- MON: Japanese Holiday; Canadian Producer Prices (Aug)
- TUE: RBA Minutes (Sep); EZ Current Account (Jul), US Building
Permits/Housing Starts (Aug), Canadian CPI (Aug) - WED: FOMC, PBoC LPR, Banxico & BCB Policy Announcements, BoC
Minutes (Sep); Japanese Trade Balance (Aug), UK CPI (Aug), Swedish Unemployment
(Aug), New Zealand GDP (Q2) - THU: BoE, SNB, Riksbank, Norges Bank, SARB & CBRT Policy
Announcements; UK PSNB (Aug), US IJC, Existing Home Sales (Aug), EZ Flash
Consumer Confidence (Sep), New Zealand Trade Balance (Aug) - FRI: BoJ Policy Announcement; EZ/UK/US Flash PMIs (Sep), Japanese CPI
(Aug), UK Retail Sales (Aug), Canadian Retail Sales (Jul)
NOTE: Previews are listed in day order
RBA Minutes (Tue):
RBA minutes from the September 5th meeting where it kept rates unchanged
at 4.10%, as widely expected, at Governor Lowe’s final meeting at the helm, are
due next week. As a reminder, the accompanying rhetoric provided no surprises
as it reiterated that some further tightening of monetary policy may be
required and the Board remains resolute in its determination to return
inflation to target. The RBA also stated that higher interest rates are working
to establish a more sustainable balance between supply and demand in the
economy and will continue to do so, but added that inflation is still too high
and will remain so for some time yet. Furthermore, it said the pause will
provide more time to assess the impact of the increases in interest rates to
date and the economic outlook, but noted increased uncertainty around the
outlook for the Chinese economy due to ongoing stress in the property market
and that the outlook for household consumption also remains uncertain. The
minutes are not likely to spark any major fireworks given the transition at the
central bank, while RBA watcher McCrann recently suggested that further rate
increases are unlikely, but he also does not expect any cuts.
Canadian CPI (Tue):
With headline inflation currently running at 3.3% Y/Y, and the core at
3.2% Y/Y, analysts will be looking to the data to see if there has been
progress in terms of disinflation. BoC chief Macklem recently lamented that
inflation was still too high, and there was little downward momentum in
underlying consumer prices, warning that the central bank must stay the course
as it tries to rein in prices, adding that the longer the BoC waits to act, the
more difficult the task will become. Macklem also said that we should expect
headline inflation to move higher in the near-term before it begins to ease
again. In terms of a policy response, the BoC boss said that when inflation was
back down to 2%, we can expect rates will come down, but we are not there yet.
FOMC Announcement (Wed):
The FOMC is expected to hold rates between 5.25-5.50% on Wednesday,
according to both the market consensus and money market pricing. Traders will
be looking to the updated economic projections to see whether the central bank
is still working on the assumption that it will hike interest rates once more
in 2023, in line with its previous SEP, or whether it now sees rates as having
reached terminal. Markets are currently suggesting that the Federal Funds Rate
has already reached terminal, though it has assigned around 50/50 chances that
we could see another hike this year. Looking ahead, markets are pricing rate
cuts next year, with the first fully discounted cut seen in July 2024, although
it is a close call for June. Fed officials have been dismissing any talk of
rate cuts, and have suggested that rates could be held at terminal levels for
an extended amount of time as it continues to try and bring price growth in
line with its target.
PBoC LPR Announcement (Wed):
The PBoC is likely to maintain its benchmark Loan Prime Rates next week
with the 1-Year LPR currently at 3.45% and 5-Year at 4.20%. As a reminder, the
PBoC disappointed market expectations last month regarding its Loan Prime Rates
when it defied the consensus for 15bps cuts and instead delivered a modest
10bps rate cut for the 1-Year LPR to 3.45% from 3.55% and surprisingly
maintained the 5-Year LPR at 4.20%. The wide expectations for a deeper cut last
month followed the surprise decision to reduce the 1yr MLF rate by 15bps to
2.50% which serves as a bellwether for the central bank’s intentions for the
benchmark LPRs, while the PBoC had also unexpectedly lowered the rate on its
7-day Reverse Repo operations by 10bps to 1.80%, which was the same magnitude that
it cut its Standing Lending Facility rates by. Furthermore, the decision to
keep the 5-Year LPR unchanged, which is the reference rate for mortgages,
spurred some confusion given the numerous pledges by the central bank and
government agencies to support the property sector. Nonetheless, a potential
adjustment cannot be ruled out, especially in the 5-year LPR, after further
measures to support its property sector in the face of ongoing developer
default concerns, including the recent adjustment by China’s big 4 banks of
some rates on existing mortgages for first-home buyers, while the PBoC
subsequently cut the RRR by 25bps.
