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Week ahead: Fed set to announce tapering?
All eyes are on the Federal Reserve and whether it will use this week’s September FOMC meeting to announce its long-awaited tapering of asset purchases. Meanwhile a hot inflation reading last week will have the Bank of England thinking about whether it should be pivoting to a more hawkish position.
Fed to announce QE taper?
Whilst markets do not expect the Federal Reserve to race towards tapering asset purchases, there is a broad consensus in the market that it will begin dialling back the pace of its QE programme from November. That means this week’s meeting may be an appropriate moment for the Fed to give the market fair warning.
Last week’s CPI inflation clouded the outlook a touch – it was a little softer than expected, giving the Fed some more breathing space. More importantly, the very weak August jobs report suggests the Fed might not want to nail its colours to a November taper launch just yet. It could signal it still believes that tapering is appropriate this year without giving a fixed schedule.
Investors will be most interested in how policymakers assess the pace of the labour market recovery, and whether they believe inflationary pressures are becoming less transitory than they thought. Close attention will be paid the latest round of economic projections for a guide on whether the Fed is changing its mind on the pace of inflation and growth.
Bank of England responds to hot inflation print
The Bank of England will need to respond to biggest jump in inflation on record when it convenes this week. Inflation accelerated to 3.2% in August from 2% in July, well above the central bank’s 2% target. Could this force the BoE to tighten monetary policy sooner than had been expected? A hawkish-sounding Bank of England would be a boost for sterling.
Eco data to watch
In addition to the above, markets will be on the hook for a raft of economic data releases this week, including Thursday’s round of flash PMIs for the euro area, UK and US. The Bank of Japan is due to meet, with governor Kuroda recently remarking that the central bank will further relax monetary policy such as by reducing interest rates, if necessary.
Nike, FedEx earnings
The earnings calendar is light but there are updates from Nike and FedEx among others. Nike posted very strong Q4 results in June, sending the stock to a record high. Q4 sales rose 96% against the year-ago quarter and were up 21% compared to 2019. Margins are also improving fast as the company’s pivot to supplying consumers directly pays off. “FY21 was a pivotal year for NIKE as we brought our Consumer Direct Acceleration strategy to life across the marketplace,” CEO John Donahoe said. But shares have come off lately amid worries about supply chain problems, with millions of units of lost production in Vietnam due to covid.
“Over its history, Nike’s stock has been most tightly correlated with sales growth, so with growing evidence that sales will likely stall, we believe Nike’s stock will at best tread water until more clarity is had around its manufacturing issues, and at worst suffer from reduced sales guidance and ensuing multiple compression,” BTIG analysts said in a note downgrading the stock to neutral.
Also look out for earnings from Adobe, General Mills and Costco.
Major economic events
|Mon Sep 20||12:01am||GBP||Rightmove HPI m/m|
|All Day||JPY||Japan Bank Holiday|
|All Day||CNH||China Bank Holiday|
|7:00am||EUR||German PPI m/m|
|Tentative||EUR||German Buba Monthly Report|
|3:00pm||USD||NAHB Housing Market Index|
|All Day||CAD||Canada Federal Election|
|10:00pm||NZD||Westpac Consumer Sentiment|
|Tue Sep 21||All Day||CNH||China Bank Holiday|
|2:30am||AUD||Monetary Policy Meeting Minutes|
|GBP||Public Sector Net Borrowing|
|11:00am||GBP||CBI Industrial Order Expectations|
|2:00pm||CNH||CB Leading Index m/m|
|3:30pm||AUD||CB Leading Index m/m|
|Tentative||NZD||GDT Price Index|
|Wed Sep 22||Tentative||JPY||Monetary Policy Statement|
|Tentative||JPY||BOJ Policy Rate|
|Tentative||JPY||BOJ Press Conference|
|2:00pm||CHF||SNB Quarterly Bulletin|
|USD||Existing Home Sales|
|3:30pm||Oil||Crude Oil Inventories|
|7:00pm||USD||FOMC Economic Projections|
|USD||FOMC Monetary Policy Statement|
|7:30pm||USD||FOMC Press Conference|
|Thu Sep 23||12:00am||AUD||Flash Manufacturing PMI|
|AUD||Flash Services PMI|
|All Day||JPY||Japan Bank Holiday|
|Tentative||EUR||German Import Prices m/m|
|8:15am||EUR||French Flash Manufacturing PMI|
|EUR||French Flash Services PMI|
|8:30am||CHF||SNB Monetary Policy Assessment|
|CHF||SNB Policy Rate|
|EUR||German Flash Manufacturing PMI|
|EUR||German Flash Services PMI|
|9:00am||EUR||Flash Manufacturing PMI|
|EUR||Flash Services PMI|
|EUR||ECB Economic Bulletin|
|9:30am||GBP||UK Flash Manufacturing PMI|
|GBP||UK Flash Services PMI|
|12:00pm||GBP||Bank of England monetary policy decision|
|1:30pm||CAD||Core Retail Sales m/m|
|CAD||Retail Sales m/m|
|USD||US unemployment Claims|
|2:45pm||USD||US Flash Manufacturing PMI|
|USD||US Flash Services PMI|
|3:00pm||USD||CB Leading Index m/m|
|3:30pm||Nat Gas||Natural Gas Storage|
|Fri Sep 24||12:01am||GBP||GfK Consumer Confidence|
|12:30am||JPY||National Core CPI y/y|
|1:30am||JPY||Flash Manufacturing PMI|
|7:00am||EUR||German GfK Consumer Climate|
|9:00am||EUR||German ifo Business Climate|
|3:00pm||USD||New Home Sales|
Week Ahead: Central banks galore but fiscal response is the key
It’s a veritable cornucopia of central bank delights this week with the Federal Reserve, Bank of England and Bank of Japan all in action, following the ECB and Bank of Canada last week. The Bank of Japan decision may well be overshadowed by Japanese politics as the ruling Liberal Democratic Party (LDP) elects a new leader days before the national diet elects a new prime minister.
