Ahead of the game: 23 October 2023

US equity markets fell this week following an explosion at a hospital in Gaza, raising tensions in the Middle East and hotter-than-expected US economic data, which sent US yields surging to fresh highs.

In Australia, the ASX 200 took its lead from Wall Street but also had concerns following the release of more hawkish than expected RBA meeting minutes and another robust labour force report, which may see the RBA raise rates again before year-end.

• In the US, headline retail sales rose 0.7% in September vs 0.3% exp, while retail sales ex autos and gas rose 0.6% vs 0.1% exp
• Fed Chair Powell noted that above-trend growth (retail sales and IP data, etc) could warrant further policy tightening
• The Australian economy added 6.7k jobs in September vs. the 20k expected
• AU unemployment rate fell to 3.6% from 3.7%
• In the UK, inflation in September remained stable at 6.7%, above market expectations, looking for a fall to 6.6%
• In China, Q3 GDP increased to 4.9% YoY above market exp, looking for a rise of 4.4%
• Crude oil added to last week's 5.92% gain, climbing by 1.8% on rising geopolitical tensions
• Gold added to last week's 5.5% gains, climbing by another 2.2% to trade above $1975
• Wall Street's gauge of fear, the VIX, increased by 10.82% to 21.40.

• AU: RBA Bullock Speech (Tuesday, October 24 at 7 pm AEDT)
• AU: Q3 Inflation (Wednesday, October 25 at 11:30 am AEDT)
• AU: RBA Governor Michele Bullock speech (Thursday, October 26 at 9 am AEDT)
• AU: Q3 PPI (Friday, October 27 at 11:30 am AEDT)

• JP: Jibun Bank PMI (Tuesday, October 24 at 11:30 am AEDT)

• US: S&P Global Flash PMI's (Wednesday, October 25 at 12:45 am AEDT)
• US: Durable Goods and Q3 GDP (Thursday, October 26 at 11:30 pm AEDT)
• US: Core PCE Price Index (Friday, October 27 at 11:30 pm AEDT)

• UK: Unemployment Rate (Tuesday, October 24 at 5 pm AEDT)
• GE: HCOB Flash PMIs (Tuesday, October 24 at 6:30 pm AEDT)
• EA: HCOB Flash PMIs (Tuesday, October 24 at 7:00 pm AEDT)
• UK: HCOB Flash PMIs (Tuesday, October 24 at 7:30 pm AEDT)
• GE: IFO Business Climate Survey (Wednesday, October 25 at 7:00 pm AEDT)
• EA: ECB Interest rate decision (Thursday, October 26 at 11:15 pm AEDT)

• AU

Q3 inflation

Date: Wednesday, 25 October at 11:30 am AEDT

The Minutes from the Reserve Banks meeting in October were more hawkish than expected, noting that the "Board has a low tolerance for a slower return of inflation to target than currently expected" and that "further tightening of policy may be required should inflation prove more persistent than expected."

The hawkish RBA minutes put the focus squarely on next Wednesday's Q3 inflation report, which has little room to deliver an upside surprise to prevent the RBA from raising rates in November.

The market is looking for headline inflation to rise by 5.3% YoY in Q3, easing from 6% in Q2. The RBA's preferred measure of core inflation, the trimmed mean, is expected to fall to 5% easing from 5.9% in Q2.

Headline inflation chart

• US

GDP

Date: Thursday, 26 October at 11:30 pm AEDT

The US economy grew by 2.1% YoY in Q2 2023, falling from an upwardly revised 2.2% in Q1. This quarter, Q3, the market is looking for GDP to increase by 4.0%.

This quarter, growth data has been robust, exemplified by the release of a hotter-than-expected retail sales report for September, along with stronger Industrial Production. Furthermore, the market is looking for GDP to increase by 4.3% and anything significantly higher than this will see the market brace for additional Fed rate hikes in the months ahead.

US GDP chart

• EA

ECB interest rate decision

Date: Thursday, 26 October at 11:15 pm AEDT

The September ECB meeting has left the door open for a potential rate pause by indicating that "the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to our target."

Developments since then have increasingly shifted the balance against any further tightening of monetary policy, with a considerable slowdown in September core inflation (4.5% vs previous 5.3%), surging bond yields, and upside risks to oil prices amid geopolitical tensions in the Middle East.

Current expectations are pricing that a rate pause from the ECB next week is a done deal, but any guidance on where policymakers will have their eyes on to determine additional tightening will be the market focus.

ECB interest rate chart

• US

Core PCE

Date: Friday, 27 October at 11:30 pm AEDT

US Fed policymakers have been unanimous that monetary policy will need to stay restrictive for ‘some time’ to bring inflation back to the 2% target, but the consensus around the need for additional rate increases have been more mixed.

Given the blowout US September job report and higher-than-expected headline CPI, any persistent inflation numbers next week may shift bets for an additional rate hike in December and amplify the high-for-longer rate narrative. Greater focus may be on the core PCE, which is the inflation measurement preferred by the Fed.

Current expectations are for both headline and core PCE to increase 0.3% from the previous month. Year-on-year, the headline PCE is expected to tick slightly lower to 3.4% from previous 3.5%, while the core aspect is expected to moderate to 3.7% from previous 3.9%.

US headline and core PCE price index chart

• US

Q3 2023 earnings season

Q3 Earnings Season picks up the speed next week with reports set to drop from companies including Microsoft, Alphabet, GM, Meta, Amazon, Intel, UPS, Exxon, and Chevron.

Economics calendar

All times shown in AEDT (UTC+10).