Week of Sept 11

A relatively quiet week followed the US Labor Day holiday, with both the BOC and RBA pausing as expected, but the central bank of Poland surprised by cutting rates more than expected. In the week ahead, the US will release its inflation data and the ECB is expected to hike rates again, but the consensus is showing some cracks.

Top Events in Review

Initial optimism from the weekend following a softer NFP and China announcing new measures to support its housing industry gave way on Tuesday to a downturn in risk appetite as global PMIs disappointed. In particular, Eurozone Services PMI was revised lower, with the composite falling to the weakest reading since the end of 2020, as the Sentix Institute warned that Germany was still in a recession. For the US, the narrative was expectations for inflation pressures to remain as the prices paid component of PMI measures were well above expectations. Yields were also pushed higher by large corporate debt coming to market. 

The US trade deficit shrank as exports grew faster than expected and faster than imports, which exceeded expectations. China's trade surplus shrank, with imports and exports falling slower than expected. 

A series of BOJ speakers came out to defend the ultra-easing policy, suggesting that the recent strength in the Japanese economy was transitory. The RBA kept rates unchanged, as expected, though it reiterated its stance that further rate action might be necessary. Aussie slid to an 11-month low but managed to glue near 0.64. The BOC also kept rates on ice but warned that the economy was facing headwinds.

Biggest Market Movers

Yen hit a ten-month low against the dollar at 148 on easing comments and higher US yields, with Japanese officials not going beyond saying that they were "watching" the market.

Oil completed nine days of gains, the longest streak in more than four years after Russia and Saudi Arabia extended production curbs, also registering a 10-month high at $88 a barrel.

Safe haven flows and rising yields over the possibility of another rate hike by the Fed helped drive the dollar index past 105 to mark its 8th consecutive week of gains. EURUSD got closer to its 50-week support at $1.0669.The Canadian dollar fell to a 5-month low after the BOC didn't hike, while commodities retreated in the latter half of the week. It also marked its 8th weekly gain in raw.

Top Events in the Week Ahead

Monetary policy is expected to be the main theme for the coming days, first with the release of US CPI, which is seen as pivotal for the Fed's upcoming rate decision, and the ECB expected to raise rates by 25bps.

US CPI Expected To Rise Again

Headline inflation is expected to rise to a record 3.4% annually compared to 3.2% for the second consecutive monthly increase. However, the pivotal data for the Fed is the core rate, which is expected to continue to drop to 4.5% from 4.7% prior. US August PPI is seen accelerating to 0.4% from 0.3% prior. Ahead of the data release, there is a near-unanimous consensus that the Fed won't raise rates in the September meeting, with eyes on whether a hike might happen in November if inflation is above expectations.

Gold ended the week lower after receiving rejection at the 50-week SMA the week prior, with $1915 and $1940 an ounce potentially offering breakouts. Gold could slide closer to the $1900 handle if inflation numbers exceed expectations. 

Bankers in Europe to Get Busy 

The consensus is relatively shaky, with a 55-45 split in economists in favour of a hike. At the last ECB meeting, Lagarde opened the possibility of a pause in September, and there has been much public disagreement on whether or not to hike, with even hawks such as ECB Board Member Joachim Nagel (Germany) saying he hadn't made up his mind about whether a hike was appropriate or not. The consensus seems to be forming around the notion that the ECB will hike and suggests that a pause afterwards would be appropriate to split the difference between hawks and doves. Some analysts point to the ECB potentially proposing alternative measures to achieve its inflation reduction goals amid a stagnating economy, such as raising the bank's reserve requirements.

If the ECB acts unfavourably, EUR/USD could slide below the 50-week SMA at $1.0669, with $1.06 on the bears' radar. Price action will also hang on the US CPI, though. Reclaiming $1.0746 may offer some respite.

A Barrage of UK Data

The UK is expected to report its July unemployment remained unchanged at 4.2%, with average earnings slowing the pace of growth to 8.0% from 8.2%, a week ahead of the BOE's decision where there is still some lack of clarity about whether another rate hike will be decided on. The UK is expected to report a loss of 80K jobs in July, a pick up in the pace from 66K prior. July's GDP is expected to turn negative at -0.3% compared to the surprise 0.5% growth recorded in June, with monthly manufacturing production turning negative at -2.7% from 2.4% prior. 

Cable is not looking ripe below $1.25 or the 20-week SMA at $1.2650, with chances of falling towards mid-$1.23 increasing unless bulls take control of $1.2550. 

Other Events and Earnings

Monday has Chinese new loans. For Tuesday, Australian consumer confidence is expected. Wednesday has EuroZone industrial production. US retail sales for August are released on Thursday. Friday sees China house prices and retail sales, and the Eurozone trade balance. 

Earrings seen through the week include Oracle, Adobe, Tupperware Brands, Cracker Barrel and Smith & Wesson.