The Top Events/Releases for next week - page 2
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1. ECB Monetary Policy Decision
The ECB will announce its latest monetary policy decision on Thursday September 8th at 07.45 EST.
Bank President Draghi will then hold his regular press conference at 08.30 EST.
The ECB will announce its latest interest rate decision on Thursday and there are widespread expectations that all main rates will be left unchanged.
The ECB will have new staff projections available for this meeting, which does increase the possibility of further policy action, especially if there is a downgrading of inflation forecasts. Even if there is no fresh action, lower inflation forecasts would increase market speculation over action in October or December.
The latest inflation data was slightly weaker than expected with the headline CPI rate unchanged at 0.2% for August with the core rate at 0.8%.
The ECB is likely to reiterate its determination that all necessary action will be taken in order to raise the inflation rate. ECB sources have suggested that the bank is in no hurry to take any further action, although, there will be further concerns over inflation.
Forward guidance will be very important and there is the possibility that the bond-purchase scheme will be extended to beyond March 2017 in order to head-off any tapering speculation, although this is more likely in October. At this stage, Draghi is likely to insist even more forcefully that the ECB will do whatever it takes to raise inflation.
Draghi’s overall commentary on the economic and political risks will still need to be watched very closely, with calls for reform likely to be stepped up. Indeed, Draghi is likely to be more forceful in calls for more effective government policies.
Comments on Brexit will be monitored, although the overall impact is likely to be limited.
The issue of exchange rates will be a key subject, which is likely to be raised in the Q&A section of the press conference even if Draghi avoids making direct references to the subject. Any oblique references to Federal Reserve policy will also need to be watched closely.
2. San Francisco Fed President Williams Speech
San Francisco Federal Reserve President Williams is due to speak on the economy on Tuesday September 6th at 20.15 EST.
The latest US employment was not decisive in determining whether the Federal Reserve will raise interest rates at the September meeting with a solid, but unspectacular set of data.
Fed Funds futures markets are signaling around a 20% chance that the Fed will make a move in September. If the Fed is serious about raising rates at this month’s meeting, officials will want futures markets to show at least a 50% chance of a move and probably around 70%.
There will, therefore, need to be sustained jawboning by Fed officials over the need to tighten policy in the short term if they want to trigger the necessary adjustment in futures prices.
Comments from Federal Reserve speakers will, therefore, need to be watched very closely over the next week at least.
As well as Williams, Boston head Rosengren is due to speak on Friday and any scheduled remarks from senior Fed officials will be potentially very important.
3. Bank of England Inflation Report Hearings
Bank of England Governor Carney and other Monetary Policy Committee (MPC) members are due to testify to the Treasury Select Committee on the August inflation report on Wednesday September 7th at 09.15 EST.
The latest testimony from Bank of England Governor Carney and other Monetary Policy Committee members to the Treasury Select Committee on the August inflation report will be very important for Sterling and UK assets.
Any comments on whether the data releases have been better or worse than expected will be very important for interest rate expectations. Markets will be looking very closely for hints on whether the MPC still expects to ease monetary policy before the end of 2016.
Comments on the trade-off between growth and inflation will be watched closely with evidence on divisions within the committee also important given that the hawkish Forbes will be joined by the dovish Vlieghe.
The UK services-sector PMI data will also be released on Monday September 5th at 04.30 EST.
The PMI data will continue to have an important impact on sentiment surrounding the UK outlook and monetary policy, especially as the sharp decline seen for the July data was cited as an important factor in triggering the aggressive Bank of England easing seen at the August meeting.
The latest manufacturing survey was much stronger than expected with a move to 10-month highs for August. There was also a solid improvement in the construction PMI data, although it failed to break above the 50.0 level.
The services sector is dominant in the economy and the data will give important insights into the overall outlook. The evidence suggests retail spending has remained firm, which should provide underlying support to the services sector. A very strong reading would make it much less likely that the Bank of England could consider a further monetary easing.
4. Bank of Canada Rate Decision
The Bank of Canada will announce its latest interest rate decision on Wednesday September 7th at 10.00 EST.
