We had a very busy week, but the result of all the fuss and throwing from side to side was a trampling on the spot. In fact, the foreign exchange market has not moved from the positions that were reached at the end of the previous week. Although not only boring macroeconomic statistics disturbed market participants, politicians also tried to entertain the public as much as they could. But their efforts were not coordinated, and each constantly led in the opposite direction from each other. And, of course, it is especially worth noting the panic on the stock exchanges, about which they only talked, although the foreign exchange market did not notice it at all, which pushes on rather seditious thoughts. But since this did not affect the foreign exchange market at all, then we will not focus on this issue. It is only worth noting that for one of his tweets, Donald Trump was appointed guilty of the collapse of stock market indices, and the world media of mass agitation and disinformation was not disturbed by the fact that it was written as a reaction to the fall in stocks. Nevertheless, for the foreign exchange market, the statement by the occupant of Trump was an unpleasant bell, as it contained criticism of the Federal Reserve System. Many regarded this as an attempt to influence the policy of the Federal Commission on open market operations, which is unacceptable.
Things were much more fun in Europe, where so exciting dramas like the Brexit and the battles over the financial problems of Italy continue to unfold. Towards the middle of the week, a rumor spread that the European Union and the United Kingdom could sign the final version of the divorce agreement already on Monday, that is, on October 15. True, Theresa May immediately rushed to assure everyone that Britain would not make any concessions. Of course, we are talking not only about the border between Ireland and Northern Ireland, but primarily about trade issues. The stumbling block is such uninteresting issues as customs duties and trade quotas. Well, in Europe, they will not get enough of it because of the Italian question, which the hotheads have already managed to designate as the main threat to the existence of a single European currency. In Italy, they are forced almost every day to hold regular symposia on the state budget deficit, during which they even come up with a terrible idea that if the European Central Bank finishes the quantitative easing program, then the descendants of the ancient Romans will immediately become bankrupt. Such thoughts, as well as the unwillingness of the Italian parliamentarians to agree among themselves, causes a storm of anger from Brussels.
But, as they say, politics is only a consequence of real economic processes, although politicians are able to have a short-term impact on financial markets. And with all confidence, we can say that European politicians have made titanic efforts so that the dollar does not collapse. More precisely, by their actions, they tried to prevent the strengthening of a single European currency or a pound. Since the main event of the week was the publication of data on inflation in the United States, which not only disappointed but also frightened market participants. The fact is that inflation slowed down from 2.7% to 2.3%, which turned out to be even worse than forecast. It's funny that such a turn surprised many, although literally the day before, there were data on inventories at wholesale warehouses, which grew by 1.0%, and the most interesting thing is that they have been growing for ten months in a row. Growth stocks always foreshadow either a fall in industrial production or a sharp decline in inflation. Sometimes, this can even lead to a temporary price reduction. So, the fact of a strong slowdown in inflation should not have come as a surprise. And judging by the behavior of market participants, this was exactly what they were preparing for, since the dollar was falling before the release of inflation data. But anyway, the decline in inflation has already become the reason for the talk that the Federal Reserve will reconsider its plans for the rate of increase in the refinancing rate.
If we talk about Europe, the growth rate of industrial production accelerated from 0.3% to 0.9%. To be honest, the results are even better, as previous data were revised, which showed a decline in industrial production by 0.1%. And in the UK, the industry accelerated its growth rate from 1.0% to 1.3%. So, in theory, the dollar really had only to go down. But the media agitation and misinformation diligently avoided the topic of publishing the text of the minutes of the European Central Bank meeting, as they were very passionate about painting apocalyptic pictures in connection with the next collapse of stock market indices. And the content of the text of the protocol was extremely interesting. Now, it is not customary to talk about the fate of the quantitative easing program, since the ECB promised that in December, it would curtail its operation. However, even Mario Draghi recently said that if the conditions are favorable, then the program will of course collapse. That's just not clear what kind of conditions. And in the text of the minutes of the meeting of the ECB, there is no specifics on this issue. Of course, there is a statement that the program will be terminated by the end of December, but only if the macroeconomic situation is conducive. Considering that the language is extremely vague, we can assume that the ECB is once again planning to extend the program of quantitative easing, which, of course, has a negative effect on the single European currency.
