Week of OCTOber 6

The US government shutdown overshadowed last week's economic calendar, disrupting the regular release of data. Meanwhile, the RBA left rates unchanged, and EU inflation came in as expected.

The week ahead sees little in the way of major economic releases, given the US government shutdown, with FOMC minutes, the RBNZ rate decision, and Canadian job statistics being the highlights.

Week in Review

The main event that captured headlines was the US government shutdown on Wednesday, following the failure of Republicans and Democrats to reach an agreement on spending for the new fiscal year. Although markets have so far shrugged it off, the shutdown endangers the release of key economic data that could be crucial for determining what the Fed will do at its October meeting. US data from private sources, such as ADP, still came out and will continue to come out. The Fed, as an independent, self-funded institution, will continue to operate regularly.

The Eurozone's September flash CPI rose to 2.2% from 2.0%, as widely anticipated. With inflation in the shared economy staying within forecasts, the ECB is projected to keep rates unchanged for the foreseeable future. ECB President Christine Lagarde spoke to the media on Tuesday, affirming that inflation is in a good place.

The RBA kept rates unchanged in a unanimous decision, as was widely expected by economists. However, it tweaked the language in its statement, mentioning concern over "persistent" inflation in some areas. The result left a more hawkish impression, and analysts reduced their expectations for a rate cut later this year.

China's official manufacturing PMI was slightly above expectations at 49.8 but failed to breach 50 and return to expansion. The data were released before China began its 8-day Golden Week holiday.

In geopolitics, French Prime Minister Sebastien Lecornu struggled to find a way to pass a budget, the very same issue that had led to the ouster of his predecessor. He is reportedly planning to meet with opposition members of the National Assembly next week, but all proposals to date have been non-starters, raising concerns that French President Emmanuel Macron may be forced to call a general election soon.

Biggest Market Movers

• Oil recorded the worst weekly performance in over three months, amid rumours that OPEC+ would increase production again in November.
• Gold prices scored new record highs after the US government shutdown, but comments from FOMC member Lorie Logan about persistent inflation trimmed some of the gains.
• The yen was the strongest-performing of the major currencies after the noted BOJ dove Asahi Noguchi argued for raising rates, the latest sign that there was a growing hawkish bias among BOJ policymakers.

Top Events in the Week Ahead

The coming week is particularly light on the economic data front, as several usual data releases from the US are suspended due to the government shutdown. This could leave the market more vulnerable to geopolitical events. There will likely be increased attention paid to budget talks in the US, which could lead to a government shutdown and trigger a data dump that could shake the markets. Outside the US, French PM Lecornu will reportedly hold talks with opposition leaders on Monday in a last-ditch effort to approve a budget.

FOMC Minutes Ahead of Next Likely Cut

The top economic event for the week will likely be the release of the FOMC's minutes from the last meeting. After the Fed cut rates in September, it signalled that two more rate cuts were to be expected this year, leaving market pricing with a nearly 100% chance of easing in October and December. However, the minutes might shed some light on the prerequisites for those cuts. That could leave the market pricing out some of the expected easing if there is a significant emphasis on price stability in the FOMC minutes. Since the meeting, a few Fed speakers have warned about inflation, and the PCE price index has continued to rise. The US trade balance is expected to be released a day before the minutes and is anticipated to show a deficit of $67.0 billion, down from $78.3 billion the previous month. Depending on where gold trades ahead of the release, prices could extend to record highs near $4k or decline towards $3790 per ounce.

RBNZ Anticipated to Keep Cutting Rates

Markets are pricing in a 25bps rate cut from the RBNZ at the conclusion of its policy meeting on Wednesday. Dissenting views are for a 50bps cut as the country faces an economic slowdown that could drag on inflation prospects. The central bank itself expects rates to fall in the next year. Analysts expect the RBNZ to project a dovish tone in the accompanying statement. After a series of green shoots, the Kiwi could finally revert lower if the market interprets the statement as more dovish, potentially opening the door to the 0.5750 support level. A hawkish surprise could cause prices to rally towards 0.59, with interim resistance levels at 0.5850 and 0.5875.

Canada Jobs Expected to Keep BOC Easing Bias

Canada's September unemployment rate is projected to remain unchanged at 7.1%, despite a 0.1 percentage point increase in the participation rate. While analysts project the number of jobs added to pull back into the green at +15, compared to -65.5K a month earlier, the data is projected to continue showing weakness in the jobs market. Hourly wage growth is anticipated to stay unchanged at 3.6%. That would leave the data continuing to support the BOC's dovish outlook amid the uncertainty of trade negotiations with the US. If 1.4000 finally gives way to bulls, the USDCAD could extend towards 2025 highs at 1.4100. On the other hand, a positive reading could weigh on the pair, exposing 1.3900 and the 1.3800 levels.

Other Events & Earnings

Monday has Swiss jobless numbers. Tuesday includes Australia's Westpac survey on consumer confidence and Canada's Ivey PMI. Australia's NAB business confidence barometer comes out on Wednesday. For Thursday, Germany's trade balance is expected to be released. Friday sees the release of the University of Michigan consumer sentiment index.

The week sees a relatively quiet corporate calendar, with firms updating investors, including Constellation Brands, Imperial Brands, PepsiCo, Delta Air Lines, and Applied Digital.