Week Ahead for FX, Bonds: U.S., European PMI Data in Focus

By Dow Jones Newswires Staff

Below are the most important global events likely to affect FX and bond markets in the week starting October 19.

Purchasing managers' indexes for the U.S. and Europe will offer insights into business sentiment and a further clue on the likely timing and pace of future interest-rate rises.

Inflation data are due in Canada and the U.K. In Asia, China's growth figures and a string of central bank decisions will take center stage as policymakers weigh uneven economic momentum against persistent inflation pressures.

Central banks in South Korea, Indonesia and the Philippines will meet as currency movements and higher energy costs complicate their decisions.

U.S.

Provisional purchasing managers' indexes for October are due on Friday and will give an indication on how activity in the services and manufacturing sectors are holding up.

These come as recent data have shown stronger-than-expected U.S. inflation and a robust economy.

Still, a back-to-back interest-rate hike by the Federal Reserve later this month is considered unlikely. Money markets price just a 15% probability of rates rising by a quarter point on Oct. 28, LSEG data showed. A hike is fully priced for December, however, while a total of three 25 basis-point increases are anticipated over the next 12 months.

Other data scheduled include weekly jobless claims on Thursday and the final University of Michigan consumer sentiment indicator for October on Friday.

Moves in U.S. Treasury yields will remain in focus over the coming week. Yields have recently dropped away from multiyear highs, in tandem with growing worries about the sustainability of debt-funded AI investments. Concerns about elevated energy prices persist, however.

"Market participants will be aware that we had another good (low) jobless claims number, retail sales were firm and PPI inflation uncomfortably high. The market will likely use this as a platform from which to rebuild higher yields over the weeks ahead," said ING rates strategist Padhraic Garvey in a research note.

Canada

Canadian consumer-price inflation data for September are due on Monday and will be a key indicator for expectations regarding the timing of a Bank of Canada rate hike. They follow recent weak jobs data.

Canadian money markets price a 30% chance of a quarter-point rate increase on Oct. 28 and fully price an increase on Dec. 9, LSEG data showed.

"It will take a big upside surprise in the September CPI release … to bring the October meeting back into play in terms of a potential interest-rate hike," Capital Economics' senior North America economist Thomas Ryan said in a note.

On Monday, Alberta will hold a nonbinding referendum on whether residents of the province want to remain part of Canada.

Eurozone

The key data in the eurozone in the coming week will be Friday's release of flash estimate purchasing managers' surveys measuring activity in the services and manufacturing sectors in France, Germany and the eurozone in October.

"Given the upturn in sentiment over the past few months, we expect a slight pullback [in eurozone PMS]. Taken on its own, this could push the recent bond-positive trends a bit further," analysts at LBBW said in a note.

The week is otherwise quiet in the region. The German ZEW sentiment for October will be released on Tuesday, as will German September producer price inflation data.

U.K.

The U.K. will see a raft of data releases in the coming week, including jobs figures on Tuesday and September consumer-price inflation figures Wednesday. These come as investors increasingly anticipate that the Bank of England will raise interest rates at its next meeting on Nov. 5.

"A consensus of sorts seems to be emerging among [Bank of England] Monetary Policy Committee members that the situation now warrants some policy tightening but less than is priced in," Investec economist Sandra Horsfield said in a note.

"If our CPI and wage forecasts are close to the mark, this would likely strengthen MPC members' conviction to embark on this path at their next meeting," she said.

U.K. money markets price a 93% probability that the BOE will raise interest rates by 25 basis points on Nov. 5. They fully price at least four quarter-point rate hikes over the coming year, LSEG data showed.

Other data due in the coming week include public finance data for September on Wednesday, which come ahead of Treasury Chief John Healey's budget statement on Oct. 28. Producer-price data for September are also due Wednesday.

Friday will see the release of flash estimate purchasing managers' surveys measuring activity in the services and manufacturing sectors in October, as well as retail sales figures for September and GfK's consumer confidence survey for October.

Turkey

Turkey's central bank announces its policy decision on Thursday.

The decision comes after data showed Turkey's annual inflation eased to 29.7% in September from 31.5% in August, raising the prospect of an interest-rate cut this month.