The Bank of Canada still has a complex economic situation to deal with amid conflicting policy pressures and there is also uncertainty surrounding Federal Reserve policy. The consensus forecast is for rates to be left on hold.
Oil prices remain substantially above levels seen in early 2016, but there has been increased volatility and a retreat from levels near $50.0 in WTI with major doubts over an Opec commitment to curb production. The economy should rebound in the third quarter after wildfires cut oil output in the second quarter.
Although fiscal policy is expansionary, the domestic economic data remains mixed with little sign of a spark in the industrial sector while the latest employment report was disappointing with a significant decline in employment.
The Bank of Canada will want to maintain an accommodative policy, but there are also important concerns surrounding financial stability given the strength of house prices, especially in the Toronto region.
5. US ISM Non-Manufacturing
The US non-manufacturing ISM data will be released on Tuesday September 6th at 10.00 EST.
The ISM reports are significant for underlying confidence in the economy.
Although the importance tends to be slightly lower when released after the monthly employment report, the data will be watched very closely this time around given the weaker than expected manufacturing survey and an inconclusive employment report.
A weak release for the non-manufacturing index would be an important warning sign on the overall outlook, although there will be some uncertainties surrounding the risks of faulty seasonal adjustment at this time of the year.
The individual components, especially employment, will also be important for overall confidence in the outlook.
Week Ahead: FX Markets Into Next Stop: 'Grand Central'
All G10 central banks have meetings in September and next week we will hear from the ECB, the RBA, the Riksbank and the BoC. Not so long ago, having four central bank meetings in one week would have been a treat for the FX vol markets. Nowadays, however, the FX short-term vol remains close to recent lows, likely reflecting the fact that the markets expect no policy surprises. Investors may be also keeping their powder dry for the central banks’ ‘Super Wednesday’ on 21 September, when the Fed and the BoJ hold their policy meetings.
The G20 summit over the weekend could also reiterate the group’s commitment to improve policy coordination, and support flagging global investment and growth. That could boost market sentiment and brighten up the outlook for USD against safe haven currencies like JPY.
Ahead of the ECB meeting, there is a small chance that the Governing Council will extend the duration of its QE programme beyond March 2017. This could send the EUR/USD lower initially but we doubt that the pair will come under sustained selling pressurewithout a strong signal that the bank’s asset purchases will be expanded as well. The Riksbank should keep its policy unchanged, confirming the market view that its ability to ease further is constrained. This should help SEK consolidate.
The BoC and the RBA should keep policy unchanged as well but they may signal readiness to act if domestic and global conditions were to deteriorate further. In addition, data released could highlight that the Australian recovery stalled in Q2 while conditions in the Canadian labour market remain challenging. The risks for AUD and CAD could thus be tilted to the downside vs USD next week.That said, a potential recovery of market risk sentiment in the wake of G20 could limit any selling pressure on the high-yielding and commodity G10 currencies.
GBP was buoyed by better than expected UK data of late. Further evidence that the initial Brexit shock is abating could help the currency consolidate some more across G10 FX next week. We believe it is too early to call for a turning point in the GBP outlook, however, and expect the currency to trade back closer to recent lows going into year-end.
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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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Capital Markets in the Week Ahead
The week ahead will likely be shaped by a combination of what happened last week and what will happen the week after next. The end of last week saw a sell-off in equities and bonds and a recovery in the US dollar. The week after next the FOMC and BOJ meet in apparently live meetings, meaning that policies may be adjusted.
The S&P 500 suffered its biggest decline in two months, falling 2.5% ahead of the weekend. It gapped lower and sold-off sharply and closed on its lows. It is a particularly poor sign. Our initial expectation is that this is not a normal gap that is quickly closed. On Saturday (September 10) the Taiwan equity market sold off 1.2%, its biggest decline in two months as well. This may be a hint of what is going to happen when Asian equity markets on September 12.