The current week promises to be extremely saturated not only because of the publication of a large number of macroeconomic data in the United States of America. Over the weekend, Donald Trump managed to give a big interview in which he stated that China's actions regarding the US electoral process are much worse than what the Russian Federation is doing. Given that the issue of interference with the elections is the main American horror story, it is obvious that such statements by the US President will in no way contribute to resolving trade disputes with China. True, such uncertainty and the growth of tension most often have a beneficial effect on the dollar. If we talk about macroeconomic statistics, then the expectations for it are quite optimistic. Thus, the accelerated growth in retail sales is projected from 6.6% right up to 7.0%, which, of course, compensates for the negative due to the slowdown in inflation. The number of building permits should increase by 3.4%, although the number of construction projects can be reduced by 3.5%. The total number of applications for unemployment benefits is likely to decrease by 17 thousand due to a decrease in the number of initial applications by 8 thousand, and repeated ones by another 9 thousand. Yes, and home sales in the secondary market may increase by 1.8%. Of course, it will not do without a negative, since the growth rate of industrial production can slow down from 4.9% to 4.7%, and last but not least, these are commercial stocks, which should increase by 0.5%. Growth stocks, of course, even more, scare the possibility of further slowing inflation. But the main event will be the publication of the text of the minutes of the meeting of the Federal Commission on Operations in the open market, and no matter how much anyone says, the slowdown in inflation will not be reflected in this document. After all, inflation came out after the meeting. Moreover, the Fed is an extremely conservative structure, and even if inflation has slowed sharply, no one will make hasty conclusions. We need to make sure that the slowdown in inflation is sustainable, but it is too early to talk about it. So no hints that the pace of monetary policy tightening may be revised should not be sought in the text of the protocol. Thus, the content of the protocol is more likely to have a beneficial effect on the dollar.
In Europe, however, published data on inflation, which will confirm that it accelerated from 2.0% to 2.1%. Given that there are no specifics from the ECB, it will impress few people. The hysteria about the Italian budget deficit will clearly add to the experience. Even when everyone agrees that Italy will go beyond the bounds of decency in terms of the budget deficit, and this is inevitable, it will still be a long time to say that the debt problems of Europe have not gone away and are only getting worse. And if so, then what kind of minimization of the program of quantitative easing can be discussed. So, the single European currency will have to fall to 1.1425.
They don't get bored in the UK either, as they didn't have time to start the week, as rumors arrived that Europe and the UK had already reached a final agreement. But then, there were also refutations, and quite sharp ones. Like, about any agreement and cannot be. This suggests that the withdrawal of Great Britain from the European Union can occur at all without any agreement, which is extremely pitiable, and for the British economy. Even without talking about Brexit, there is something to amuse yourself. In particular, inflation in the UK can accelerate from 2.7% to 2.8%, which will be perceived extremely positively. But before that, it will have a hard time, as the data on the labor market should show an increase in the number of applications for unemployment benefits, as well as a slowdown in the average wage. And both with premiums, and without them. The only thing that can please from the content of the report on the labor market is the stability of the unemployment rate. Moreover, the growth rate of retail sales should remain unchanged, which, against the background of rising inflation and a slowdown in wage growth, does not look very convincing. So, as the pound will have to give up a few positions, and the reference looks like 1.2950.
As for the ruble, which looked extremely stable, the first deputy chairman of the board of the Bank of Russia will clearly force investors to seriously think about the actions of the regulator. The fact is that just the other day, Ksenia Yudaeva said that it was too early to talk about reducing the key rate, but this issue should be considered at the next meeting of the Board of the Bank of Russia. And this is despite the fact that at the previous meeting, the key rate was raised. It turns out that the decision to raise the key rate was made by the Bank of Russia on the basis of assumptions that the ECB will precisely curtail the program of quantitative easing, and the Fed will continue to raise the refinancing rate. But even then it was clear that everything is not so simple, and lately, there has been increasing evidence that everything can turn completely different. Thus, the Bank of Russia makes hasty and rash decisions, and in such conditions, it is extremely difficult for investors to plan their actions. So the ruble will obviously be under pressure. Moreover, the external factors, which last week did not have a serious impact on him, this week will obviously fade into the background. Many people no longer pay attention to all sorts of accusations against Russia, especially since the United States has now clearly switched to China. Europeans alone will not take any aggressive steps. But oddities in the behavior of the Bank of Russia are more likely an even more terrible factor, so that the dollar can rise in price to 66.50 rubles.
