• Bank of England: Interest rates to rise from around the “turn of the year” to well into next year. The Bank of England once again kept the interest rates unchanged at 0.5%, and the votes stayed 8-1, with Ian McCafferty again the lone dissenter. In the meantime, in its quarterly Inflation Report the Bank downgraded its assessment of its medium-term growth and inflation prospects, and now sees inflation to pick up only slowly. Compared to a more upbeat view in the previous Inflation Report, MPC members now see risks slightly to the downside in reaching their 2% inflation target in two years. BoE Governor Carney, who had previously said that a decision on whether to raise rates would come into focus around the “turn of the year”, shifted to a more neutral stance saying simply that the Bank would move when the time is right. Even though in the press conference following the decision BoE Gov. Carney kept a fairly hawkish tone, emphasizing the erosion of slack in the economy and tightness in the labor market, I think it may take some time for the market to regain its confidence in GBP. As a result, I would expect the British pound to remain under selling pressure.
• Overnight, the Reserve Bank of Australia released its Statement on Monetary Policy (SoMP). The Bank lowered its underlying inflation forecasts for this year from 2.5% to 2.0%, and it is expecting it to pick up again to 2.5% towards the end of 2016. What’s more, the growth forecast for the year ending December 2015 has been lowered to 2.25% from 2.50% in the August report. The Bank maintained its growth forecast for 2016. As for the employment, the RBA noted that it is expected to be a bit stronger than it had been forecasted earlier. Although the Bank maintained the possibility for a rate cut at its monetary policy meeting earlier this week due to low inflation, the upbeat tone in the SoMP over the country’s future lessens the likelihood for further easing this year. Within this context, AUD is likely to strengthen going forward, especially against NZD where the possibility for a rate cut this year still persists.
• The highlights of the day will be the US employment report for October. The report is expected to show an increase in payrolls of 180k, up from 142k in September. Although the number is better than the previous one, it still stays below the 200k barrier. However, Fed officials recently noted that now that the labor market is improving, it is normal to have prints below 200k. We believe that 180k new jobs will still point to strong job growth and following Yellen’s hawkish comments on Thursday, this could add to expectations of a rate lift-off in December. The unemployment rate is forecast to have remained unchanged at 5.1%, very close to the low end of the Fed’s projected NAIRU range of 4.9%. The average hourly earnings will be closely watched as well. A pick-up in wage inflation is needed to reassure Fed officials that the labour market is indeed tightening.
• As for the rest of the indicators, Germany’s industrial production fell in September. Following the unexpected fall in factory orders on Thursday, we saw another disappointing figure coming out from Eurozone’s strongest economy. This weakened EUR a bit and we would expect the weakness to continue as long as the data show that the bloc’s recovery is losing momentum.
• From the UK, industrial production are to be released as well. Expectations are for a modest decline in September, after a 1.0% mom decline in August. Given the slowdown in the UK GDP for Q3, which was mainly driven by the weakness in the manufacturing and construction sectors, we see the likelihood for a more-than-expected decline in the British IP. This could add further selling pressure on the pound following the BoE’s decision to downgrade its growth and inflation forecasts. GBP/USD could regain downside momentum and could challenge the 1.5200 zone. The UK trade balance for September is also to be released.
• At the same time with the US employment report, we get Canada’s employment data for October. While the unemployment rate is expected to have remained unchanged at 7.1%, the net change in employment is expected to have declined to 10.0k from 12.1k. This could hurt the loonie.
• As for the speakers, ECB Executive Board member Peter Praet, ECB Executive Board member Yves Mersch, St. Louis Fed President James Bullard, and Fed Governor Lael Brainard speak during the day.