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U.S. services data eyed as markets await Fed rate hike clues.
Global stocks mixed with Fed rate outlook, oil in focus.
RBA leaves interest rates on hold.
Bayer raises offer to buy Monsanto to $65 billion.
ECB expected to hold on rates, focus on bond purchase program extension
The European Central Bank (ECB) kicked off its two-day policy meeting on Wednesday with investors focusing on whether the euro zone monetary authority’s president Mario Draghi will announce an extension of the bond-purchase program.
While no change in interest rates currently at 0% or the deposit facility rate of minus 0.4% are expected out on Thursday at 7:45AM ET (11:45AM GMT), market players will look to Draghi’s press conference just 45 minutes later.
With euro zone inflation far below the ECB’s 2% target rate, experts are convinced that Draghi will have to extend the asset purchase program beyond its current end-date of March 2017 and above the target of €1.7 trillion ($1.9 trillion). The ECB is currently buying €80 billion-a-month ($90 billion).
However, experts are divided over whether Draghi will make the announcement official on Thursday. A recent Bloomberg survey showed that more than 80% of economists expect the action to be taken this year, but less than half are betting it will take place on Thursday. The rest forecast that the announcement would come at the October or December meeting.
Though analysts do not believe there will be any new policy moves, most expect Draghi to maintain a dovish stance and hint at more easing further down the road.
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German Trade Balance: Exports Decline 2.6% in July
The headline German trade surplus declined to EUR19.5bn for July from EUR24.8bn the previous year. In seasonally-adjusted terms, there was a decline to EUR19.4bn from a revised EUR21.4bn the previous month and was significantly lower than the expected figure of EUR21.0bn.
Adjusted exports declined 2.6% on the month to give an annual 10.0% contraction, while there was a 0.7% retreat in imports for the month to give a 6.5% decline on the year. Both exports and imports were considerably weaker than expected.
There was an annual decline in exports of 7.0% to the EU, while exports to non-EU countries declined by 13.8%. For the first seven months of the year, there was a small 1.7% increase in exports to the EU with a 3.2% decline in shipments to other countries.
5 Economic Calendar Events to Watch September 12-16
Trading volumes will be back to full throttle during the forthcoming week, but this trend of higher activity will potentially clash with something of a vacuum ahead of key events.
There will be a high degree of uncertainty ahead of the Federal Reserve and Bank of Japan policy meetings the following week. In this environment, there is a high risk of volatile trading conditions, especially if there is a continued lack of clarity surrounding Fed intentions.
1. US Retail Sales
The US retail sales data will be released on Friday September 15th at 08.30 EST.
After two strong reports for May and June, the July retail sales data was disappointing with a miss on all three key metrics. Headline and control-group sales were unchanged for the month while there was a decline in underlying sales, although the June data was revised higher.
The Federal Reserve has been optimistic over consumer spending and there was an upward revision to 4.4% for the second-quarter personal consumption expenditure data.
The Fed has seen evidence of an underlying slowdown in auto sales from unsustainable levels. To be confident in raising interest rates the FOMC will be looking for a solid overall tone in consumer spending and evidence that any retreat in the pace of auto sales is being offset by stronger spending elsewhere.
A robust pace of spending would also suggest underlying consumer confidence in the labour market.
This data is always important and the potential impact is higher this month given that it is one of the last major pieces of data before the September Federal Reserve meeting.
2. Fed Governor Brainard Speech
Federal Reserve Governor Brainard is due to speak on the economy and monetary policy on Monday September 12th at 13.15 EST. The speech from Brainard is a late addition to the Federal Reserve calendar and there will be a high degree of speculation over the content of the speech.
The timing is potentially very important as it is one of the last possible occasions for public Fed commentary before the silent period ahead of the FOMC meeting the following week. The scheduling of a speech at this juncture will inevitably lead to expectations of an important message to markets.
She has been one of the most dovish members of the committee, consistently preaching caution over the need to raise interest rates with particular concerns over low inflation and a decline in inflation expectations.
