Week Ahead: Markets bet on Fed rate cut
Welcome to your guide to the week ahead in the markets. Federal Reserve, Bank of England and Bank of Japan policy meetings ahead.
Markets bank on Fed cut
Equity markets have recovered from the August doldrums to push higher, with the S&P 500 hitting 3,000 again. All eyes will be on the Fed this week as it’s expected to cut rates – the question will be how many more cuts should the market bank on? Market pricing suggests a 90% chance of a cut, with a roughly 70% of at least another by the end of the year. The FOMC decision will be announced at 18:00 (GMT) on Wednesday.
Bank of England to stand pat
Wages are rising at 4% and inflation is on target at 2% – perfect conditions for the Bank of England to raise rates. But the uncertainty over Brexit and signs of a slowdown in GDP growth are likely to leave policymakers standing pat for the time being. The Monetary Policy Committee decision is due at 11:00 (GMT) on Thursday.
Anything from Bank of Japan?
The Bank of Japan is also in action Thursday, with markets anticipating no change to its ultra-loose monetary policy. In fact, governor Haruhiko Kuroda said recently that cutting rates deeper into negative territory is among its policy options. Meanwhile, inflation remains stubbornly low, sinking in July to its weakest level in two years.
Kingfisher and Next earnings
Results from Kingfisher and Next are among the main events on the corporate diary. For Kingfisher it’s likely to be more of the same with trading tough in France, whilst things are improving in the UK, where B&Q enjoyed a decent bump in like-for-like sales in the first quarter. Next interims come after it delivered a blockbuster trading statement at the end of July as sales growth in Q2 picked up markedly and was well ahead of expectations. Full price sales rose 4%, a thumping beat on the -0.5% guided in May.
These are the upcoming company announcement to put in your calendar.
|September 17th||Adobe Inc||Q3|
|September 17th||FedEx Corp||Q1 2020|
|September 18th||Kingfisher Plc||Interim Results|
|September 19th||Next Plc||Interim Results|
Coming Up On XRay
Watch live or catch up on YouTube. Plus, if you subscribe via the MARKETSX platform, you can submit questions in real time.
|07.15 GMT||Sept 16th||European Morning Call|
|15.30 GMT||Sept 17th||Asset of the Day: Bullion Billions|
|15.45 GMT||Sept 17th||Asset of the Day: Oil Outlook|
|19.00 GMT||Sept 17th||LIVE: Trader Training|
|18.00 GMT||Sept 18th||The Stop Hunter’s Guide to Technical Analysis (part 3)|
Key Economic Events
There’s a lot going on in the coming week, here are the events we to watch out for.
|01.30 GMT||Sept 17th||RBA Monetary Policy Meeting Minutes|
|09.00 GMT||Sept 17th||German/Eurozone ZEW Economic Sentiment|
|08.30 GMT||Sept 18th||UK CPI Inflation|
|18.00 GMT||Sept 18th||FOMC Monetary Policy Decision Annoucement|
|18.30 GMT||Sept 18th||FOMC Press Conference|
|22.45 GMT||Sept 18th||New Zealand GDP (QoQ)|
|01.30 GMT||Sept 19th||Australia Employment Change/ Employment Rate|
|04.00 GMT||Sept 19th||Bank of Japan Interest Rate Decision|
|07.30 GMT||Sept 19th||Swiss National Bank Rate Announcement|
|11.00 GMT||Sept 19th||BoE Monetary Policy Decision Announcement|
Little help for rangebound yen likely from Bank of Japan commentary
The Bank of Japan releases its Summary of Opinions and monetary policy meeting minutes this week. Policy normalisation is moving at a glacial pace, so the safe-haven yen is unlikely to find support on the latest comments from policymakers.
Central banks around the world are tilting towards the dovish end of the spectrum. This is epitomised by the futures market’s pricing in of a rate cut from the Federal Reserve this year. However, when it comes to caution, the Bank of Japan is the archetype – it was the first to implement quantitative easing and continues to pump trillions into the economy while tinkering with the yield curve and keeping rates negative.
The plan is unlikely to change any time soon, especially now that global conditions appear to be weakening. There is little certainty on a macro level to suggest the BOJ’s work is anywhere near done, even if the fears of a worldwide recession that tanked markets at the end of 2018/beginning of 2019 were overdone.
This leaves the yen facing more of the same; a narrow trading range against its major peers.
USD/JPY edges higher as fears over US growth fears ease
The US dollar has been slowly pressuring the yen lower over the course of the past few months. Strong US data has helped ease fears over the need for the Federal Reserve to pivot too severely into dovish territory.
EUR/JPY rangebound as ECB and BOJ battle for dovish crown
The EUR/JPY pairing was almost slap-bang in the middle of its multi-week trading range at the time of writing. While the European Central Bank could bring quantitative easing back into play later in the year, which would be yen-supportive, the long-term outlook remains that it will be the weakening of overseas policy outlooks that push JPY higher in the near-term, not the machinations of its own BOJ.
Yen unable to take advantage as Brexit uncertainty keeps pound floored
GBP/JPY is just a pinch overbought on the Relative Strength Index. The chart above shows how the pairing has settled into a narrow channel over the past few weeks. Brexit uncertainty is keeping sterling on pause, however the yen is unable to capitalise on this due to the lack of optimism surrounding Japanese monetary policy.