- Fed 'front and centre' for today, Czech and NZ rate decisions, more from
Draghi and other ECB speakers; UK CBI Distributive Trades survey and US
New Home Sales the only data items of note; German 5-yr & US 7-yr auctions
- Fed: dot plot in focus, markets on guard for any likely marginal hawkish
shift on rate trajectory and / or economic forecasts; Powell likely to
underline that super tight labour market key for rate outlook, and give
another nod to trade related risks; asset price valuation comments will
also attract attention
- Czech rates: further rate hike expected, likely to suggest another rate
hike before year end
- RBNZ likely to stick with message that next move in rates could be up
or down, emphasize subdued inflation and modest wage growth more
important in policy terms than better than expected Q2 GDP
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** EVENTS PREVIEW **
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It would be tenuous to argue that anything outside of the FOMC meeting, forecasts and Powell's accompanying press conference will be of any interest to financial markets, even if the events schedule has other points to ponder, even if the data run amounts to no more than the UK CBI's Distributive / Retail Trade surveys and US New New Home Sales, the latter seen posting a very modest 0.5% m/m increase. In event terms, there are also rate meetings in the Czech Republic and New Zealand, a further deluge of ECB speakers (including Draghi) and a number of conferences at which UK PM May and IMF'as Lagarde are among the high level speakers. Govt bond supply takes the form of EUR 3.0 Bln of Germany 5-yr, while the US rounds off its refinancing this week with USD 31.0 Bln of 7-year Treasury Note. Talking of Germany the immediate threat to the grand coalition may have been defused, but with one of Merkel's key Bundestag allies, Volker Kauder, being voted out of his position as leader of the CDU in the Bundestag, it is becoming clear that Merkel's days are numbered, especially with support for the CDU/CSU sinking to just 28% in recent opinion polls. Kauder's replacement Brinkhaus is on the right wing of the CDU, and per se likely to be less willing to make compromises with the SPD on key policies, above all in terms of spending, even if he has tried to play down the significance of this change.
** U.S.A. - FOMC meeting **
The Fed obviously takes pride of place on this week's calendar, with a further 25 bps rate hike to 2.0-2.25% having long been priced into markets, and a further hike in December already heavily discounted. This is a press conference meeting, and it will therefore also have a fresh set of FOMC projections, and an updated dot plot. As ever markets immediate reaction will depend on the latter with new Fed vice-chair Clarida expected to impart a mildly dovish shift, though unlikely to offset signs that some previously die hard doves have shifted to a neutral even mildly hawkish stance (Brainard, Evans). Be that at it may, the focus will also be on the latest set of FOMC projections, which will include perhaps importantly include forecasts for 2021, which may be lower than potentially upwardly revised forecasts for 2020. Headline and core inflation forecasts will likely remain around the Fed's target, while Unemployment Rate projections should underline why the Fed is still some distance from pausing the current rate hike cycle, in so far as these are likely to be pegged in the 3.5%-3.6% area (as was the case in June), in other words well below the FOMC's assumption of a long run rate of 4.5%. GDP projections should in principle be little changed, though Powell will doubtless emphasize risks from escalating trade tensions. The question then is how much emphasis is placed on loose financial conditions, the rise in government and corporate debt, and any comment on current asset price valuations. As outlined in this video from Friday
https://www.youtube.com/watch?v=FR9fHbvTKfU&feature=youtu.be, the key will be how much Powell & the FOMC emphasize that while it is very comfortable with the inflation outlook, it needs to stick to the current 'gradual' tightening path given very low unemployment and strong growth. Last but not least, there will be a lot of interest in what is said about trade tensions and EM woes, as well as any indications about the future of its balance sheet reduction programme.
** Czech Rep. - CNB rate decision **
- A close eye needs to be kept on the Czech central bank, which is expected to hike rates by a further 25 bps to 1.50% today (cumulative total 145 bps) and will likely signal a further rate hike before year, given that growth remains robust, inflation elevated and the CZK relatively subdued.
** New Zealand - RBNZ policy meeting **
- New Zealand's RBNZ is again expected to hold rates at the record low 1.75% level. Last week's stronger than expected Q2 GDP (3.0% y/y) is unlikely to alter the RBNZ's assertion that the next move in rates could be either up or down, in so far as inflation and wage growth remain very subdued.
from Marc Ostwald