Week Ahead for FX, Bonds: U.S. Inflation Data, Fed Minutes in Focus

Below are the most important global events likely to affect FX and bond markets in the coming week starting Oct. 7.

U.S. inflation data for September and Federal Reserve minutes of its September meeting, when it opted for a jumbo interest-rate cut, will likely take center stage as markets remain uncertain about the size of future rate reductions.

In the eurozone, France's expected announcement of its 2025 budget and European Central Bank minutes will be watched, while rate decisions are due in New Zealand, South Korea and India.

Investors will continue to keep a close watch on events in the Middle East that have affected markets recently, sometimes sparking moves into safe-haven assets.

U.S.

Wednesday's minutes of the Federal Reserve meeting in September, when the central bank opted to start interest-rate cuts with a large 50 basis-point reduction, as well as U.S. consumer-price inflation data for September on Thursday, will be watched as investors gauge the size of future rate cuts to come.

The Fed is expected to cut interest rates again at its meetings in November and December but likely by the slower--and more usual--pace of 25 basis points. Another big reduction remains possible, however, with the U.S. money markets pricing in a total of around 67 basis points of rate cuts for those two meetings, according to LSEG Refinitiv data.

In a recent speech, Fed Chair Jerome Powell said the central bank's policymakers would likely continue to cut interest rates but they didn't currently see a reason to lower rates as aggressively as they did at their most recent meeting.

"If the economy performs as expected, that would mean two more [quarter-point] cuts this year," Powell said during a moderated discussion.

Powell's comments gave "unusually specific guidance," said ING analyst Francesco Pesole in a note.

Analysts at HSBC said the minutes could reveal that many policymakers favored a more gradual 25 basis-point reduction rather than the bigger 50 basis-point cut that the majority opted for.

"The minutes from the September meeting should shed some further light on the FOMC's deliberations and the potential double-sided risks for the economy and monetary policy," they said.

After the minutes, U.S. inflation data on Thursday should be another key indicator on the outlook for interest rates, although it is likely to require a particularly weak figure for expectations of another large rate cut to start building.

"U.S. inflation is likely to take another noticeable step down towards the 2% mark in September. The core rate is also set to fall again, but is likely to remain above 3%," analysts at LBBW said in a note.

Another key piece of data will be the University of Michigan's preliminary consumer survey for October due on Friday, which will give a snapshot of how the U.S. economy is currently faring.

Other data due during the week include trade figures for August on Tuesday, weekly jobless claims on Thursday and September producer prices on Friday.

The Treasury will sell new three-year notes on Tuesday and reopen 10-year notes on Wednesday, followed by the sale of 30-year bonds on Thursday.

CANADA

Canadian monthly jobs data for September is released on Friday. This will be watched closely amid some speculation that the Bank of Canada could opt for a larger 50 basis-point cut at its next meeting later this month due to a weak economy and after the Federal Reserve opted to start rate cuts last month with a bumper half-point reduction.

Economist David Rosenberg, who heads Rosenberg Research, said the combination of the Fed's early big rate cut, a surprisingly resilient Canadian dollar, and evidence of "tremendous slack" in Canada's labor market provides ample reason for the Bank of Canada to pursue deeper rate cuts.

Canadian trade data for August is also released on Tuesday.

LATIN AMERICA

Inflation data for September are due from Mexico and Brazil on Wednesday and from Argentina on Thursday. Columbia and Chile also release inflation figures on Tuesday.

EUROZONE

France's government is expected to present its budget draft for 2025 on Thursday, amid concerns about the country's high budget deficit and about potential significant disagreements among the major political parties in government.

"The public deficit target will likely be set at 5% of GDP, from a deficit expected to exceed 6% in 2024," to be achieved by a mixture of cuts to public spending and tax hikes, HSBC economists said in a note.

The European Central Bank releases the minutes of its September meeting on Thursday, which will be watched closely for anything that could add to growing expectations that the central bank is likely to opt for back-to-back interest-rate cuts at its next meeting on Oct. 17.

Eurozone money markets are now fully pricing in another rate cut this month following data showing a significant fall in eurozone inflation last month. ECB President Christine Lagarde also said in a statement to the European Parliament recently that the central bank was more confident about inflation returning to the 2% target and would take this into account at the October meeting.

