, mainland China grew mid-teens in Q1 but grew ahead of the January pre COVID level of 30% in June, Burberry said. Shares opened down 5%.

Dixons Carphone reported a sharp fall in adjusted profit to £166m from £339m a year before, with a statutory loss of £140m reflecting the cost of closing Carphone stores. Electricals is solid and online sales are performing well, with the +22% rise in this sector including +166% in April. Whilst Dixons appears to have done well in mitigating the Covid damage by a good online presence, the Mobile division, which was already impaired, continues to drag.

Looking ahead, Dixons says total positive cashflow from Mobile will be lower than the previous guidance of about £200m, in the range of £125m-£175m. Shares fell 6% in early trade.

White House ends Hong Kong special status, US to impose sanctions

US-China tensions are not getting any better – Donald Trump signed a law that will allow the US to impose sanctions on Chinese officials in retaliation for the Hong Kong security law. The White House has also ended the territory’s special trade status – it is now in the eyes of the US and much of the west, no different to rest of China. This is a sad reflection of where things have gone in the 20+ years since the handover.  Britain’s decision to strip Huawei from its telecoms networks reflects a simple realpolitik choice and underscores the years of globalisation are over as east and west cleave in two.

The Bank of Japan left policy on hold but lowered its growth outlook. The forecast range by BoJ board members ranged from -4.5% to -5.7%, worse than the April range of -3% and –5%. It signals the pace of recovery in Japan and elsewhere is slower than anticipated.

Federal Reserve Governor Lael Brainard talked up more stimulus and suggested stricter forward guidance would be effective – even indicating that the central bank could look at yield curve control – setting targets for short- and medium-term yields in order to underpin their forward guidance.

EUR, GBP push higher ahead of US data; BOC decision on tap

In FX, we are seeing the dollar offered. EURUSD has pushed up to 1.1430, moving clear of the early Jun peak, suggesting a possible extension of this rally through to the March high at 1.15. GBPUSD pushed off yesterday’s lows at 1.2480 to reclaim the 1.26 handle, calling for a move back to the 1.2670 resistance struck on the 9-13 July.

Data today is focused on the US industrial production report, seen +4.3% month on month, and the Empire State manufacturing index, forecast at +10 vs -0.2 last month. The Bank of Canada is expected to leave interest rates on hold at 0.25% today, so we’ll be looking to get an update on how the central bank views the path of economic recovery.  Fed’s Beige Book later this evening will offer an anecdotal view of the US economy which may tell us much more than any backward-looking data can.

Oil remains uncertain ahead of OPEC+ decision

Oil continues to chop sideways ahead of the OPEC+ decision on extending cuts. WTI (Aug) keeps bouncing in and off the area around $40 and price action seems to reflect the uncertainty on OPEC and its allies will decide. The cartel is expected to taper the level of cuts by about 2 million barrels per day from August, down from the current record 9.7 million bpd. Secretary General Mohammad Barkindo had said on Monday that the gradual easing of lockdown measures across the globe, in tandem with the supply cuts, was bringing the oil market closer to balance.

However, an unwinding of the cuts just as some economies put the brakes on activity again threatens to send oil prices lower. OPEC yesterday said it expects a bullish recovery in demand in the second half, revising its 2020 oil demand drop to 8.9m bpd, vs the 9m forecast in June. The cartel cited better data in developed nations offsetting worse-than-expected performance in emerging markets. EIA inventories are seen showing a draw of 1.3m barrels after last week produced an unexpected gain of 5.7m barrels.


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