Week of Sept 11

Central banks were the focus of the past week, with the ECB going through with a hike and officials clearing up policy-change comments from BOJ’s head. The coming week sees an intensive schedule of rate decisions, chief among them the Fed, the BOJ and the BOE, with the week rounding off on the first look at PMI data for September.

Top Events in Review

The ECB hiked by a quarter of a point after there were about even odds from forecasters of a hike or pause. The staff projections cutting the shared economy's GDP outlook offset some of the hawkishness. 

US inflation was largely in line with expectations, with headline slightly higher, maintaining the disinflation narrative that has put doubts into whether the Fed will hike again before the year ends. 

UK wage growth was stronger than expected, but the unemployment rate rose. At the same time, the monthly GDP figure underperformed, putting the BOE in an increasingly difficult position to bring down inflation before the economy stalls. 

An interview with BOJ Governor Kazuo Ueda published last Sunday riled up the yen, as it suggested that the conditions for exiting the ultra-easing policy might be met sooner than expected. Throughout the week, several government officials came out to "clarify" the remarks, insisting that the easing policy would remain in place. 

In political news, media speculates that the US might face a political shutdown as the divided Congress has yet to produce a budget. Meanwhile, the House initiated an impeachment inquiry into President Joe Biden. Moreover, North Korean leader Kim Jung Un travelled to Russia to meet with Putin and work on deepening military ties. In addition, Japanese Prime Minister Fumio Kishida announced a cabinet reshuffle as is traditional in September, with the major posts, such as the Minister of Finance, remaining unchanged.

Biggest Market Movers

Crude prices continued higher for the 3rd week in a row, this time following Saudi and Russian cuts, and OPEC reports seeing a tight market and improved views on the global economy. Next up lies $92.50 a barrel as long as $87.20/bbl holds firms.

Yen fluctuated as the market reacted to commentary from Japanese officials. However, the USD/JPY pair stayed under 147.77 but is heading into a positive close as it opened below the 147 handle.

The Dollar index crawled higher through the week as US yields strengthened ahead of the FOMC meeting, marking its 9th week of consecutive gains.

Top Events in the Week Ahead

Central bank meetings are expected to be the dominating theme for the markets this week. 

Fed Expected to Hold, But What Next?

The Fed is widely expected to keep rates unchanged, but there is considerable uncertainty about what will happen afterwards. With around 50% of the market expecting a hike at the next meeting in November, Powell's language will be closely scrutinised for any sign of which of the near-even split is right about a hike or continued pause. A dovish tilt might open the door to SPX 4600, whereas hawkishness may pressure the index towards 4500.

Will the BOE Run Out of Hikes After this Meeting?

The BOE is not in a similar position, with a strong majority expecting another rate hike. But after that is where the question lies, as disappointing data has led many analysts to suspect the BOE will run out of room to tighten. Coupled with Governor Andrew Bailey's insistence that inflation will come down fast in the near future is seen as a sign that there is a good chance that Thursday could be the last time the BOE hikes this cycle. If bulls can solidify $1.24, we may see a bounce towards $1.2590. Otherwise, cable may slide towards $1.2340.

Ueda in Hot Spot After Last Week’s Comments

No change in policy is expected from the BOJ. Still, Governor Kazuo Ueda is likely to be subjected to intense scrutiny, given his comments last week about potentially being able to raise rates before the year is out. Other officials were seen walking that interpretation back, insisting on the ultra-easing policy. But with the yen so weak, there is intense interest in whether the BOJ will adjust policy to shore up the currency again. The USD/JPY pair could see an advance towards the 150 handle if bulls maintain demand, with a drop under 146 exposing 145.

Swiss Bank Also Seen Hiking in Europe

Finally, the SNB is expected to raise rates by a quarter of a point but keep to the mantra that future action will be data-dependent. With the dollar stronger, USD/CHF could see an upward spiral to 0.90, where bulls are expected to face resistance. Losing 0.89 may offer further declines, with expected support below near 0.8850.

Inflation Data to Keep Market on Its Toes

Several countries will release inflation data amid the barrage of central bank decisions. The first is Canada, which is expected to have a more muted impact, given the BOC recently decided to keep rates on hold. After killing an 8-week winning streak for the dollar, USD/CAD remains at risk of 1.3380 under 1.35, with a bounce seeing potential respite to 1.3580. UK inflation data is coming out just one day before the BOE meeting and could cause a shift in expectations for what the BOE could do if inflation undershoots substantially. 

The Eurozone is expected to confirm its final August inflation rate at 5.3%, but there have been surprises with the final revision of data lately. Under pressure and with nine weeks on a decline, EUR/USD could put a low in temporarily, increasing chances of rising to $1.078. If the double-bottom formation breaks down, the pair could visit upper $1.05 territories.

Japan will release its latest inflation figures mere hours before the BOJ meets on policy. Still, unless there is a major surprise, economists seem confident that the data won't change the outlook for the BOJ's rate decision.

Improvement in Flash PMIs Still Expected

Major economies will release a preliminary measure of their September PMIs, which will be in focus as investors look for signs of whether there will be a soft or hard landing. 

Japan is expected to return to expansion by the bare minimum, while Australia is seen falling further into contraction. German Manufacturing PMI is expected to remain in contraction but rebound, but the other members of the shared economy are seen slipping further into contraction, as well as the UK. US Manufacturing PMI is expected to recover, but services fall into contraction.

Other events, earnings

Tuesday has the release of RBA minutes. For Wednesday, Japan's trade balance is expected. Friday sees New Zealand trade balance and UK retail sales. Earnings expected through the week include AutoZone, FedEx, General Mills and Darden Restaurants.