Week of SEPTEMBER 16TH

The key events of the past week included the US CPI registering somewhat above-expected inflation and the ECB signaling greater emphasis on inflation concerns after cutting rates by 25 basis points.

Upcoming events promise a heightened focus on central banking as the Federal Reserve, BOE, and BOJ each assess their policy stances. Inflation data from the UK, Japan, and Canada will also provide further insight.​

Week in Review

The week's focus was monetary policy, with markets broadly unchanged ahead of US inflation figures. While headline inflation for August was lower than expected, core inflation came in slightly higher, sending stocks lower initially but rebounding as the likelihood of interest rate cuts increased on higher-than-expected jobless claims.

The ECB meeting also surprised observers, delivering a rate cut as forecast but signaling a more positive outlook than anticipated after President Christine Lagarde reiterated that inflation is expected to increase later this year.

UK jobs data was mixed, with unemployment benefit claims rising but wages growing at their slowest in two years. Markets disliked slower-than-expected UK GDP growth as the trade deficit widened beyond forecasts.

BOC Governor Tiff Macklem stated additional interest rate reductions may be needed if the economy weakens. USDCAD witnessed an upside but failed to get through the 50-week MA of 1.36.

Hurricane Francine caused some Gulf of Mexico oil production shutdowns starting Tuesday before landfall late Wednesday, halting around a quarter of output. WTI reversed to $70 per barrel after falling to a May 2023 low of $65 per barrel, ending a 4-week losing streak.

In geopolitics, uncertainty regarding the upcoming US election increased mid-week after the presidential debate but was later overshadowed by inflation.​

Biggest Market movers

• Gold rose over 3% to new highs following US inflation data and higher jobless claims, which supported more interest rate cuts.
• The price of Brent crude oil dipped below $70 per barrel to a 2021 low after OPEC revised down its forecast for demand growth but later recovered as the economic outlook became more positive, gaining over 6%.
• The Japanese yen strengthened across the board as BOJ representatives discussed the need to continue raising interest rates., sending USDJPY over 1% lower near 2023 lows.

Top Events in the Week Ahead

The coming week will see markets dominated by a series of central bank meetings, with considerable uncertainty around policy setting.

Central Banks in Focus

The Fed's Wednesday announcement will be the main focus, with unanimous expectations of an interest rate cut. Following jobless claims, the chances of a 50 basis point cut have increased, suggesting the FOMC could take more aggressive action. Markets will also watch for any guidance on the following meeting in October. EURUSD could reuse its upside towards 1.12 if the probability of an October rate cut improves.

The BOE meets on Thursday, and economists generally agree that policy will remain unchanged. However, inflation data released the day before could shake up those expectations at the eleventh hour. Markets anticipate inflation will continue slowing gradually. Attention will be paid to the vote count and commentary to ascertain if the rate cut in October, as currently priced in, will indeed transpire. Cable has major levels at 1.30 and 1.3250.

On Friday, the BOJ gathers with universal expectations of no rate hike despite its history of surprising investors. Focus will be on any commentary providing insight into the timing of the next tightening round, as markets do currently incorporate at least one more rate rise by year-end. USDJPY could decline to 140 and perhaps lower unless bulls can reclaim 143.50 amid potential disappointment.

Inflation Prints During Central Bank Meetings

The UK is expected to report headline inflation returning to the target of 2%, with core inflation remaining at 3.3%. This data will be published one day before the BOE policy meeting.

Canada is forecast to announce headline inflation easing slightly to 2.4% while core inflation stays at 1.7%. Given this, the BOE is expected to maintain a dovish stance.

Japan will disclose inflation figures during the ongoing BOJ meeting and only hours before their decision is made public. Consumer prices are projected to rise to 3% from the previous 2.8%, although the underlying "core-core" inflation measure may hold steady at 1.9%.​

Other Events and Earnings

On Monday, Eurozone trade balance figures will be published. Tuesday will include US retail sales data. Japan's trade balance will be released on Wednesday. Australia's employment report is scheduled for Thursday. Friday will provide UK retail sales and Canadian PPI.

In terms of corporate earnings, the week is expected to be light. Selected companies such as Ferguson, General Mills, FedEx, Lennar and Darden Restaurants will announce earnings updates to investors.​