Several central banks are updating monetary policy this week, but the Federal Reserve meeting will be the key event everyone will be looking out for. Polling is close for Canada’s Federal Election but it would be a surprise if the status quo did not continue. With the Flash PMIs (lead indicators) at the back end of the week, it will be another hectic week for traders.
- North America – Canadian elections, a crucial FOMC meeting, Flash PMIs
- Europe & Asia – Eurozone Consumer Confidence, Bank of Japan, Swiss National Bank, Bank of England, Flash PMIs and German Ifo
- LatAm – Brazilian interest rates and mid-month inflation
North American data:
- Canada Federal Election (Mon 20th September)
- FOMC interest rates (Wed 22nd September 1800GMT) No changes expected to rates or rate of emergency asset purchases
- US Flash PMIs (Thu 23rd September, 1345GMT)
The FOMC monetary policy decision is front and centre in the minds of traders on Wednesday. The likelihood is that since Jackson Hole and the weak payrolls report, the tapering of asset purchases will now come in December at the earliest. Given the hawkish FOMC member speeches of late, there is a remote possibility that the committee would surprise all and push for a sooner taper (to be announced in this meeting) but it would be a big shock now and probably cause a sizeable taper tantrum – something that the FOMC will be keen to avoid. This will be a meeting to lay some groundwork for the taper. They are on the right path but not there quite yet. Changes to economic projections and the dot plots could be the key takeaway. Will the median of the FOMC member dots for the first rate hike move into 2022? Currently, +0.50% of rate hikes are pencilled in for 2023 with a long term interest rate of 2.5%.
The Canadian Federal Election is held on Monday, with the Liberals (Trudeau) holding the slightest polling edge over the Conservatives (O’Toole) coming into election day. With the Conservatives trailing in key battleground beats, the incumbent Trudeau’s party is expected to take the most seats for a minority government and likely continue its leadership of the country. As such the market impact could be limited.
- USD will become cautious in front of the FOMC and volatility will be elevated in the days following the decision. Given the likelihood of a “not quite yet” meeting, ranging conditions could prevail.
Europe & Asia:
- Reserve Bank of Australia meeting minutes (Tue 21st September, 0130GMT)
- Bank of Japan monetary policy (Wed 22nd September, c. 0430GMT) no changes from -0.1% expected
- Eurozone Consumer Confidence (Wed 22nd September, 2100GMT) very slight decline to -5.6 (from -5.3) expected
- Swiss National Bank monetary policy (Thu 23rd September, 0730GMT) no changes from -0.75% expected
- Eurozone Flash PMIs (Thu 23rd September, 0800GMT) mild drop on Manufacturing to 60.4 with Services holding at 59.0 expected, meaning Composite slipping to 58.9 (from 59.0)
- UK Flash PMIs (Thu 23rd September, 0830GMT)
- Bank of England monetary policy (Thu 23rd September, 1100GMT) no changes to rates at +0.1% or £875bn of total asset purchases expected
- Japan inflation (Thu 23rd September, 2330GMT)
- German Ifo Business Climate (Fri 24th September, 2100GMT) slight decline to 98.5 (from 99.4) expected – driven by a decline in Expectations component
All the central banks are expected to hold a straight line on monetary policy this week. The BoJ and SNB are the two most dovish of the major central banks, something that is unlikely to change this month. The Bank of England could be more interesting though. There is one lone dissenting voice, Michael Saunders, who believes it might be right for rates to start going up in the next year or so, however, this could be a limited rise. GDP is close to pre-pandemic levels and inflation could be persistently high. Despite this, interest rate futures suggest a rise of up to +0.5% could be the limit in the next few years.
Eurozone flash PMIs look to be following the likes of the US and UK in rolling over, although this is still more of normalisation following the re-opening splurge of Q2. Holding up around 59 for the Composite PMI would be a relatively good performance for the Eurozone would be a fairly decent reading. The German Ifo Business Climate is expected to just slip slightly on Friday, with the Current Conditions still positive, although Expectations are a marginal drag.
- JPY and CHF are unlikely to move too much on the BoJ and SNB respectively
- GBP could be more of a mover on the BoE.
- Elevated volatility on EUR from the flash PMIs
- Brazilian Central Bank interest rates (Wed 22nd September, 2100GMT)
- Brazil Mid-month Inflation (Fri 24th September, 1200GMT) slightly lower at +0.82% exp
The Brazilian Central Bank raised the Selic interest rate by 100 basis points (its biggest move in 18 years) to 5.25% in August. The bank is trying to get a grasp on inflation which has been above 8% for the 12 months to June. The official inflation target is down at 3.75%, so further action will likely be taken this month, having raised rates at the previous four consecutive meetings. A recent survey of economists saw interest rates hitting 7.00% by the year-end.
For Friday’s mid-month Inflation data, any signs of Brazilian inflation moderating will be a welcome sign for the Brazilian real.
- BRL will see elevated volatility around the BRB decision and inflation on Friday. Brazilian 10 year yield has increased by 160bps since the 100bps August rate hike and BRL has underperformed versus USD