Summary:
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European CPI expected to slide to 2% YoY in August
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Norges Bank could deliver first rate hike in years this week
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Strong inflation reading could encourage BoC to continue with monetary tightening
As it is usually the case for Monday’s few interesting readings have been planned for today. The European CPI inflation print for August will be released at 10:00 am BST but it is a revision and therefore it is unlikely to produce any major moves on the markets. Market consensus suggests that the headline reading will move to 2% YoY while the core gauge should reinforce at 1% YoY. Apart from that, Empire manufacturing index is scheduled for release at 1:30 pm BST and it is expected to decline from 25.6 pts in August to 23 pts in September.
Central bank speakers scheduled for today:
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10:00 am BST - ECB’s Coeure
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11:15 am BST - ECB’s Praet
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1:00 pm BST - ECB’s Mersch
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2:00 pm BST - Riksbank Governor Ingves
What to watch for the remainder of the week?
While the previous week was mostly about central banks, monetary policy enthusiasts will not be disappointed this week as one of the Scandinavian countries is about to see the first rate hike in several years. Elsewhere, investors will focus on the Canadian inflation data which saw a strong surge in the prior month. On top of that, survey data from Europe and the US will reveal managers’ expectations both in manufacturing and services.
Norges Bank decision (Thursday, 9:00 am BST)
Data and events from Norway are rarely included in the Top3 list but this time is different. Norges Bank is expected to deliver the first rate hike since the first half of 2011. The Bank already announced in June that borrowing costs would be raised in September. The latest inflation report saw price growth way above the 2% target set by Norges Bank (recall that the Bank cut its target earlier this year) additionally supporting the hawkish approach. As the rate hike looks like a done deal investors are expected to analyze a statement thoroughly to infer whether more tightening is on the way. Affected markets: USDNOK, EURNOK.
Canadian inflation (Friday, 1:30 pm BST)
To the great extent Bank of Canada is following in Federal Reserve’s footsteps when it comes to the monetary tightening. As Fed is expected to deliver another 25 bp rate hike in September, central bankers from Canada may want to do the same during meeting in October. However, to ensure that it is a proper thing to do economic data must support this approach. Canadian headline CPI surged to the upper bound of the inflation target range in July and if it stays there for another month BoC may be encouraged to act to maintain price stability in check. Affected markets: USDCAD, EURCAD.
PMIs from Europe and US (Friday)
PMI indices from the Euro area have had a tough time this year with subsequent readings showing a progressive deterioration. While US gauges rose in the first half of 2018 they peaked in May and joined their European peers in a downward move thereafter (except for ISMs). As Trade Wars intensify once again soft indicators will be watched closely is seeking signs of potential contraction. Market consensus suggests that the gauges will stay around previous levels. Affected markets: EURUSD, US500.
EURUSD made another failed attempt to break above the 1.1715-1.1750 resistance zone on Friday. The main currency pair pulled back after just touching this technical hurdle. The survey data released on Friday may be a trigger for bigger movements. Source: xStation5