"We expect the Central Bank of Turkey to resume its easing cycle, which was paused after the U.S.-Iran conflict began, by cutting the policy rate from 37.0% to 36.0%," ING analyst Frantisek Taborsky said in a note.

Hungary

Hungary's central bank will deliver its interest rate decision on Tuesday.

While inflation remains subdued, the central bank will likely "err on the side of caution" and leave interest rates unchanged amid uncertainty surrounding the government's 2027 budget, ING analysts said in a note.

"While the government handed the budget to the Fiscal Council on October 15, the details are not yet public." The timing puts the central bank in a delicate position, they said. ING still expects a 25 basis-point rate cut by December, however.

Japan

Japan's September trade figures, due Wednesday, will provide another read on regional demand, before nationwide consumer price data on Friday turns attention to the Bank of Japan's policy outlook.

Japan's "headline and core CPI are both expected to accelerate to 2.1%" from a year earlier, two members of ING's research team said in a report. "A firm inflation reading would support expectations for further Bank of Japan policy normalization," they added.

The BOJ will also release its semiannual Financial System Report on Friday.

In the bond market, the ministry of finance is scheduled to auction about 700 billion yen of 20-year Japanese government bonds on Tuesday. The higher yield expected on the new issue could help attract investor demand.

The BOJ's planned bond purchases on Wednesday could provide further support. The operations will cover securities with remaining maturities of more than one year and up to three years, more than five years and up to 10 years, and more than 25 years.

China

China's monthly batch of economic activity data is due Monday, offering the latest look at consumer demand, investment and industrial production. Economists broadly expect the data to show a continuation of the export-driven strength and weak domestic demand that have characterized China's economy this year.

Third-quarter GDP figures will be in focus, after the world's second-largest economy posted robust export growth for September, driven by the regional boom in electronics linked to artificial intelligence.

DBS expects industrial production to rise 5.3% from a year earlier in September, supported by strong overseas demand. It also expects retail sales growth to slow to 0.3% as uncertain job prospects, slower income growth and subdued property prices weigh on consumption. China's fixed-asset investment in the first nine months of the year will also be in focus, as the property downturn and cautious corporate spending continue to drag on growth.

Tuesday's loan prime rate announcement will follow the data. DBS expects the one-year benchmark lending rate to remain unchanged, with policymakers relying on targeted fiscal support rather than further rate cuts to sustain growth.

Australia / New Zealand

New Zealand's third-quarter inflation figures, due Thursday, will help shape expectations for the Reserve Bank of New Zealand's Oct. 28 policy meeting.

Annual inflation is expected to come in just below 4.0%, keeping policymakers on alert as other data suggest the economy remains on a solid footing.

Sharon Zollner, chief economist at ANZ, said a weaker New Zealand dollar and higher oil prices since September have materially changed the interest-rate outlook.

"It keeps an October interest rate rise firmly on the table," she said.

In Australia, investors will focus on remarks Wednesday by Reserve Bank of Australia Deputy Gov. Andrew Hauser for clues to the central bank's next move.

Hauser's plain-speaking style makes his comments closely watched by traders. Before the RBA's September rate increase, he signaled concern about persistent inflation, highlighting public frustration that price pressures had remained elevated for too long.

South Korea

The Bank of Korea's Thursday policy meeting will test whether officials are ready to pause after recent interest-rate increases, even as inflation concerns persist.

Most economists expect the central bank to leave rates unchanged.

"After two consecutive hikes in July and August, we see it pausing to assess the overall transmission effects of rate hikes onto the economy," Morgan Stanley economist Kathleen Oh said in a recent note.

Oh expects a few dissenting votes in favor of an increase at the Oct. 22 meeting, citing elevated core inflation and the risk that price pressures could become entrenched.

Higher rates could put further pressure on lower-income households, wage earners and smaller, labor-intensive businesses. However, the continuing recovery in services and construction could warrant further tightening, she said.

With the BOK focused on keeping inflation expectations in check, Morgan Stanley expects further rate increases in November and the first quarter of 2027.

Indonesia

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