In broad terms, Brainard is unlikely to switch to a very hawkish stance, but there is the possibility that she will effectively back the case for a September move and look to dampen expectations over the extent of any further increases by reiterating that the Fed will tighten only very gradually.
There was a similar tactic ahead of the December 2015 rate increase, with dovish members on the committee looking to curb the potential for future rate increases.
Alternatively, she may stick to a very dovish stance and throw down the gauntlet to the more hawkish member. Whatever, the content, this will be an important and market-moving speech.
3. Bank of England Monetary Policy Meeting
Bank of England will announce its latest monetary policy decision on Thursday September 15th at 11.00 GMT.
This is not a super Thursday and there is no inflation report. There will be the decision on interest rates and bond purchases, together with a summary of the meeting and the vote splits within the minutes.
There is very little chance that there will be any change in interest rates at this meeting following August’s rate cut and expansion of bond purchases.
The meeting will still be very important for UK asset markets and expectations surrounding both the economy and monetary outlook. The bank will have received more information on the outlook and a major focus will be whether there is any shift in expectations towards cutting interest rates further.
In the August statement, a majority of members expected that further action would be justified later in the year if the economy progressed as they expected.
Markets will be watching very closely to assess whether there is any change in this stance, in particular whether there is less confidence over the potential need for further stimulus. There are certainly likely to be reservations from the more hawkish elements and the probability of a more divided MPC.
Comments on corporate bond purchases and the potential mix of future policy will also be important.
Markets will also be looking to gauge the potential stance of new external MPC member Saunders, who will debut on the MPC at this meeting.
The UK will also release the latest inflation data on Tuesday, labour-market data on Wednesday, and retail sales on Thursday, which will be important for overall Sterling sentiment.
4. US Consumer Prices
The US consumer prices data will be released on Friday September 16th at 08.30 EST. The Federal Reserve has a dual mandate of maximum employment and price stability.
Although much of the recent focus has tended to be on the labour market, inflation trends are also vitally important for the Fed.
The latest inflation data will, therefore, be watched very closely, especially as it is the last major data release ahead of the Fed meeting.
Last year, for August, there was a decline in headline consumer prices of 0.1% and a small 0.1% gain for core prices.
There should, therefore be scope for an increase in annual rates in this data and any evidence of a sharper increase in prices within the services sector would add to pressure for higher interest rates.
5. German ZEW Survey
The German ZEW survey will be released on Tuesday September 13th at 05.00 EST.
The IFO data will probably be important for underlying confidence, but the ZEW data for Germany and the Euro-zone will be watched closely.
The last two ZEW releases have been below expectations and there have been worrying developments surrounding the German outlook. There was a sharp downward revision to the final PMI services reading to 51.7. the lowest reading since the beginning of 2015.
Industrial production also declined sharply for July, although orders did rise slightly. The latest trade data was also significantly worse than expected with a decline in July exports and imports.
These release will increase underlying unease over the outlook, especially as Germany should be gaining strong support from very low interest rates.
Any renewed deterioration in confidence in the ZEW survey would be another significant warning sign and would increase pressure for a more aggressive fiscal policy, although Chancellor Merkel’s position is increasingly vulnerable as political support leaches away.
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Former U.S. Treasury Secretary and White House economic adviser Larry Summers stated late Thursday that inflation and economic conditions stateside provided no reason for the Federal Reserve (Fed) to hike interest rates next week.
“I think there’s no compelling case of any kind for a rate increase in September,” Summers said in an interview on BloombergTV focused on a paper suggesting that regulatory measures have done little to increase the safety of major financial institutions.
Markets appeared to agree with Summers’ outlook for U.S. monetary policy with Fed fund futures pricing in only a 9% chance of a hike next week, according to Investing.com’s Fed Rate Monitor Tool.
2. Inflation and consumer sentiment on tap
A deluge of data pushed rate hike odds lower in the prevision session, while market participants looked ahead on Friday to the last two major pieces of the puzzle for the Fed to digest before announcing its policy decision next Wednesday.
Barring some housing market data at the beginning of next week, August inflation data, out at 8:30AM ET (12:30GMT), and the Michigan consumer sentiment for September will be the last two key factors that could influence the Fed’s decision.