The MSCI Asia-Pacific Index fell last Thursday and Friday, the first two-day loss in a month. Friday's 1.2% decline was the largest since early August. This much-watched index enjoyed a 15% rally since the end of June, and at the very least, a technical correction of this advance is likely unfolding. The first target is the late-August low near 137.20, which is about 2.3% below last week's close, but the 38.2% retracement objective is found at 135.35. That suggests scope for a 3.6% decline. Ahead of the quarter-end asset managers may be tempted to protect profits.
The MSCI Emerging Market equity index snapped a five-day advance before the weekend. The nearly 2% drop gave back nearly half of that five-day rally. It was the biggest decline since the UK referendum. This benchmark rallied more than 17.5% since the UK referendum. The prospect is for a decline on the magnitude as we have noted for the Asian-Pacific Index (2.3%-3.6%). Here too weakness of US shares, the backing up of US interest rates, and the prospects that the Fed hikes rates, may encourage position adjusting ahead of the end of the quarter.
The Dow Jones Stoxx 600 rallied a little less than 14.5% since the UK referendum. It finished last week on a soft note, dropping 1.1% ahead of the weekend, its largest loss since August 2. The index appear to have stalled in the same area that stopped rallies in April and May (~351). A minimal technical correction gives scope for 2%-3% near-term declines.
Before the weekend there was also a sharp increase in benchmark bond yields. It is likely overdetermined, meaning that there are many causes. There had been a significant rise in long-term Japanese yields amid speculation that the BOJ may adjust its asset purchases to facilitate a steepening of the yield curve. For example, the 40-year JGB yield has risen more than 50 bp since the end of June. The 10-year bond yield bottomed in late-July near minus 30 bp. It has flirted with zero in recent sessions.
Many investors were disappointed that the ECB did not announce an extension of its asset purchases last week. Ahead of the weekend, the EMU core bond yields rose around seven bp, and peripheral bond yields rose nine bp. The generic 10-year German bund yield rose from minus 12.5 bp before the ECB meeting and finished the week at positive one basis point, the highest yield in nearly two months.
After an initial hit to sentiment, the UK referendum does not appear triggered an economic contraction. Economic data are generally coming in better than expected. The Bank of England acted preemptively, providing low rate loans to banks, cutting interest rates and re-launching an asset purchase plan than includes corporate bonds. Critics of Bank of England Governor Carney argue he was too partisan before the referendum and led a panicked response afterward.
Some of the criticism is unfair. We do want policymakers to act to minimize the biggest regret. The biggest regret would have been if officials did nothing and the economy took a hit. Part of the reason the economy did not take a harder hit was that sterling and interest rates fell sharply, and this was facilitated by the signal and real response by the BOE.
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1. US Federal Reserve Meeting
The US Federal Reserve Open Market Committee (FOMC) statement will be released on Wednesday September 21st at 14.00 EST.
As well as the statement, the FOMC will release its latest economic projections and the interest rate forecasts of individual FOMC members known as the ‘dot plot’. Chair Yellen will also hold a press conference at 14.30 EST.
Market expectations of an increase in interest rates moved higher following hawkish comments in late August from vice-chair Fischer and Yellen’s remarks that the case for higher interest rates had strengthened, but expectations have faded again with the chances of a move next week seen at less than 15% according to futures markets.
The FOMC is usually very reluctant to increase interest rates without the move being substantially priced in, although there is a greater element of uncertainty surrounding this meeting given mixed signals.
There will clearly be increased divisions within the committee with most of the regional Fed Presidents calling for a near-term increase in rates and 8 of the 12 banks called for a discount rate hike in August. The Fed Governors overall are more cautious with notably dovish rhetoric from Brainard and Tarullo.
The overall labour-market data is strong enough to justify an increase in rates and the main debate will be around inflation and the best approach to extend the economic expansion.
Dovish members would see the inflation and growth risks as biased to the downside and preach patience with little risk in waiting for further evidence.
The more hawkish members will warn that prolonging the period of ultra-low interest rates will lead to further imbalances, increasing the risk that the Fed will be forced to tighten much more aggressively in the medium term.