Banxico Announcement (Wed):
Data showed Mexican CPI rose 0.6% M/M in August, a little above the
expected 0.5%, but the annual rate cooled to 4.6% Y/Y from 4.8% in July.
Services inflation, however, which Banxico officials have been closely
watching, was unchanged at 5.0% Y/Y, a function of hot wage growth, which is
currently running at a rate of above 10% Y/Y, keeping many of the central
bank’s officials in a hawkish mood. “Disinflation in Mexico remains
broad-based, which will allow Banxico to cut interest rates in Q4, in both
November and December,” Pantheon Macroeconomics writes, but adds that “policymakers’ still-hawkish tone, though, has increased the likelihood of
the easing cycle starting in December or early 2024.”
BCB Announcement (Wed):
The recent central bank poll saw economists revise up projections for
inflation this year and next (to 4.93% in 2023 vs 4.92% prior; and to 3.89% in
2024 vs 3.88 prior); Scotiabank says this is largely due to less favourable
base effects as the tax cuts related to fuel and utilities fade. And in
September, an increase in gasoline prices by Petrobras will also result in an
inflation spike to 5%+. “Setting the jump in headline inflation aside, and
considering it is already seen ending the year around 5% (from the 3.2% low in
June), markets will focus on the pace of price gains in services that are the
BCB’s focus,” Scotia writes, “markets are comfortable in their
expectation that the Campos Neto-led central bank will move at a 50bps cutting
pace over the next five or six meetings, but sticky services inflation, a
weaker Real since late-July, and higher energy prices point to limited risk
that the Brazilian front-end will rally in the near-term.” Economists see
the Selic ending this year at 11.75, before being lowered to 9.0% in 2024.
BoC Minutes (Wed):
At the recent policy meeting, the BoC held its policy interest rate at
5.0%, in line with the market expectation, due to evidence that excess demand
in the economy is easing, and given the lagged effects of monetary policy.
However, it said that it remains prepared to raise rates further if needed as
it remains concerned about the persistence of underlying inflationary
pressures, adding that there had been little recent downward momentum in
underlying inflation. The central bank sees the Canadian economy as having
entered a period of weaker growth, which is needed to relieve price pressures.
Speaking the following day, Governor Macklem echoed the hawkish themes within
the policy statement, stating that the longer the BoC waits, the harder it is
likely to be to reduce inflation, and while he reiterated that the BoC was
prepared to raise rates again, he added that it does not want to hike more than
it needs to. Specifically on inflation, Macklem said that the 2% target is in
sight, but we are not there yet, and need to stay the course, and monetary
policy may not be restrictive enough to restore price stability. On policy
lags, Macklem said that it may be taking longer for higher rates to translate
into lower inflationary pressures, and we can expect headline inflation to go
up again in the near term, before it eases back, adding that when inflation has
been above target for long, policymakers become more worried about upside
shocks than downside shocks. As expected, he said it was too early to be
thinking about interest rate cuts, but we should not expect rates to go back to
where they were in the decade between the GFC and COVID.
UK CPI (Wed):
Expectations are for the August headline to increase to 7.0% from 6.8%,
while the core is seen falling incrementally to 6.8% from 6.9%. Upside for the
headline is expected given energy-related inflationary pressures seen across
the EZ and in the US for the month; though, some nations have avoided this
upside and it remains to be seen how long-lasting it will be and what, if any,
impact it will have on the key core figures. As a reminder, the prior release
saw Y/Y CPI fall to 6.8% from 7.9%, as expected, the core hold steady at 6.9%
and all services rise to 7.4% from 7.2% amid an increase in rents; something
which ING judges to be unlikely to be repeated. For the upcoming release, desks
are awaiting the inflation figure as a final input into the announcement, not
so much for this month’s decision when a hike is priced with 75% probability,
but for subsequent announcements as markets imply around a 40% chance of
further tightening post-September, assuming 25bp is delivered. That being said,
a major downward surprise in the August data could be sufficient for the BoE to
leave rates unchanged, given recent remarks from the likes of Pill and some of
the welcome nuances within the most recent wage data.
