Risk sentiment remains positive although there will be a test of the market’s optimism this week, with a heavy slate of data releases and central bank policy meetings on tap. A Japanese holiday today may start the week off on a quieter note but central bank decisions by the European Central Bank (Thu), Bank of England (Thu), RBA (Tue) and speeches by various Fed speakers will help stir things up.
While none of the central banks are expected to alter policy settings this week there will be plenty of attention on the ECB to see whether they open the door to further policy easing in the wake of softer data including CPI inflation last week. The rout in the EUR over recent days has reflected the expectation of a shift in ECB stance, with the currency likely to continue to edge lower as the meeting approaches.
On the data front, US numbers have looked somewhat perkier, including the ISM manufacturing survey at the end of last week which beat expectations, helping US 10 year Treasury yields to edge back above 2.6%. This in turn has boosted the USD and will likely help to keep the currency supported in the short term.
However, there will be some caution ahead of Friday’s October employment report, which is likely to look decidedly weaker. The expect the impact of the government shutdown to manifest itself in particular in the unemployment rate, which is set to increase to move higher. Aside from the jobs data, US Q3 GDP and October Michigan confidence are on tap.
In Europe, the European Commission will release its Autumn economic forecasts, with deficit forecasts for peripheral countries a particular focus.
In Australia a slate of releases including retail sales, which revealed a much stronger than expected 0.8% monthly increase in September are on tap. The sales data provides more support to the view that the RBA will be disinclined to ease policy further although the relative strength of the AUD will still give the central bank some cause for concern. September trade data and October jobs data are also scheduled for release this week. AUD will find some support from the sales data this morning but will face headwinds from a generally firmer USD.