Week ahead: Fed set to announce tapering?

Week Ahead

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 
  7:00am  CHF  Trade Balance 
    GBP  Public Sector Net Borrowing 
  11:00am  GBP  CBI Industrial Order Expectations 
  1:30pm  CAD  NHPI m/m 
    USD  Building Permits 
    USD  Current Account 
    USD  Housing Starts 
  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 
  3:00pm  EUR  Consumer Confidence 
    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 
  10:45pm  NZD  Trade Balance 
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