New Zealand GDP/Trade Balance (Wed/Thu):
Q2 GDP data will be released on Wednesday, with the QQ measure expected
to show 0.5% growth (vs prev. -0.1%), while YY is forecast at 1.2% (prev.
2.2%). Meanwhile, Thursday’s Trade Balance metrics for August currently have no
market expectations. Analysts at Westpac forecast the QQ rate at 0.5%, above
both the market and the RBNZ’s forecasts of 0.5%, but suggest “COVID-19 has
significantly disrupted the usual seasonal patterns and Statistics NZ will be
reviewing its previous estimates this quarter. However, the underlying picture
is that the economy is losing momentum, with annual growth expected to slow to
1.5% from 2.2% previously”. On the flip side, ANZ pencilled in a 0.4% QQ rate
and below the RBNZ’s forecast, “Economic momentum is clearly softening despite
strong population growth, but the Q2 GDP data will still have a fairly wonky
signal-to-noise ratio reflecting lingering cyclone and COVID impacts. Quirky
seasonality and further methodological tweaks by Stats NZ also add to
uncertainty”, says the bank.
SNB Announcement (Thu):
The June SNB Policy announcement saw a 25bp hike to 1.75%. The statement
stated that medium term inflationary pressures had increased once again, and as
such additional hikes cannot be ruled out. Regarding the September review,
headline CPI printed at 1.6% in both July and August, in-line with and slightly
above market expectations respectively; but, crucially just below the SNB’s Q3
view of 1.7%. However, the SNB is more concerned with the medium-term horizon
as it expects inflation to lift back above the 0-2% target band from Q1-2024
onwards. Inflation aside, the growth outlook is turning somewhat downbeat with
Q2 GDP stagnating due to a marked downturn in the manufacturing sector, which
remains well in contractionary territory according to subsequent PMIs. On this,
given the downturn in the EZ’s growth backdrop and ongoing global pressures in
manufacturing, the situation does not point to a near-term improvement. In
terms of the upcoming policy meeting, the aforementioned developments and
actors do not chime with further tightening action; however, it remains to be
seen what the SNB’s assessment of medium-term inflation is following renewed
global energy pressure, particularly as policymakers have been quiet in recent
weeks. Overall, a hike cannot be ruled out given the previously stated
medium-term concerns, but data and market pricing err on the side of an
unchanged announcement.
Riksbank Announcement (Thu):
August’s inflation data saw a much larger than expected pullback in
price pressures, and a decline that was driven by a fall in food and
electricity prices. Additionally, usual seasonal variations apply with the
prices for package holidays also falling. Specifically, electricity was 36.8%
lower YY, defying the energy-driven upside seen in the US and EZ recently.
However, despite the good news on the inflation front a 25bp hike remains
entirely priced given commentary from rate setters recently about their concern
over the SEK. A currency that has come under additional pressure following
recent US data and the latest 25bp ECB hike. As a reminder, the last meeting at
the end of June saw a 25bp hike to 3.75% and a forecast for at least one more
hike this year. Given concerns over the SEK, that hike is likely to come in
September and thereafter we are attentive to any hawkish-alteration to the
policy rate forecast from its current Q2-2024 peak of 4.05%; thereafter, the
forecasts do not indicate any easing until at least Q2-2025.
Norges Bank Announcement (Thu):
Expected to continue the tightening cycle via a 25bp move to 4.25%, as
guided by Governor Bache at the August meeting. A hike that is merited by the
absolute level of CPI remaining well above target, even though the August print
came in in-line with the Norges Bank’s forecasts and softer than market
expectations. Additionally, the strong July GDP prints gives the Bank cover on
the growth-side of the economy to continue tightening, though SSB remarked that
the figures should be interpreted cautiously given potentially increased
volatility for the month. Notably, strong growth data may be interpreted as an
outright hawkish signal, given the potential for further inflationary pressures
if the economic outlook is upbeat, on this the most important factor was the
Regional Network survey which was upbeat in the near-term given energy, but
more pessimistic heading into winter. As such, the Regional Network report
provides a somewhat mixed signal, but likely serves in favour of those who
believe that 4.25% will be the policy peak. Furthermore, and assuming a 25bp
hike occurs in September, attention then turns to whether this confirms the
June Repo Path for a policy peak at the 4.25% mark or if the Norges Bank opts
for a hawkish-shift given that inflation remains well above target.
