IN recent weeks, the financial markets have predominantly been fixated on the timing of US interest rate hikes with the US Federal Reserve having to delay the start time of policy tightening possibly into next year. However, comments in the past week from the European Central Bank’s (ECB) Nowotny have acted as a reminder to markets that the same macro backdrop could result in the ECB having to provide additional monetary stimulus to the Eurozone economy.
Therefore, while no policy changes are expected at this week’s October meeting of the ECB’s Governing Council, the event will still be closely followed by the markets. The ‘account’ of the September meeting indicated that the ECB was concerned about the risks to its growth and inflation outlook from “external developments”.
However, the summary of the discussion that took place amongst members indicated that they were of the view that it was too early to draw any firm conclusions on whether such developments would have a lasting impact on the ECB’s ability to meet its medium term inflation object.
This month’s meeting statement and President Draghi’s press conference may convey a similar message given that there have been no significant data or market developments since the last meeting. President Draghi is likely to continue to emphasise that the central bank stands ready to do more easing if it nis necessary.
It is also an important week in the Eurozone from a data perspective, with some key survey indicators for October due for release. These will be looked to for an indication of how the economy is performing at the start of the fourth quarter. The flash reading of the composite Purchasing Managers’ Index (PMI) is expected to be close to its third quarter average of 53.9 - suggesting that the economy maintained its modest pace of growth in the early part of quarter four.
The European Commission index of consumer sentiment for October is also due. The index had a somewhat softer tone in the third quarter which may, in part, have been due to heightened uncertainties and negative headlines around China and the global macro outlook. Given that these concerns are still prevalent, the index may have continued to edge lower in October.
This week’s US schedule has very much a housing theme to it. We get an update on the strength of housing demand with the release of the key existing home sales data for September. Sales slipped somewhat in August, although this was from a new cycle high, and were still up around 6 per cent compared to a year earlier. Market expectations are for a pick-up in sales last month.
Meantime, on the supply side, housing starts are also likely to have improved in September after slowing over the previous two months, while homebuilder sentiment is projected to remain close to its highest level since late 2005.
In the UK, the calendar over the coming week is on the light side. The highlight is retail sales data for
September with another modest monthly increase pencilled in. Public finance data for September also feature.
Further afield, with the financial markets, central banks and amongst others, the IMF, concerned about the outlook for Emerging Market economies, the release of Chinese GDP for the third quarter will garner plenty of attention. The consensus view is that growth slowed to below 7 per cent in the third quarter, which if the official release confirms, will represent the first time since 2009 that this has occurred. In truth, ‘official’ Chinese data are always open to question in terms of their accuracy but no one is doubting the fact that the Chinese economy is on a slower growth trajectory.
