Weekly Fundamental Bulletin: Eurozone Inflation & US Retail Sales

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Last Week’s highlights

Reserve Bank of Australia Keeps Interest Rates Unchanged

The Australian central bank held its monetary policy meeting last week.

As widely expected, the central bank left interest rates unchanged ahead of the federal budget announcement. The RBA left the cash rate at 0.25% while also retaining its expanded term funding facility.

The bank stressed that the national unemployment rate was a main priority for the monetary policy committee. The central bank said that it will consider how additional monetary policy easing could support the jobs.

Speculation is rife that the RBA could cut rates in November.

German Exports Rise in August

Exports in Germany continued to rise in August but at a slower pace. Exports grew by 2.4% in August on a monthly basis. This beat forecasts for a decline to 1.4% for the period.

In July, German exports rose by 4.7%. Imports also rose by 5.8% during the month ending August, up 1.1% previously.

Economists forecast an increase to 1.4% for the period. The rise in imports led to the trade surplus falling to a seasonally adjusted 15.7 billion euro for the month in August. This was down from 18 billion in July.

UK Construction Activity Rises in September

The construction in the UK posted a sharp expansion led by new business.

The data compiled by IHS/Markit shows that the construction PMI rose to 56.9 in September. This was up from 54.6 in August. The general forecasts were for a decline to 54.0 for the month.

Homebuilding was the biggest of the three sectors that showed the strongest growth for the month.

Firms also raised their purchasing activity at the fastest pace since October 2015. But employment slowed during the period.

US Factory Orders Rise Less than Forecast

Factory orders in the United States slowed in August, following a sharp increase in the previous months.

Data from the US Commerce Department showed that factory orders rose by 0.7% in August. This comes after the data in July saw a 6.5% increase.

Economists forecast factory orders to rise by 1.0%. The report showed that orders for durable goods rose by 0.5% while shipment of manufactured goods rose slightly by 0.3% following a 4.7% increase in July.

Fed Minutes Show Split in Monetary Policy Plans

The Federal Reserve released its monetary policy meeting minutes last week.

The minutes revealed that members were split on how to apply the new monetary policy strategy that was announced at the September meeting. This comes amid growing doubts about the economic recovery path.

Policymakers agreed unanimously in August on a broad new approach with members providing explicit outcome-based forward guidance. The minutes also showed concerns over globally weak inflation.

Upcoming Economic Events

US Inflation and Retail Sales on Tap

The US markets will be looking at a short trading week due to the Columbus Day bank holiday on Monday. Economic data over the week will see the release of inflation and retail sales reports.

Consumer prices are forecast to slow, with headline inflation set to rise just 0.2% on the month, following a 0.4% increase previously. The core inflation rate is forecast to rise at a slower pace of just 0.2% after a 0.3% increase a month ago.

Later in the week, the retail sales report is set to show a 0.4% increase on the core. This marks a slower pace of increase after a 0.7% gain previously.

Headline retail sales are, however, expected to rise by 0.7%, up from 0.6% in August.

Australia’s Unemployment Rate to Rise to 7.1%

Australia’s unemployment in September will rise to 7.1%, according to the general estimates. The official data will be released by the Australian Bureau of Statistics this week.

Meanwhile, the economy is forecast to lose 35k jobs during September. This indicates that there was a significant increase in slack during the month due to the re-introduction of pandemic restrictions.

The labor market underutilization rate will, as a result, become a key focus for the RBA. A match on the estimates will bolster speculation of an RBA rate cut in November.

Eurozone Industrial Production to Rise by 0.8%

Industrial production activity in the eurozone is set to rise by 0.8% in August. It marks a slower pace of increase in activity compared to the month before.

With most countries in the eurozone having released the respective data, it confirms the slowdown in the economic bloc. The decline in activity from countries such as Germany and Ireland was offset by the surprise increase in activity from Italy and Spain.

Although activity is still expanding, the pace of increase is certainly showing a decline from the previous months.

Eurozone Final Inflation to Show a Strong Decline

The initial flash estimates on inflation for the eurozone showed a sharp decline in August.

Headline inflation declined 0.3% on the year in August while the core inflation rate also declined by 0.2%. This week’s data will show the final inflation figures and will offer investors insights into the key drivers of low consumer prices.

Overall, inflation for non-energy industrial goods fell. The higher exchange rate of the euro will also put downward pressure on inflation.

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