Markets expect consumer price inflation (CPI) to inch forward to 1.0% on an annualized basis with the core CPI standing pat at 2.2%.
Meanwhile, consumer sentiment is expected to improve from 78.7 to 79.3 in the preliminary reading for this month.
3. Deutsche Bank slumps 7% on $14 billon DoJ fine
Shares in Deutsche Bank AG NA O.N. (DE:DBKGn) tumbled more than 7% on Friday after the U.S. Department of Justice (DoJ) slapped the German financial institution with a $14 billion fine to settle an investigation into its selling of mortgage-backed securities in the run-up to the financial crisis.
Deutsche Bank said Friday it has no intention of settling the claims at the mentioned figure.
4. Global stocks mixed ahead of Friday’s data with eyes on Fed impact
Global stocks were mostly mixed on Friday as investors waited for data stateside to gauge their possible impact on the Fed’s policy decision next week.
U.S. futures pointed to a slightly lower open on Friday as investors took profit after the prior session’s solid 1% advance. At 5:50AM ET (9:55AM ET), the Dow Jones Industrial Average futures pointed to a 0.17% loss, S&P 500 futures fell 0.18%, while the Nasdaq 100 futures indicated a 0.11% decline.
European stocks were mostly lower as the Deutsche Bank fine weighed on the financial sector.
Earlier, Asian shares ended higher in holiday-thinned trade, as investors remained cautious before the Federal Reserve and the Bank of Japan policy setting meetings next week. Markets in China, Taiwan and South Korea were closed for public holidays.
5. Oil drops on supply glut worries, rig count ahead
Oil prices fell on Friday on worries that U.S. rig counts would continue to rise and that returning Libyan and Nigerian exports would stoke a global supply glut.
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The Federal Reserve is not expected to take action on interest rates at the conclusion of its two-day policy meeting at 2:00PM ET (18:00GMT) on Wednesday.
The central bank will also release its latest forecasts for economic growth and interest rates.
Fed Chair Janet Yellen is to hold what will be a closely-watched press conference 30 minutes after the release of the Fed's statement, as investors look for any change in tone about the economy or future rate hikes.
Speculation about the timing of the Fed's next interest rate hike has shaken major stock indexes this month following contrasting comments from top Fed officials.
Markets are currently pricing in just a 12% chance of a rate hike next week, according to Investing.com's Fed Rate Monitor Tool. For December, odds stood at around 55%.
In the unlikely case of a rate hike, the U.S. dollar will shoot higher. In the more likely scenario in which rates remain unchanged, the focus will be on the Fed's statement as well as the updated interest rate forecasts. A more hawkish message, which would leave the door open for a rate hike in December, will be dollar-positive, while a dovish statement will result in a dollar sell-off.
2. BOJ policy announcement
The Bank of Japan's latest rate decision is due during Asian hours on Wednesday. The BOJ will also publish a monetary policy statement, where it will present a comprehensive assessment of its policies.
Central bank Governor Haruhiko Kuroda will hold a press conference afterward to discuss the decision.
Speculation points to a possible interest rate cut deeper into negative territory, tweaks to its asset-purchase program or new rules on the duration of securities it will purchase in the bond market.
The BOJ has already implemented negative interest rates and is printing 80 trillion yen ($750 billion) a year to stimulate inflation after decades of deflation and stagnant growth, yet inflationary expectations appear to be weakening.
Disappointment over the BOJ's announcement could see the yen strengthen against the dollar and euro.
3. August U.S. housing data
The Commerce Department is to publish a report on housing starts and building permits for August at 8:30AM ET (12:30GMT) on Tuesday. The data could show that permits rose 2.5% to 1.170 million last month, while housing starts are forecast to decline 1.7% to 1.190 million.
On Thursday, the National Association of Realtors is to release data on existing home sales for August at 10:00AM ET (14:00GMT) amid forecasts for a gain of 1.1% to 5.45 million.
4. Flash euro zone PMIs for September
The euro zone is to publish preliminary data on manufacturing and service sector activity for September at 08:00GMT (4:00AM ET) on Friday, amid expectations for a modest decline.
