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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) 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)     

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