Week Ahead – Between a Rock and a Hard Place

Fundamental analysis of Forex market

Inflation is a growing concern

For years central banks have been operating under the assumption that inflation will eventually return to target while having the flexibility to wait until the economy is fully ready for higher rates. That luxury is a thing of the past and many now feel stuck between a rock and a hard place.

Most are hoping that a modest tightening of monetary policy will begin the address the problem and buy them enough time for inflation to show itself to be as transitory as they believe. Some are taking more drastic action with larger rate hikes to quickly bring inflation under control. And then there’s the CBRT.

Next week it’s the ECB’s turn to shed some light on how it will deal with inflation which is running well above target, an unusual problem for the central bank after a decade in which the threat of deflation has been a much greater risk.



The calm before the November 3rd Fed storm should have investors focus on the advance reading of third-quarter GDP, mega-cap tech earnings, and the final version of President Biden’s economic package.  The economy was dealt a blow from the delta variant but most of the lost growth appears to be pushed back to next year.  On Thursday, analysts expect the economy in the third quarter to slow from 6.7% to 3.0%, which is a reflection of current supply chain issues and not falling demand.

Risk appetite has remained intact as Wall Street continues to overlook supply chain issues, surging commodity prices, and rising transportation costs, but that could change if inflationary pressures intensify.  The next round of mega-cap tech earnings from Apple, Amazon, Microsoft, and Facebook could change Wall Street’s expectation on how much pricing pressures are persisting.

Optimism is growing that after some large concessions, Democrats will get Senators Manchin and Sinema on board with President Biden’s economic package.  The US economic outlook next year is still looking bright as pent up demand and more stimulus will spur growth.  


The ECB meeting next week is the obvious standout event as markets look for clues on how the PEPP program will be replaced when it expires in March and whether it will be tempted to follow other central banks in tightening monetary policy. Headline inflation may be above target but there appears to be a firmer belief than elsewhere that this is temporary and they’ll be back below before long. With that in mind, investors will be keen to know whether other stimulus measures will be introduced in March. They may have to wait until December though when new economic projections will be prepared.


UK businesses and households are facing a squeeze over the next year from higher energy prices, taxes, prices and interest rates as the BoE prepares to raise interest rates to counter high supply-side driven inflation.

That makes the Chancellors Autumn budget on Wednesday all the more important. While the governments focus in the coming years will have to be on paying for the pandemic, they won’t want to act too fast and turn an already sluggish recovery into something worse.


The ruble rallied strongly after the Bank of Russia raised interest rates by 0.75% on Friday, surpassing expectations of a 0.25% or 0.5% hike. Clearly, unlike their Turkish counterparts, the CBR is taking the threat of inflation serious and is prepared to raise them further as it raised its inflation forecast at the end of the year to 7.4-7.9%, almost double its 4% target.

The announcement saw the dollar fall briefly back below 70 against the ruble for the first time since June last year. Higher rates and soaring energy prices have supported the currency in recent months and with more hikes and a possible winter crisis in the pipeline, it could remain in favour for some time.

The unemployment rate on Friday is the only notable release.

South Africa

PPI and trade balance releases are the only releases of note next week.


The lira fell more than 3% to a record low on Thursday and has continued to slide on Friday after the CBRT cut rates by 2%, at least twice as much as markets expected. The move ends the debate, if there was one, that the central bank is being influenced by President Erdogan, whose long-held views that high-interest rates spur inflation are well known.

The central banks’ credibility under Şahap Kavcıoğlu is ruined and its only hope of avoiding further troubles down the road is inflation falling significantly and very soon. Even then, central bank credibility is important, as is the divide between politics and monetary policy and they are both irreversibly damaged under Kavcıoğlu. The lira could remain under severe pressure for some time.


Evergrande has paid an offshore bond coupon today, one day before the grace period expiry. That has removed the immediate financial contagion threat from Mainland markets and reduced weekend risk. It faces another coupon payment deadline on the 29th though and this story is probably not going away soon.

China has no significant data this coming week, but with the central committee meeting due on the 8th of November, authorities will be doing their utmost to ensure that markets remain “serene” until then.

PBOC officials have expressed comfort that the Yuan is fairly priced at these levels, so strength may continue. With China needing to source energy stocks “at any cost” a strong Yuan is probably their favoured position.


The Indian rupee recovery continues, but the story is more a weak US dollar one than a strong rupee one. A strong US earnings season is causing dollar weakness and this story means the rupee rally may have more life in it.

India is entering the holiday season over the next two weeks and market volumes are likely to decrease, potentially amplifying short-term moves. No significant data releases this week.

Australia & New Zealand

The Aussie and New Zealand dollars rallied strongly as global risk sentiment improved thanks to a strong US earnings season so far. Melbourne and Sydney’s reopening will also lift sentiment and the huge New Zealand inflation number leaves the RBNZ 0.50% hike trade, pencilled in for next month, in full swing. Going forward both will continue to be buffeted by swinging sentiment shifts in overseas markets.