Meanwhile we continue to keep our eyes on the high frequency economic data, with jobless claims and retail sales numbers on tap as well.
The Federal Reserve convenes on September 15th and 16th for the first time since Jerome Powell signalled that the central bank would be prepared to tolerate higher inflation as a trade-off for a swifter economic recovery and jobs growth. Unemployment has fallen since the pandemic peak but is not improving quickly enough.
The Fed is not expected to announce any fresh policy change but will reinforce Powell’s message from Jackson Hole on the policy shift. Indeed the main focus for the Fed right now is actually not monetary policy but fiscal as members await any move in Washington to deliver a fresh stimulus package.
Bank of England
The Bank of England also meets this week, amid mounting speculation that the Old Lady of Threadneedle St will turn to negative interest rates to stimulate the economy.
Speaking to MPs recently, governor Andrew Bailey refused to rule out negative rates – a policy that has systematically failed to deliver the required inflation in the Eurozone. “It’s in the box of tools,” he said. “We’re not planning it at the moment, we’ve got no plans to use it imminently, but it is in the box.”
Meanwhile, again it is the fiscal response that seems to matter more right now – central banks have already shot most of their ammunition. Andy Haldane, the BoE’s chief economist, warned last week that the UK’s furlough scheme should not be extended – but will the chancellor cave to demands to prolong it in order to protect jobs? As the furlough scheme approaches its end in October, the government may be forced to extend in order to avoid a cliff-edge in job losses.
Japanese yen in focus
There is a fair chance Japanese equity markets and the yen will see heightened volatility this week with two big risk events. On Monday, the ruling Liberal Democratic Party (LDP) elects a new leader days before the national diet elects a new prime minister.
Following the resignation of Shinzo Abe on health grounds, chief cabinet secretary Yoshihide Suga is the favourite to replace him. Whilst he is the continuity candidate and has pledged to carry on with Abenomics, there is a risk that he may call an election, which could introduce political risk to the JPY and Nikkei 225. The Bank of Japan statement the day after the Diet vote is not anticipated to rock the boat.
On the FTSE, keep an eye out for Ocado Q3 earnings on Tuesday, with investors keen to get a read on how the Marks & Spencer partnership has started. Investors will also want to know the perennial question – where is the cash? Ocado’s share price has rocketed this year on the boom in online retail. Its +80% rally in 2020 puts it behind only Fresnillo in terms of YTD gains.
However, it’s yet to really deliver any returns to investors by way of free profit.
Meanwhile retail bellwether Next (-16% YTD) is a cash cow that even with a collapse in the high street consistently manages to deliver free cash flow. Its half year results follow on Thursday. In July the company reported that while full price sales in the second quarter were down -28% against last year, this was far better than expected and an improvement on the best-case scenario given in the April trading statement. Management guided full year profit before tax at £195m.
Highlights on XRay this Week
Read the full schedule of financial market analysis and training.
|17.00 UTC||14-Sep||Blonde Markets|
|From 15.30 UTC||15-Sep||Weekly Gold, Silver, and Oil Forecasts|
|13.00 UTC||16-Sep||Indices Insights|
|14.45 UTC||17-Sep||Master the Markets|
|17.00 UTC||17-Sep||Election2020 Weekly|
Key Events this Week
Watch out for the biggest events on the economic calendar this week. A full economic and corporate events calendar is available in the platform.
