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FX Week Ahead: After election shock, inflation and retail sales in focus

FX Week Ahead: After election shock, inflation and retail sales in focus

After an eventful week following the surprise outcome of the US presidential election, a calmer seven days awaits as economic data moves back under the spotlight. Inflation and retail sales numbers for the UK and the US will come into focus along with Japanese Q3 GDP data, while key indicators out of China will also be watched.UK inflation eyed as weak sterling drives up import pricesIt will be an important data week for the UK as inflation, unemployment and retail sales figures are released. Inflation numbers are out first on Tuesday, with annual CPI expected to edge up to a 2-year high of 1.1% in October. Core CPI is expected to ease slightly though from 1.5% to 1.4% year-on-year in October, indicating the immediate pressure on the headline rate is mainly coming from higher fuel prices. However, the effect of the plunge in the pound can already be seen in higher producer prices. Both factory input and output prices are expected to maintain their uptrend in October, therefore, it is only a matter of time before they start to feed through to retail prices.On Wednesday, the latest labour market report is due and is forecast to show the unemployment rate holding steady at 4.9% in September. Average weekly earnings are expected to edge higher though from 2.3% to 2.4% in the three months to September.Rounding up the week for the UK on Thursday are the latest retail sales numbers. After an unexpectedly weak September, retail sales are forecast to bounce back in October, rising by 0.5% month-on-month. Consumer spending has been little effected by the Brexit vote and this has helped the British economy to maintain moderate growth in the third quarter.German GDP to get revised down on weak end to Q3A bigger-than-expected drop in German industrial output in September will likely lead to a downward revision to Germany’s GDP growth reading for the third quarter. German GDP growth for the July-September period is expected to be revised to 0.3% quarter-on-quarter in the second reading out on Tuesday from 0.4% in the preliminary reading. Also released the same day is the German ZEW business confidence survey. The ZEW economic sentiment index is expected to improve to 8.9 in November from 6.2 in October.The Eurozone will also see the release of second estimates of GDP on Tuesday but before then, industrial output figures are out on Monday. Euro area industrial production is expected to drop by 1% month-on-month in September, reversing some of the prior month’s 1.6% gain. However, Eurozone GDP growth is likely to be unaffected from the poor September output. The second reading of Eurozone GDP growth is expected to confirm the bloc’s economy grew by 0.3% q/q in the third quarter. Also to watch out of the Eurozone next week are the final inflation readings for October on Thursday and producer prices on Friday.Another sluggish growth quarter expected for JapanJapan will release its first estimate of GDP growth for the third quarter and is expected to show the economy continuing to grow at a modest pace. Japan’s GDP is forecast to have expanded by 0.2% q/q in the July to September period, unchanged from the previous quarter. The data is unlikely to change the outlook for the Bank of Japan, which appears reluctant to ease monetary policy further. The yen’s recent slide against the dollar reduces the odds of more BoJ stimulus even further as a weaker currency would make it easier for the central bank to meet its inflation target.No surprises expected from Chinese dataData out of China next week (due on Monday) will consist of retail sales, industrial output and fixed asset investment. All three indicators have been fairly stable in recent months and October’s figures are not expected to be an exception. Retail sales are forecast to remain steady in October at 10.7% y/y, while industrial production is expected to quicken slightly by 0.1% to 6.2% y/y. Fixed asset investment, which has been on a gradual downtrend since late 2009, is forecast to stay unchanged at 8.2% y/y.Australian employment Australia’s jobs markets has had somewhat of a mixed performance lately but is expected to add 20k jobs in October after shedding 9.8k jobs in September. The unemployment rate is forecast to remain unchanged though at 5.6%. The data, out on Thursday, could provide some support for the Australian dollar, which has come under pressure from rising bond yields in the US since the election. The RBA has signalled that further rate cuts will depend on the strength of employment and inflation data so the aussie will likely be sensitive to any surprises to next week’s numbers, which will also include wage growth figures on Wednesday.Inflation and retail sales in US pre-election month to be watchedAs a December Fed rate hike remains firmly on the table even after Donald Trump’s surprise victory in the US election, retail sales and inflation numbers ahead of the next FOMC meeting will be keenly eyed. Retail sales figures out on Tuesday are forecast to show an increase of 0.5% m/m for October. The core control measure is also expected to show a healthy gain, rising by 0.4% m/m, suggesting US consumers did not turn cautious ahead of the elections. On Wednesday, industrial production data will follow and is forecast to show output rising by 0.2% m/m in October.Inflation data is due on Thursday and will likely show consumer prices rising at the fastest pace in two years, increasing the case for monetary tightening soon. Headline CPI is forecast to increase to 1.6% y/y in October from 1.5%, while core CPI is expected to hold put at 2.2% y/y. Also to watch out of the US next week are housing starts, building permits and the Philadelphia Fed manufacturing index, which are all out on Thursday.

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