Australia has inflation data this Monday and PPI and Retail Sales on Friday. The RBA had to intervene in the 3-year bond market to cap rate hikes as markets locally started pricing in a change in RBA guidance from ultra-dovish.

New Zealand markets continue ignoring rising delta cases and are myopically focused on pricing in a large RBNZ hike next month. Although the trade is now crowded, kiwi outperformance will continue as long as global risk sentiment remains positive.


The Bank of Japan announces its latest policy decision next week on Thursday. However, there is little chance of any change before November’s FOMC and ahead of the Lower House election on October 31st. Electioneering will dominate the headlines in Japan next week, but despite the noise, the Nikkei is following the Nasdaq closely. It would take a huge shift in polling away from the ruling LDP to shift the narrative negatively into domestic markets.

USD/JPY remains near 114.00 and continues to be a purely US/Japan rate differential play. With rates firming in the US, and Japan low forever, USD/JPY’s path of least resistance continues to be higher.

Key Economic Events

Sunday, Oct. 24


  • By-elections will be held for upper house seats in Japan’s Shizuoka and Yamaguchi prefectures
  • Bank of England policymaker Mann speaks at the 3rd Bund Summit, China Finance Forum 40 on a panel about “Asset prices, inflation expectation and exit from economic stimulus.”

Monday, Oct. 25

Economic Data/Events

  • The ASEAN Business and Investment Summit speakers include US President Biden and Chinese Premier Li Keqiang.
  • EU energy ministers hold an extraordinary council in Luxembourg to discuss rising energy prices in the bloc.
  • Germany IFO business climate
  • Mexico Unemployment
  • Singapore CPI
  • Japan leading index
  • Switzerland domestic sight deposits
  • Turkey real sector confidence
  • BOE policymaker Tenreyro speaks at an event hosted by CEPR and the central bank.

Tuesday, Oct. 26

Economic Data/Events

  • FDA advisory panel meeting may decide on whether children ages 5 to 11 could get a COVID vaccine
  • Bank of France Governor Villeroy de Galhau speaks at a sustainable finance event in Paris.
  • Canadian Prime Minister Trudeau may announce the new cabinet
  • Australia ANZ consumer confidence
  • China Bloomberg economic survey
  • Hong Kong trade
  • PPI: Spain, Sweden, Japan
  • South Korea GDP
  • Mexico international reserves
  • Japan bond purchases
  • Singapore industrial production
  • U.S. new home sales, U.S. Conf. Board consumer confidence
  • South Africa leading indicator
  • Finland unemployment

Wednesday, Oct. 27

Economic Data/Events

  • UK Chancellor of Exchequer Rishi Sunak to unveil the government’s autumn budget including new forecasts from the Office of Budget Responsibility.
  • US wholesale inventories, U.S. durable goods
  • Bank of Canada (BOC) rate decision: Expected to keep interest rate steady at 0.25%
  • New Zealand trade, ANZ business confidence
  • Australia CPI
  • China industrial profits
  • Germany GfK consumer confidence
  • Thailand manufacturing production index, capacity utilization
  • Mexico trade
  • Russia industrial production, CPI (weekly)
  • France PPI
  • Turkey trade, economic confidence
  • EIA Crude Oil Inventory Report

Thursday, Oct. 28

Economic Data/Events

  • US Q3 Advance GDP Q/Q: 3.0%e v 6.7% prior, initial jobless claims
  • BOJ rate decision: No change in policy expected, could lower growth forecast for this year and raise 2022 forecast
  • Japan retail sales
  • ECB rate decision: No change to policy, possibly setting up December as pivotal meeting for a decision on APP; President Lagarde holds a post-rate decision press conference
  • Eurozone economic confidence, consumer confidence
  • Germany CPI, unemployment
  • Australia export and import price indexes
  • Singapore unemployment
  • Russia forex and gold reserves
  • Sweden GDP, retail sales
  • South Africa PPI
  • Apple and Amazon report earnings after the bell
  • Turkey central bank Governor Kavcioglu discusses inflation
  • EU economy and finance ministers meet online to talk about the implementation of the recovery and resilience facility.

Friday, Oct. 29

Economic Data/Events

  • G-20 joint finance and health ministers meet before the weekend leaders’ summit
  • US consumer income, University of Michigan consumer sentiment
  • Eurozone GDP, CPI
  • UK mortgage approvals, money supply, consumer credit
  • Germany GDP
  • Czech Republic GDP
  • Mexico GDP
  • France GDP, CPI
  • Italy GDP, CPI
  • Poland CPI
  • Russia unemployment
  • South Africa trade balance, private credit, money supply, budget balance
  • Japan unemployment, Tokyo CPI, industrial production, housing starts
  • Australia retail sales, private sector credit, PPI
  • Singapore money supply
  • India fiscal deficit, eight infrastructure industries
  • Hong Kong money supply, budget balance
  • New Zealand ANC consumer confidence
  • Thailand trade, BoP, trade, foreign reserves, forward contracts
  • Russia consumer data

Sovereign Rating Updates

  • Germany (Fitch)
  • Czech Republic (S&P)
  • Poland (Moody’s)
  • Norway (Moody’s)
  • Italy (DBRS)