|09.00 UTC||14-Sep||Eurozone Industrial Production|
|01.30 UTC||15-Sep||RBA Monetary Policy Meeting Minutes|
|02.00 UTC||15-Sep||China Industrial Production & Retail Sales|
|06.00 UTC||15-Sep||UK Unemployment Rate, Claimant Count Change|
|09.00 UTC||15-Sep||Germany, Eurozone ZEW Economic Sentiment|
|After-Market||15-Sep||Adobe – Q3 2020|
|06.00 UTC||16-Sep||UK Consumer Price Index|
|12.30 UTC||16-Sep||US Retail Sales|
|14.30 UTC||16-Sep||US EIA Crude Oil Inventories|
|18.00 UTC||16-Sep||FOMC Interest Rate Decision, Economic Projections|
|18.30 UTC||16-Sep||FOMC Press Conference|
|22.45 UTC||16-Sep||New Zealand Quarterly GDP|
|01.30 UTC||17-Sep||Australia Employment Change, Jobless Rate|
|04.00 UTC||17-Sep||Bank of Japan Rate Decision & Statement|
|11.00 UTC||17-Sep||Bank of England Interest Rate Decision|
|12.30 UTC||17-Sep||US Weekly Jobless Claims|
|14.30 UTC||17-Sep||US EIA Natural Gas Storage|
|23.30 UTC||17-Sep||Japan Inflation Rate|
|06.00 UTC||18-Sep||UK Retail Sales|
|12.30 UTC||18-Sep||Canada Retail Sales|
|14.00 UTC||18-Sep||US Preliminary University of Michigan Sentiment Index|
Upbeat start for European equities
No Monday morning blues for equities after the Bank of Japan announced more stimulus and we’ve some good news from Italy at last and even Deutsche Bank has reported a profit.
The BOJ laid down the gauntlet to the Federal Reserve and European Central Bank, who both meet later this week, by raising its package of support. The BOJ will now buy unlimited government bonds (JGBs), catching up with market expectations, and is increasing how much corporate and commercial paper it buys.
The moved gave an upbeat tone to trading in Asia. Tokyo rose 2.7% whilst Hong Kong rose 2%. European shares followed suit with the FTSE 100 opening above 5800 and the DAX reclaiming 10,500. Indices remain in consolidation phase and risk rolling over as momentum fades, but the news today is quite positive. US futures are positive after closing higher on Friday but falling over the course of the week.
Italian and German yield spreads came in after S&P didn’t downgrade Italian debt. This is good news for the ECB, which may well increase its pandemic asset purchase programme by €500bn this week.
On the Covid-19 front, Italy is also making progress and will relax lockdown measures from May 4th. Spain has reported its lowest daily death toll in a month. Boris Johnson is back to work.
Meanwhile Deutsche Bank reported exceeded expectations on profits and revenues in the first quarter but warned on loan defaults as a result of Covid-19. Investors shrugged off the warning and shares rose 7%, sending European banking stocks higher by around 3%. It’s a very big week for earnings releases – HSBC, BP, Shell, Amazon, Alphabet, Facebook and the rest.
Oil has taken a turn lower as fears of approaching ‘tank tops’ imminently. The June WTI contract is starting to show stress, gapping lower at the open last night and trending lower to approach $14. Brent is –5% or so at $23.50. Goldman Sachs estimates global storage capacity will be reached in just three weeks, which would require a shut-in of 20% of global output. That would chime with what we’ve been tracking and suggests OPEC+ cuts of 9.7m are – as anticipated – not nearly enough. It will make the Brent front-month contract liable to volatility, though perhaps not quite what we have seen in WTI. Baker Hughes says oil rigs in the US were down 60 in the week to Apr 24th to 378, the fewest active since 2016 and well under half the number this time a year ago.
In FX, speculators are dialling up their net long bets on the euro. The Commitment of Traders (COT) from the US Commodity Futures Trading Commission shows euro net longs rose to 87.2k contracts in the week to Apr 21st, the most since May 2017. Traders turned long at the end of March and have been adding to positions since. The last time a move like this occurred in EUR positioning in 2017 it preceded a 15% rally in EURUSD.
Meanwhile, speculators net short bets on the USD are now at the highest in two years as traders call the top in the dollar. Traders habitually call the top in the dollar and get it wrong. Various actions taken by the Fed to improve liquidity and an easing in the market panic we saw in March has helped, but the dollar remains the preferred safe harbour in times of market stress.
EURUSD – the last time specs turned this long was in May 2017.
DAX – rangebound, approaching top Bollinger band.
Week Ahead: Markets bet on Fed rate cut
Welcome to your guide to the week ahead in the markets. Federal Reserve, Bank of England and Bank of Japan policy meetings ahead.
Markets bank on Fed cut
Equity markets have recovered from the August doldrums to push higher, with the S&P 500 hitting 3,000 again. All eyes will be on the Fed this week as it’s expected to cut rates – the question will be how many more cuts should the market bank on? Market pricing suggests a 90% chance of a cut, with a roughly 70% of at least another by the end of the year. The FOMC decision will be announced at 18:00 (GMT) on Wednesday.
