Week of September 19

A long list of central banks have policy meetings next week, with the Fed and the BOE the ones expected to shake up the markets.

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The week in review

The event that dominated the week was the release of US CPI figures, showing headline inflation slowing less than expected, but core inflation accelerating more than estimated. The implication is that inflation is becoming more ‘entrenched’ in everyday purchases even as energy prices come down from recent peaks.

On raised bets that the Fed would tighten more and for longer, the dollar strengthened and stock markets tumbled. On the day CPI was released the Nasdaq lost 5% and the S&P 500 had its worst day since 2020. Wall Street added to the losses over the rest of the week, taking stocks to their weakest in 3 months. Stocks in Europe also fell, though fared slightly better than those across the pond.

GBP/USD fell to a fresh 47-year low while EUR/USD is back below parity. USD/JPY dropped back form the 145 handle after it was reported that the Bank of Japan conducted a "rate check", a move seen as anticipatory of direct intervention in the forex market. Elsewhere in Asia FX, the Chinese offshore yuan popped above 7.0 for the first time since the middle of the pandemic.

The anticipated meeting between Putin and Xi on Thursday didn't come with any ground-breaking announcements but underscored cooperation between the countries. 

Gold dropped to new 2022 lows as yields and the dollar rose.

The week ahead

Banks, banks, and banks

Twelve key central banks meet this week, five of them from emerging markets. 

The focus is on the Fed, which is expected to raise rates by another 75bps, though several analysts are calling for a 100bps rate hike. Powell has vowed to restore the Fed's "credibility" by aggressively fighting inflation, but warning signs of an impending hard landing keep coming up. 

The BOE is in a similar position, having more cautiously raised rates but now has to deal with British inflation even higher than in America. While the majority of economists forecast another 50bps hike, there is a growing contingent expecting 75bps - especially if the Fed takes a more hawkish tone. 

Then on the same day or very soon after, Chancellor Kwarteng is expected to announce details of the energy cap scheme, with the crucial aspect as far as fiscal and monetary policy is concerned: How will the massive program be paid for? Both events will impact the pound. GBP/USD is down at 1985 levels and at risk of sliding to $1.10 and if BOE disappoints. 

Besides the FOMC and BOE, meetings are expected from the SNB, BOJ, Riksbank, Norges Bank, and the central banks of Brazil, South Africa, Taiwan, Philippines, Indonesia, and Turkey.

A busy week on the data front

Japan is due to report nationwide August inflation figures ahead of the BOJ meeting. Although expected to come in above target, there is little expectation that the BOJ will change policy. The US publishes the latest housing data as the real estate market faces an important slump with rising interest rates. The week closes out with flash PMIs from major economies, which could give some advance notice of whether growth is starting to stall again.

Other events and earnings

Monday has Canadian PPI, ahead of Canadian CPI on Tuesday. USD/CAD is poised to stay firm above $1.32 with $1.3420 being a major resistance. Wednesday includes Sweden's unemployment rate. Thursday has US current account and EuroZone consumer confidence. 

Earnings of note include Autozone, Lennar, General Mills, FedEx, Carnival, and Costco.