CBRT Announcement (Thu):
There are currently no expectations for what the CBRT may opt to do,
although bank forecasts thus far look for a hike ranging from 250-500bps. The
likes of JP Morgan and Morgan Stanley forecast a hike at the top end of the
forecast range, while Barclays calls for a smaller 250bps increase. Analysts at
Barclays however do not rule out a sharper rate hike, but believe the CBRT may
opt for a more gradual approach to conventional monetary policy. “The Turkish
central bank would prefer to continue its tightening cycle in a more gradual
fashion to limit its effect on banks, corporates and households,” the bank
posits, “Additionally, macroprudential tightening continues at full speed and
the central bank probably thinks that it reduces the need to deliver a bigger
hike.” To recap the prior meeting, the CBRT opted to go 500bps above
expectations and raise rates by 750bps, lifting the One Week Repo Rate to 25%
from 17.5% (vs exp. 20%). ING noted that despite the larger-than-expected hike,
the forward guidance remains unchanged so the decision can be attributed to the
three new Monetary Policy Committee appointees. The accompanying commentary
attributed recent inflation trends to higher oil prices, the strong course of
domestic demand, and cost pressures stemming from wages and exchange rates
which imply year-end inflation close to the upper bound of the Bank’s forecast
range. The Committee decided to continue the monetary tightening process to
establish the disinflation course as soon as possible and still anticipates that
disinflation will be established in 2024. Finally, the CBRT survey for August
suggested end-2023 USD/TRY at 30.1422 (prev. 29.8220), CPI at 67.22% (prev.
59.46%) and GDP Growth at 3.9% (prev. 3.7%).
BoE Announcement (Thu):
64/65 surveyed economists by Reuters expect the BoE to hike the Bank
Rate by 25bps to 5.5% with markets assigning a 75% chance of such an outcome.
In terms of recent data (with the August inflation report not released until
the morning before the meeting), July inflation data saw Y/Y CPI fall to 6.8%
from 7.9%, as expected, the core hold steady at 6.9% and all services rise to
7.4% from 7.2%. On the growth front, M/M GDP for June reported a
larger-than-expected expansion of 0.5% (consensus was 0.2%). Since, the July
figure had a -0.5% MM print, which was the first time since June 2022 that the
three main sectors all contributed negatively. However, more timely survey data
saw the composite PMI for August fall to 48.6 from 50.8 with the all-important
services metric declining to 49.5 from 51.5. In the labour market, the
unemployment rate in the 3-month period to July rose to 4.3% from 4.2%, whilst
headline wage growth in the 3M/YY period to July advanced to 8.5% from 8.4%
(note, the headline was affected by the NHS and Civil Service one-off payments
made in June and July 2023). Piecing it all together, elevated inflation and
wage metrics should be enough to see the BoE pull the trigger on another rate
hike with policymakers doing little to get in the way of such expectations.
Beyond the upcoming meeting, markets see it as a coinflip as to whether further
tightening will take place with recent comments from Governor Bailey noting “we
are no longer in a phase where it was clear that rates need to rise”. In order
to keep optionality over potential action though, the BoE will likely stress
the role of data dependency in its decision-making going forward, whilst noting
there is still a lot of tightening in the pipeline to come through.
BoJ Announcement (Fri):
The BoJ is expected to refrain from any policy changes at its two-day
policy meeting next week with the central bank forecast to keep the Bank Rate
at -0.10% and maintain the current parameters of its QQE with YCC. As a
reminder, the BoJ threw markets a curve ball at the last meeting in July as it
left its rate unchanged and kept QQE with Yield Curve Control to target 10yr
JGBs at 0% with a +/-50bps range, but shifted to a more flexible approach in
which it will guide YCC via its fixed rate operations for 10yr JGBs to be
conducted at 1.0% (prev. 50bps), and slightly widened the range of its purchase
amounts as well. The announcement resulted in a tumultuous reaction in the
Japanese currency, although the JPY ultimately weakened after the dust settled
as the tweak was less hawkish than a Nikkei report had suggested ahead of the
announcement, while officials have made it clear that the decision was a
pre-emptive step at continuing monetary easing without disruptions and the July
decision was not part of any exit from ultra-loose policy. The shift by the
central bank to a more flexible approach on YCC makes immediate adjustments
unlikely with most economists anticipating the BoJ to stick with the current
policy throughout the rest of the year. In addition, BoJ officials have
continually reiterated that it is appropriate to maintain easy monetary policy
for the time being and although some have sounded more hawkish on inflation,
including seeing early signs of achieving the 2% target and a change in Japan’s
trend inflation as rising wages push up expectations, they have acknowledged
that they are still not at a stage where they can say Japan has stably and
sustainably achieved the price target. Nonetheless, the scenario of an exit
from negative interest rates early next year has emerged as market pricing for
the timing of a move out of NIRP recently came in to January from September
next year in veiw of comments from BoJ Governor Ueda who stated that they
cannot rule out that they might have sufficient data by year-end to determine
whether they can end negative rates and that his focus is on a quiet exit,
while he also stated they will end negative rates if they judge that achieving
the price target becomes possible and that they will keep ultra-easy policy for
now.