Bank of England to stand pat
Wages are rising at 4% and inflation is on target at 2% – perfect conditions for the Bank of England to raise rates. But the uncertainty over Brexit and signs of a slowdown in GDP growth are likely to leave policymakers standing pat for the time being. The Monetary Policy Committee decision is due at 11:00 (GMT) on Thursday.
Anything from Bank of Japan?
The Bank of Japan is also in action Thursday, with markets anticipating no change to its ultra-loose monetary policy. In fact, governor Haruhiko Kuroda said recently that cutting rates deeper into negative territory is among its policy options. Meanwhile, inflation remains stubbornly low, sinking in July to its weakest level in two years.
Kingfisher and Next earnings
Results from Kingfisher and Next are among the main events on the corporate diary. For Kingfisher it’s likely to be more of the same with trading tough in France, whilst things are improving in the UK, where B&Q enjoyed a decent bump in like-for-like sales in the first quarter. Next interims come after it delivered a blockbuster trading statement at the end of July as sales growth in Q2 picked up markedly and was well ahead of expectations. Full price sales rose 4%, a thumping beat on the -0.5% guided in May.
These are the upcoming company announcement to put in your calendar.
|September 17th||Adobe Inc||Q3|
|September 17th||FedEx Corp||Q1 2020|
|September 18th||Kingfisher Plc||Interim Results|
|September 19th||Next Plc||Interim Results|
Coming Up On XRay
Watch live or catch up on YouTube. Plus, if you subscribe via the MARKETSX platform, you can submit questions in real time.
|07.15 GMT||Sept 16th||European Morning Call|
|15.30 GMT||Sept 17th||Asset of the Day: Bullion Billions|
|15.45 GMT||Sept 17th||Asset of the Day: Oil Outlook|
|19.00 GMT||Sept 17th||LIVE: Trader Training|
|18.00 GMT||Sept 18th||The Stop Hunter’s Guide to Technical Analysis (part 3)|
Key Economic Events
There’s a lot going on in the coming week, here are the events we to watch out for.
|01.30 GMT||Sept 17th||RBA Monetary Policy Meeting Minutes|
|09.00 GMT||Sept 17th||German/Eurozone ZEW Economic Sentiment|
|08.30 GMT||Sept 18th||UK CPI Inflation|
|18.00 GMT||Sept 18th||FOMC Monetary Policy Decision Annoucement|
|18.30 GMT||Sept 18th||FOMC Press Conference|
|22.45 GMT||Sept 18th||New Zealand GDP (QoQ)|
|01.30 GMT||Sept 19th||Australia Employment Change/ Employment Rate|
|04.00 GMT||Sept 19th||Bank of Japan Interest Rate Decision|
|07.30 GMT||Sept 19th||Swiss National Bank Rate Announcement|
|11.00 GMT||Sept 19th||BoE Monetary Policy Decision Announcement|
Little help for rangebound yen likely from Bank of Japan commentary
The Bank of Japan releases its Summary of Opinions and monetary policy meeting minutes this week. Policy normalisation is moving at a glacial pace, so the safe-haven yen is unlikely to find support on the latest comments from policymakers.
Central banks around the world are tilting towards the dovish end of the spectrum. This is epitomised by the futures market’s pricing in of a rate cut from the Federal Reserve this year. However, when it comes to caution, the Bank of Japan is the archetype – it was the first to implement quantitative easing and continues to pump trillions into the economy while tinkering with the yield curve and keeping rates negative.
The plan is unlikely to change any time soon, especially now that global conditions appear to be weakening. There is little certainty on a macro level to suggest the BOJ’s work is anywhere near done, even if the fears of a worldwide recession that tanked markets at the end of 2018/beginning of 2019 were overdone.
This leaves the yen facing more of the same; a narrow trading range against its major peers.
USD/JPY edges higher as fears over US growth fears ease
The US dollar has been slowly pressuring the yen lower over the course of the past few months. Strong US data has helped ease fears over the need for the Federal Reserve to pivot too severely into dovish territory.
EUR/JPY rangebound as ECB and BOJ battle for dovish crown
The EUR/JPY pairing was almost slap-bang in the middle of its multi-week trading range at the time of writing. While the European Central Bank could bring quantitative easing back into play later in the year, which would be yen-supportive, the long-term outlook remains that it will be the weakening of overseas policy outlooks that push JPY higher in the near-term, not the machinations of its own BOJ.
Yen unable to take advantage as Brexit uncertainty keeps pound floored
GBP/JPY is just a pinch overbought on the Relative Strength Index. The chart above shows how the pairing has settled into a narrow channel over the past few weeks. Brexit uncertainty is keeping sterling on pause, however the yen is unable to capitalise on this due to the lack of optimism surrounding Japanese monetary policy.