With the Labor Day public holiday kicking off the week, it is a rather quiet few days ahead on the economic calendar for the US. However, elsewhere there is plenty to keep traders on their toes. Three major central banks (including the ECB), along with inflation for China and in Lat Am for Chile and Brazil.   

Watch for: 

  • North America – US Labor Day on Monday, Bank of Canada monetary policy, Fed Beige Book, US PPI
  • Europe & Asia – Reserve Bank of Australia monetary policy, German ZEW, China inflation, European Central Bank monetary policy, UK Industrial Production
  • LatAm – Chile inflation, Brazil inflation

North America data: 

  • Bank of Canada monetary policy (Wed 8th Sept, 1400GMT) no change expected. 
  • Fed Beige Book (Wed 8th Sept,1800BST)
  • US PPI (Fri 10th Sept, 1230GMT)

It will be a quiet start to the week (likely across major asset classes) with US traders out for Labor Day public holiday. Tier one data is thin on the ground next week, but the Beige Book gives more detail for the Federal Reserve’s US economic outlook. The  US PPI inflation will be watched as the supply chain pressures have pulled factory-gate inflation higher in recent months. Consensus expectations of +0.6% monthly change in August would suggest pricing pressures remain high. 

In the July meeting of the Bank of Canada, the Governing Council was “increasingly confident that growth will rebound”. The high inflation level is still seen as temporary and the bank is in the process of reducing its quantitative easing programme. However, noting that further adjustments to the QE programme would be “gradual”, it is likely that this will be a wait-and-see meeting with no change to rates (at +0.25%) or QE (at C$2bn per month).   

Market Reaction: 

  • Little US data to shift the recent USD corrective trend
  • CAD to be reactive to the BoC decision.

Europe & Asia: 

  • Reserve Bank of Australia monetary policy (Tue 7th Sept, 0430GMT)
  • German ZEW Economic Sentiment (Tue 7th Sept, 0800GMT)
  • China CPI (Tue 7th Sept, 0800GMT) 
  • European Central Bank monetary policy (Thu 9th Sept, 1145GMT) 
  • UK Industrial Production (Fri 10th Sept, 0600GMT) 

The Reserve Bank of Australia (RBA) has been cautious recently and given the renewed lockdowns in Victoria and New South Wales continue, there is little prospect of this changing any time soon. 

The European Central Bank (ECB) is the main event for major markets this week. Any policy changes are highly unlikely, however, there are a few factors to look out for:

  1. Staff projections – could be slightly upgraded (especially given the spike higher in inflation). The Governing Council are still looking at mid-term horizon (currently 2022 to 2023) inflation to be sustainably around 2% for action to be taken.
  2. Asset purchases – with the PEPP programme being front-loaded for the past 6 months, does this continue into Q4? 
  3. PandemicorPermanent” – The vaccine programme is progressing well, so what does the ECB do with the Pandemic Emergency Purchases Programme which is due to end in March? This will be a debate that is hotting up on the Governing Council.  

Market Reaction: 

  • A continuation of RBA asset purchases (there is no taper on the cards yet) could take the momentum out of the AUD rally. However, USD moves and broader risk appetite are still key for AUD/USD.
  • The ECB meeting will likely be one of the more active meetings we have seen for a while (although that is not saying much). The EUR has been strengthening recently and could continue to pull higher if the ECB is anything other than dovish.

Latin America: 

  • Chile inflation (Tue 7th Sept)
  • Brazil inflation (Wed 8th Sept, 1200GMT) +0.94% MoM exp (previous +0.96)

Rising inflation has been a real concern across LatAm economies and Chile is no exception. In July, Chile inflation came in above expectations and increased by +0.6% on the month to a year on year 4.5%. If this continues to rise then the central bank may need to consider a more aggressive tightening of policy.   

Brazilian inflation is expected to remain high in August, with a monthly increase of +0.94%. This would increase year on year inflation above +9% and would give further concern for the central bank that recently raised interest rates by 1.00% up to 5.25% in an attempt to try and get inflation back under control.

Market Reaction

  • Expect volatility on CLP and BRL on the inflation announcements, especially if the data comes in higher and points to more aggressive monetary tightening