EZ Flash PMI (Fri):
September’s Manufacturing is forecast at 43.4 (prev. 43.5) and the
Services print is seen at 47.4 (prev. 47.9), which would see the Composite
decline to 46.2 (prev. 46.7). The flash metrics are expected to continue
showing subdued sentiment amongst respondents with traders looking to digest
the anecdotal commentary for hints on inflation, growth and wage developments
within the survey period. To recap, the final release of Eurozone PMIs for
August saw the EZ-wide services print revised deeper into negative territory
(47.9 vs. flash 48.3), and composite down to 46.7 vs. a flash reading of 47.0.
The accompanying release noted, “The disappointing numbers contributed to a
downward revision of our GDP nowcast which stands now at -0.1% for the third
quarter”. Additionally, “among the big Eurozone countries, the main drag is
coming from Germany and France, where activity in the service sector weakened
at the fastest rate this year”. Nonetheless, the release comes after the ECB’s
September decision whereby despite the President refraining from committing to
being at a peak rate, the market and analyst community is of the view that
given the slowing growth rate, the ECB is now at terminal. Nonetheless, sources
since have suggested that several of the ECB’s more hawkish rate-setters
believe that rates could rise again in December, under the scenario of hot
wages and inflation, via the FT. Looking ahead, analysts at Moody’s do not
expect a quick turnaround in the EZ economic situation.
UK Flash PMI (Fri):
There are currently no forecasts for the September PMIs, which follows
on from the revision higher seen in the August Composite metrics earlier this
month. To recap, the release suggested that “the latest survey data indicated
another round of historically strong cost inflation across the service sector.
This reflected rising salary payments, as well as higher fuel prices and
elevated energy bills, according to survey respondents”, while highlighting
that the “Key data to watch in the coming months will be the extent to which
weaker employment trends and softer demand translate into falling domestic
inflation.” Note, that the release will be on the day after the BoE decision
whereby 64/65 economists surveyed by Reuters expect the BoE to hike the Bank
Rate by 25bps. Analysts at Oxford Economics “expect the flash PMIs for
September will show balances for services, manufacturing and the composite
measure remaining in contractionary, sub-50, territory.”
Japanese CPI (Fri):
National Core CPI is expected to tick lower to 3.0% from 3.1%, whilst
there are no expectations of the non-core metric which was previously at 3.1%.
The expectation is relatively in line with the Tokyo August CPI report which
saw the YY rate cool 2.9% vs. Exp. 3.0% (Prev. 3.2%), core at 2.8% vs. Exp.
2.9% (Prev. 3.0%), and super-core at 4.0% vs. Exp. 4.0% (Prev. 4.0%). It’s
worth noting that the National CPI report will be released around two hours
before the BoJ announcement, which is expected to refrain from any policy
changes.
UK Retail Sales (Fri):
August’s retail figure may well be supported by a bounce back from
July’s relatively poor weather, though Oxford Economics caveats that they do
not expect this to be a sizeable increase, forecasting a MM print of 0.7%
(prev. -1.2%). In terms of recent retail indicators, the BRC shop price index
for August printed at 6.9% Y/Y vs. prev. 7.6% with the accompanying release
noting “The unpredictable weather of recent weeks has dampened consumer demand
with some high street retailers increasing promotional activity and food
retailers continuing to extend price cuts, as the inflationary pressure coming
from supply chains continues to lessen”. Elsewhere, the Barclaycard Consumer
Spending release noted that “Overall Retail spending grew 2.5% in August 2023,
a decrease compared to the growth of 2.9% seen in July 2023. The wet weather in
early August impacted a number of categories, with spend growth in Sports &
Outdoors reducing by -3.0% in August 2023”.
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This article was written by Newsquawk Analysis at www.forexlive.com. Source