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Week Ahead – US, UK and Eurozone inflation to be eyed; Japan GDP could point to recession

Inflation data will be the main theme of the coming week as October CPI readings are published for the United States and the United Kingdom, as well as the final CPI numbers for the Eurozone. Japanese GDP data will also be closely watched as it could show that Japan slipped into recession in the third quarter of the year.

Japan will start the week with GDP data on Monday. The economy is forecast to have contracted for the second consecutive quarter in Q3, meaning that the economy may have entered into technical recession. GDP growth is expected to come in at -0.1% in Q3, versus -0.3% in Q2. Weak overseas demand has weighed on Japanese manufacturers and domestic consumption has not been as strong as anticipated to offset this weakness. The second major event for Japan will be the Bank of Japan’s policy meeting on Thursday. It is not expected that the Bank will announce any changes to its policy, although weaker-than-expected GDP numbers might reinforce the argument for the BoJ to expand its stimulus program before the year end. Trade data due before the BoJ decision may also weigh on policymakers.

In the US, inflation data on Tuesday will be closely watched as the Fed continues to look for signs that price pressures are picking up in the US economy. CPI is forecast to rise by 0.2% m/m in October, while the annual rate is expected to accelerate slightly to 0.1% y/y from 0.0% the prior month. Core CPI is forecast to stay unchanged at 1.9% y/y. Industrial production figures are also out on Tuesday, with output expected to rise for the first time in three months by 0.1% m/m in October. On Wednesday, building permits and housing starts are released, to be followed by the FOMC minutes for the October meeting later in the day. October’s FOMC statement gave the strongest hint yet that the committee will deliberate raising interest rates at its December meeting and analysts will be scrutinizing the minutes for any additional clues.

Inflation figures for the UK are also out on Tuesday. October CPI is forecast to edge up to 0.0% y/y from -0.1% in September. Core CPI is expected to stay unchanged at 1.0% y/y. UK inflation has been stuck near zero since the start of the year, forcing the Bank of England to downgrade its inflation outlook and potentially delay the timing of a rate rise to 2017. A weaker number would fuel such expectations and drive the pound lower. Retail sales out on Thursday are unlikely to provide much support to the pound either as they are forecast to fall back in October after a strong jump in September. October retail sales are expected to drop by 0.4% m/m and for the annual rate to slow to 4.5% from 6.5% the prior month.

The Eurozone will also see inflation data but is unlikely to attract much attention if the final October CPI comes in at 0.0% y/y as expected. The only other major data on the Eurozone calendar next week is the ZEW survey for Germany. The ZEW Economic Sentiment index is expected to come in at 5.5 in November, up from 1.9 in the previous month, while the ZEW Current Conditions index is forecast to ease slightly to 55.0 in November from 55.2 in October. The economic sentiment index has been weakening in recent months and the current conditions reading also fell sharply last month on growing signs of German industry feeling the impact of the emerging markets slowdown.

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