"Anything other than an October cut will now be difficult to justify," said Jussi Hiljanen, chief strategist for euro and dollar rates at SEB Research in a note.

With recent data pointing to weak German economy, and particularly its important manufacturing sector, investors will be watching German manufacturing orders and industrial production data for August on Monday and Tuesday, respectively.

German final inflation data for September is released on Friday.

Germany will sell green bonds on Tuesday and 15-year Bunds Wednesday. Other issuers include Austria and the Netherlands on Tuesday and Italy on Friday.

U.K.

In an otherwise quiet week for U.K. economic data, the highlight will be U.K. gross domestic product data for August on Friday, alongside industrial production, also for August.

"For August, the signals are not bad (even if sentiment took a bit of a hit in September). We had the rate cut on the first day of the month, which boosted spirits in the housing market, and the purchasing managers' index readings were good for that month," HSBC economists said in a note. They forecast monthly GDP growth of 0.2% in August.

Upcoming data on the U.K. economy will be watched closely going forward as the speed at which the Bank of England is likely to cut interest rates remains in doubt after recent conflicting comments.

A comment by BOE Governor Andrew Bailey that interest rates could be cut a bit more aggressively if inflation continues to fall caused the pound and U.K. government bond yields to drop amid speculation that the BOE could opt for consecutive rate cuts in November and December.

However, BOE Chief Economist Huw Pill warned in a subsequent speech about the risks of cutting rates "either too far or too fast," suggesting a more gradual, quarterly pace of rate cuts was more likely.

"Markets perhaps took Bailey's words too literally, and as a confirmation of faster cuts ahead, rather than merely a warning that this is a possibility," Ebury strategist Matthew Ryan said.

The RICS house-price survey for September will also be released on Thursday.

The Debt Management Office will auction 2039-dated index-linked gilts on Tuesday and 2034-dated gilts on Wednesday.

SCANDINAVIA

Norwegian inflation data for September is released on Thursday.

The figures are unlikely to alter expectations that Norwegian interest rates will stay on hold for now. Norges Bank said at its meeting last month that restrictive monetary policy is still needed to bring inflation down to target and that the central bank was concerned that inflation could remain above target for too long if rates are lowered prematurely.

Norway and Sweden will conduct bond auctions on Wednesday.

SWITZERLAND

Switzerland has a bond auction scheduled for Wednesday.

AUSTRALIA & NEW ZEALAND

The Reserve Bank of New Zealand is expected to slash the official cash rate by 50 basis points to 4.75% on Wednesday, accelerating the pace of easing. The central bank is also expected to indicate that a similar-sized reduction is likely in November.

Now that the RBNZ has commenced easing, economists expect blockbuster cuts through the end of the year as the economy remains moribund after years of recession.

The outlook for 2025 is for ongoing interest rate cuts now that inflation has returned to target, according to most economists.

In Australia, minutes of the Reserve Bank of Australia's recent policy meeting will be published on Tuesday, with bond traders expecting further clarification about why the policy-setting board did not "explicitly" discuss a potential interest-rate increase at the meeting.

RBA Governor Michele Bullock confirmed at her recent press conference that an increase was not discussed, but it was still unclear if the comment meant the central bank had adopted a less hawkish policy stance.

Bullock continues to emphasize that there is a high degree of uncertainty about the outlook, and that no policy action has been ruled out.

Three senior RBA staff will also make public appearances during the week, with a Tuesday speech by the central bank's deputy governor, Andrew Hauser, set to be the highlight.

SOUTH KOREA

South Korea's central bank could consider finally ending its long streak of keeping its policy rate at a 15-year high when it meets on Friday.

The Bank of Korea has been reluctant to rush to lower borrowing costs because of concerns about growing household debt and a surge in mortgage loans in the country.

But with headline inflation easing at a sharper-than-expected pace in September, and housing prices showing signs of easing, markets are betting that a policy pivot is on the cards. Private consumption and investment have largely remained weak, adding to the case for rate cuts.

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October 04, 2024 10:51 ET (14:51 GMT)

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