The US dollar had a turbulent week amid the jobs report, movements in stocks, and as a trade deal between the US and China seems real. The US Mid-Term Elections stand out in a busy week that also includes a Fed decision and quite a few top-tier figures. Here the highlights for the next week.
Stocks initially continued struggling amid reports that the US will announce new tariffs on China. Things turned around later in the week after Trump talked to his Chinese counterpart Xi and then asked his cabinet to draft a trade deal. The news sent risk currencies soaring against the safe-haven USD and JPY. Earlier in the week, the euro was under pressure. Italy reported no growth in Q3, making the crisis more difficult to resolve. German Chancellor Angela Merkel announced she will not run again after disappointing results in regional elections. In the UK, the government’s budget was optimistic but was perceived by many market participants as a step towards elections and more uncertainty.
- UK Services PMI: Monday, 9:30. Markit’s forward-looking indices for the UK economy culminate in the publication for the services sector. The country’s largest sector has seen OK growth in September, with a score of 53.9 points. We may see a slide now as Brexit uncertainty increases. A score of 53.4 is expected.
- ISM Non-Manufacturing PMI: Monday, 15:00. ISM usually publishes its service-sector report before the Non-Farm Payrolls. This time, the late publication does not serve as a hint but stands on its own. Back in September, the gauge for the sector jumped to 61.6 points, reflecting rapid and robust growth. The figure could cool off just a bit: 59.3 is on the cards.
- Australian rate decision: Tuesday, 3:30. The Reserve Bank of Australia has not changed interest rates since mid-2016. It maintains the neutral stance but does express some concerns about global growth, the housing market, and other issues. On the other hand, the employment situation is OK. It will be interesting to see if the RBA changes its stance given the recent inflation data.
- US Mid-Term Elections: Tuesday and Wednesday. Americans go to the polls to select all 435 members of the House, the lower chamber, and 36 out of 100 Senators. The elections are seen as a referendum on President Donald Trump. Current opinion polls give the opposition Democrats a good chance of flipping the House while Republicans are projected to retain the Senate. Markets have been happy with Trump’s tax cuts and de-regulation while they have been unhappy with the tariffs. A split government means that no significant legislation is likely to happen in the next two years. The If Republicans retain both chambers, the US Dollar will likely gain as further tax cuts can boost the economy and trigger further rate increases. In addition, Trump will feel emboldened to continue his trade wars, and the greenback enjoys safe-haven flows. A Democrat victory in the House will likely weigh on the greenback for the opposite reasons. There are slim chances for the Democrats winning the Senate. The results will be made public as voting closes in America’s states, starting from the East and going all the way to Hawaii. High volatility is expected in the Asian session early on Wednesday. The picture should become clear ahead of the European session.
- New Zealand jobs report: Tuesday, 21:45. New Zealand publishes the employment data only once per quarter, thus every publication has an outsized impact on the currency. New Zealand enjoyed a low unemployment rate of 4.5% in Q2 while the total number of people in employment rose by 0.5%. The Labor Cost Index is also of interest. It increased by 0.6%. The figures for Q3 are likely to show ongoing expansion. Employment is projected to rise by 0.5% and the unemployment rate to fall to 4.4%.
- New Zealand rate decision: Wednesday, 20:00, press conference at 21:00. The Reserve Bank of New Zealand is forecast to leave the Official Cash Rate unchanged at 1.75% once again. Governor Adrian Orr and his colleagues are accompanied by a representative from the government according to the new policy, but they are unlikely to lower interest rates. The statement is expected to stress global trade tensions as a risk factor and also lower business confidence. The Governor’s press conference will also be revealing.
- Fed decision: Thursday, 19:00. The Federal Reserve announces its decision on Thursday instead of Wednesday due to the Mid-Term elections. This is the last rate decision that does not consist of a press conference. Fed Chair Jerome Powell and his colleagues are expected to leave the Federal Funds Rate unchanged at a maximum rate of 2.25% but are set to hint that they will raise rates in December, the fourth hike in 2018. The recent GDP release was upbeat and their preferred measure of inflation, the Core PCE Price Index, stood at 2%, precisely on target. President Trump has been putting pressure on the Fed to slow down as stock markets stumbled, but this may only serve to harden their policy. Any changes to the inflation or employment outlook will be carefully watched by markets.
- UK GDP: Friday, 9:30. The UK moved to publish GDP data on a monthly basis, but this publication is not only for September but for all of the third quarter. The economy grew by 0.4% q/q in the second quarter. So far in Q3, the British economy expanded by 0.4% in July but stagnated in August. A similar growth rate of 0.4% q/q is likely for Q3. Uncertainty about the future weighs. A rise of 0.6% q/q is forecast.
- US PPI: Friday, 13:30. The Producer Price Index serves as a warm up to the Consumer Price Index in the following week. Back in September, PPI and also Core PPI rose by 0.2% month over month, a steady rate and lower than a few months earlier. PPI is predicted to rise by 0.3% and core PPI by 0.2%.
- US Consumer Sentiment: Friday, 15:00. The University of Michigan’s Consumer Sentiment gauge has been more nuanced than the Conference Board’s measure, which has reached record highs in recent months. The final score for September stood at 98.6 points in the final read. We will now get the preliminary number for November.
*All times are GMT
Our latest podcast is titled Are stocks free falling or is it a buying opportunity?
- EUR/USD forecast – for everything related to the euro.
- GBP/USD forecast – Pound/dollar analysis
- USD/JPY forecast – the outlook for dollar/yen
- AUD/USD forecast – projections for the Aussie dollar.
- USD/CADc forecast – Canadian dollar predictions
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.