Forward guidance will inevitably be watched very closely and should tend to dampen market reaction. An unexpected decision to raise interest rates would tend to be balanced by dovish rhetoric with an insistence that interest rates would rise at a very slow pace.
If rates are left on hold, the hawkish members on the FOMC will certainly demand some tough rhetoric and strong hints over future hikes.
Whatever the outcome, there is a high risk of dissenting votes, especially if rates are left on hold.
The dot plots will be very important with a focus on the near-term projections and the medium-term projections, which were again downgraded at the June meeting.
The bond market reaction will be watched very closely given the risk of a long-term sell-off on fears the Fed is behind the curve if there is a relatively dovish statement.
2. Bank of Japan Policy Decision
The Bank of Japan will announce its latest policy decision on Wednesday September 21st. There is no fixed time, but is likely to be around 22.30 EST Tuesday.
As well as the regular policy decision, the Bank of Japan will also announce the outcome of its detailed policy review that was announced at the previous meeting. This review was effectively ordered by the government due to continued frustration over the inability to raise inflation levels.
Given the policy review, there is even more uncertainty than usual surrounding the outcome and potential for policy changes. There looks to be a majority support for action, but certainly a lack of consensus on the best way forward.
There is the possibility that the programme of bond purchases will be expanded, although there are already substantial concerns over the amount of securities held by the central bank.
There is also the potential for a further cut in interest rates, although this would also be very controversial given criticism of January’s move to introduce negative rates.
Any changes to the inflation target will also be an important focus with the two-year target period liable to be dropped.
There will inevitably be important divisions within the central bank policy committee with Governor Kuroda likely to face dissenting votes whatever the outcome.
There has also been a move by the bank to steepen the yield curve in order to alleviate pressures within the financial sector and support the banks. Further commentary on the yield curve will also be very important for sentiment and global bonds.
3. Reserve Bank of New Zealand Monetary Policy Meeting
The Reserve Bank of New Zealand (RBNZ) will announce its latest monetary policy decision on Thursday September 22nd (17.00 EST Wednesday).
The RBNZ cut interest rates to 2.0% at the previous policy meeting.
The commentary on financial stability will be important within the statement given that the bank remains uneasy surrounding the housing sector, especially in Auckland. If macro-prudential policies prove ineffective in curbing excessive borrowing, there will be substantial barriers to further easing.
Commentary on the economy will be important, especially as there has been a strong recent recovery in dairy prices. The latest Global Dairy Trade (GDT) auction will be released on Wednesday around 10.00 EST, after strong gains at the previous three auctions.
The exchange rate has also weakened from 15-month highs against the dollar, which will provide some net relief to the RBNZ.
There is the potential for the bank to be more optimistic surrounding the outlook, but probably maintain an easing bias given continued fears that the inflation rate is too low.
4. Eurozone Flash PMI
The latest Eurozone flash PMI data will be released on Friday September 23rd at 04.00 EST.
The individual data for France and Germany will be released at 03.00 EST and 03.30 EST respectively.
The August Eurozone PMI data was generally disappointing with a small retreat in the manufacturing index and only a marginal advance in the services sector.
The French manufacturing sector remained in contraction and there was a sharp decline in the German services-sector data to the lowest level since early 2015.
Given the very supportive monetary policy, there will be further fears over disappointing data amid fears that structural weakness and political stresses are continuing to undermine activity.
Any further deterioration in the Eurozone data this month would increase fears surrounding the Eurozone outlook. There would be additional pressure for a further policy easing by the ECB and greater demands for more aggressive fiscal policy action.
5. Canada Consumer Prices
The latest Canadian CPI inflation data will be released on Friday September 23rd at 08.30 EST.
In the latest Bank of Canada monetary policy statement, the bank stated that ‘on balance, the risks to the profile for inflation have tilted somewhat to the downside since July’.
The latest inflation data will, therefore, be watched closely to assess whether the downside risks are evident in the latest data. There will be data on headline and core consumer prices with the Bank of Canada core inflation reading significant.
Notably weak data will be needed to push the bank towards an easing of monetary policy.
The latest retail sales data will also be released at the same time.