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The outlook for US interest rates and the dollar will provide a key theme for investors, with the minutes of the latest Federal Reserve meeting due tomorrow in a week packed with Hurricane Katrina-affected US data releases.
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Bond markets have already priced in a November interest rate rise, with another increase in December seen as a strong probability. Now, the focus has moved to the possibility of a further rate rise in January.
US headline inflation is expected to rise from 3.6 per cent in August to 4.3 per cent in September, owing in part to the surge in petrol prices following Katrina. However, there could be better news on core inflation, which is expected to dip from 2.1 per cent to 2 per cent.
On Thursday, the US August trade deficit could reach $60bn from $57.9bn as higher prices for petroleum imports are expected to increase oil imports by nearly $1.5bn.
How the US can continue to fund the rising trade deficit is a topic for commentators, and investors are naturally concerned about its implications for the dollar and the potential risks from any fragility in the US currency.
The dollar has been strengthening for much of this year because of the greater attractiveness of US bonds to foreign investors.
Rising US interest rates have increased the attractions of the dollar as a high-yielding currency, with investors executing carry trades from lower-yielding currencies such as the euro.
But traders note that, with US bond yields reaching critical levels that threaten capital losses, some investors have been unwinding these carry trades as it looks more likely that eurozone yields will start to rise, increasing the relative attractiveness of European assets.
However, the dollar could receive more support in the final quarter of the year from the repatriation of US corporate profits from overseas earnings, encouraged by a one-off tax reduction. “Homeland” flows amounted to only $40bn in the first half of the year but could rise to $100bn in the second half, providing vital support for the dollar.
The sharp fall in consumer confidence after Katrina will have an effect on US retail sales for September, due on Friday. The consensus expectation is for total retail sales to have increased by about 0.3 per cent on the month, taking the year-on-year growth rate from 5 per cent previously to 3.7 per cent.
Higher petrol costs are partly responsible for pushing up retail sales, so analysts are now looking at spending excluding car and petrol sales to judge how the US consumer is coping.
Katrina-related disruption is expected to cause a fall of 0.5 per cent in US industrial production in September, also out on Friday. However, the ISM manufacturing index produced a huge surprise, with a rise in September compared with consensus expectations for a sharp fall.
In France, industrial production data for August, due today, are expected to show a rise of 1 per cent on the month, taking the year-on-year growth rate from -0.7 per cent in July to 2 per cent.
In the UK, growth in output producer prices is expected to remain unchanged at 3 per cent in September, while input prices are expected to ease back from 12.9 per cent in August to 10.9 per cent.
Average earnings growth is expected to remain unchanged at 4.2 per cent while another modest increase in claimant-count unemplyoment is expected. If economic growth weakens further in the second half of the year, the ILO unemployment rate can be expected to rise from its current level of 4.7 per cent.
Expect to see further pressure on the Bank of England to cut interest rates after the British Chambers of Commerce publishes its latest quarterly survey of manufacturing and services on Thursday.
The previous survey, published in July, said the deterioration in the service sector’s position was very disturbing with measures of activity declining across the board while the performance of manufacturing remained mixed in the second quarter.
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Bond markets have already priced in a November interest rate rise, with another increase in December seen as a strong probability. Now, the focus has moved to the possibility of a further rate rise in January.
US headline inflation is expected to rise from 3.6 per cent in August to 4.3 per cent in September, owing in part to the surge in petrol prices following Katrina. However, there could be better news on core inflation, which is expected to dip from 2.1 per cent to 2 per cent.
On Thursday, the US August trade deficit could reach $60bn from $57.9bn as higher prices for petroleum imports are expected to increase oil imports by nearly $1.5bn.
How the US can continue to fund the rising trade deficit is a topic for commentators, and investors are naturally concerned about its implications for the dollar and the potential risks from any fragility in the US currency.
The dollar has been strengthening for much of this year because of the greater attractiveness of US bonds to foreign investors.
Rising US interest rates have increased the attractions of the dollar as a high-yielding currency, with investors executing carry trades from lower-yielding currencies such as the euro.
But traders note that, with US bond yields reaching critical levels that threaten capital losses, some investors have been unwinding these carry trades as it looks more likely that eurozone yields will start to rise, increasing the relative attractiveness of European assets.
However, the dollar could receive more support in the final quarter of the year from the repatriation of US corporate profits from overseas earnings, encouraged by a one-off tax reduction. “Homeland” flows amounted to only $40bn in the first half of the year but could rise to $100bn in the second half, providing vital support for the dollar.
The sharp fall in consumer confidence after Katrina will have an effect on US retail sales for September, due on Friday. The consensus expectation is for total retail sales to have increased by about 0.3 per cent on the month, taking the year-on-year growth rate from 5 per cent previously to 3.7 per cent.
Higher petrol costs are partly responsible for pushing up retail sales, so analysts are now looking at spending excluding car and petrol sales to judge how the US consumer is coping.
Katrina-related disruption is expected to cause a fall of 0.5 per cent in US industrial production in September, also out on Friday. However, the ISM manufacturing index produced a huge surprise, with a rise in September compared with consensus expectations for a sharp fall.
In France, industrial production data for August, due today, are expected to show a rise of 1 per cent on the month, taking the year-on-year growth rate from -0.7 per cent in July to 2 per cent.
In the UK, growth in output producer prices is expected to remain unchanged at 3 per cent in September, while input prices are expected to ease back from 12.9 per cent in August to 10.9 per cent.
Average earnings growth is expected to remain unchanged at 4.2 per cent while another modest increase in claimant-count unemplyoment is expected. If economic growth weakens further in the second half of the year, the ILO unemployment rate can be expected to rise from its current level of 4.7 per cent.
Expect to see further pressure on the Bank of England to cut interest rates after the British Chambers of Commerce publishes its latest quarterly survey of manufacturing and services on Thursday.
The previous survey, published in July, said the deterioration in the service sector’s position was very disturbing with measures of activity declining across the board while the performance of manufacturing remained mixed in the second quarter.
grazie x la vostra attenzione