Ahead of the euro zone PMI's, France and Germany will release their own PMI reports at 07:00GMT and 07:30GMT respectively.
5. Reserve Bank of New Zealand rate review
The Reserve Bank of New Zealand’s monetary policy update is due at 21:00GMT (5:00PM ET) on Wednesday. Most market analysts expect the central bank to keep rates steady after cutting them by 25 basis points to a record low 2.0% last month.
Merkel's CDU party suffer heavy losses in Berlin state election
German chancellor Merkel's CDU party has been ousted from the state governing coalition 19 Sept
Refugee crisis being blamed for Merkel's second loss in two weeks having been pushed into third place in Mecklenburg Western Pomerania.
Next year sees the German Federal elections and Merkel has a lot of work to do in the meantime.
The BBC has more here.
Bank of Japan rate decision, policy review also due Wednesday.
Oil rallies on chatter of output freeze deal, Libya fighting.
Global stocks push higher with oil, central banks in focus.
Dollar slips ahead of Fed, BOJ meetings.
WSJ on the new policy measures from the Bank of Japan
The BOJ has introduced a heap of new policy initiatives
- An unexpected step ... launching a 10-year interest rate target
- Following an internal review of existing measures that failed to achieve 2% inflation in a promised two-year time frame
- Bank to start targeting 10-year interest rates ... committing to keep them around zero
- Will continue QQE until inflation "exceeds" 2% (effectively strengthening its commitment to continue aggressive easing)
More at the piece here, which may be gated: BOJ Changes Policy Framework After Review of MeasuresAsian stocks closed mostly lower on Friday, but held near 14-month highs in a week that saw stocks surge on the back of policy decisions from both the Bank of Japan and the Federal Reserve (Fed) .
European also retreated on Friday as both the euro zone and German business activity fell more than expected and the French economy unexpectedly contracted.
U.S. futures pointed to a session of profit-taking after the Dow Jones and S&P 500 turned positive for the month, while the Nasdaq composite hit a new all-time high and posted a second consecutive record close.
2. Euro zone business activity hits 20-month low, U.S. manufacturing PMI on tap
The euro area composite purchasing managers’ index (PMI) fell to 52.6 in September, its weakest rate of expansion since the beginning of 2015.
Markit will publish its preliminary read of activity in the U.S. manufacturing sector for September at 9:45AM ET (13:45GMT).
3. Fed speakers on the docket
In the wake of the Fed’s decision to leave rates unchanged several policymakers were on tap to speak on Friday.
Philadelphia Fed president Patrick Harker will kick off a regional Fed presidents panel to discuss the role of the central bank in the community. Atlanta Fed chief Dennis Lockhart and Cleveland Fed president Loretta Mester will participate.
Separately, Dallas Fed president Robert Kaplan will make an appearance at the Texas Oil & Gas Association Lone Star Energy Forum.
Markets are currently pricing in just a 10.3% chance of a rate hike at the Fed’s next meeting in November, according to Investing.com's Fed Rate Monitor Tool. For December, odds stood at 53.1%.
4. Oil slips for first time this week ahead of OPEC informal talks
U.S. crude prices fell for the first time this week, but was still on track for weekly gains of almost 6% as investors took profits ahead of informal talks among OPEC members next week to discuss the possibility of a production freeze.
Meanwhile, Iran and Saudi Arabia were reportedly holding private talks over the possibility of reaching a deal ahead of the group meeting. Earlier this year, output freeze discussions broke down when Saudi Arabia decided that Iran should join in the freeze, despite the fact that Tehran had said it wouldn’t consider the possibility until reaching pre-sanction levels of production.
Investors looked ahead to the Baker Hughes rig count data later in the day. The prior week saw the number of U.S. rigs drilling for oil increase for the 11th time in 12 weeks.
5. Shares of Amazon (NASDAQ:AMZN) hit record high
Amazon closed on Thursday with gains of 1.89% at $804.70, a record closing high that pushed its market capitalization to more $380 billion, more than double its worth in April 2015 when the stock pushed past $400 per share.
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