Weekly Market Outlook (18-22 September)

UPCOMING EVENTS:

• Monday: NZ
  Services PMI, US NAHB Housing Market Index.
• Tuesday: RBA
  Meeting Minutes, Canada CPI, US Building Permits and Housing Starts.
• Wednesday: PBoC
  LPR, UK CPI, BoC Summary of Deliberations, FOMC Policy Decision.
• Thursday: NZ
  GDP, SNB Policy Decision, BoE Policy Decision, US Jobless Claims.
• Friday: Japan
  CPI, BoJ Policy Decision, UK Retail Sales, Canada Retail Sales, Flash PMIs
  for AU, JP, UK, EZ, US.

Tuesday

The Canadian Headline CPI Y/Y is expected
to tick higher to 3.8% vs. 3.3% prior, while the M/M reading is seen at 0.2%
vs. 0.6% prior. The BoC continues to complain about the slow disinflation in
the underlying measures, which beat expectations in the previous
months although they were lower than the
prior readings. There’s currently no consensus for the core measures but higher
figures would put the central bank in a tough position given the recent rise in
wage
growth.

Wednesday

The UK Headline CPI Y/Y is expected to
increase to 7.1% vs. 6.8% prior, while the M/M reading is seen at 0.7% vs.
-0.4% prior. Such a big increase is due to higher energy prices with the
central banks more focused on the core measures at the moment. The UK Core CPI
Y/Y is expected at 6.8% vs. 6.9% prior, while the M/M figure is seen at an
uncomfortable 0.7% vs. 0.3% prior. This report is unlikely to change the
market’s pricing for this week’s BoE meeting where the central bank is expected
to hike by 25 bps, but it will influence the expectations for the next
meetings.

The Fed is expected to hold rates steady
at 5.25-5.50% but the market’s focus will be on the Summary of Economic
Projections (SEP) and the Dot Plot to see if the central bank still sees the
need for another rate hike or it has reached its terminal rate already. As a
reminder, in the June
Dot Plot the Fed increased its terminal rate
projections by 50 bps to 5.6% from the previous 5.1% in March. The market
currently sees a 50/50 chance for another rate hike at the November meeting
given the strength in the economic data recently with rate cuts being priced
for Q3 2024.

Thursday

The SNB is expected to hold rates steady
at 1.75% given the weak economic data and both the headline and core inflation
measures being in the SNB’s 0-2% target band.

The BoE is expected to hike by 25 bps
bringing the bank rate to 5.50% with Dhingra being the usual dissenter. Recent
communication seems to be leaning more towards keeping interest rates high long
enough to let the tightening in the pipeline to come through. Nonetheless, the
central bank should keep all the options on the table given its inflation and
wage growth rates.

The US Jobless Claims beat expectations
once again the last
week as the labour market continues to
soften although it remains fairly tight. This week the consensus sees Initial
Claims at 225K vs. 220K prior and Continuing Claims at 1695K vs. 1688K prior.

Friday

The BoJ is expected to keep everything
unchanged with rates at -0.10% and YCC to target 10yr JGBs at 0% with a soft
cap at -/+0.50% and a hard cap at 1.00%. The yield on the 10yr recently spiked
to 0.70% following BoJ
Governor Ueda comments about a “quiet exit”
from NIRP if the data supports such a move. The BoJ, of course, intervened by
buying unlimited amount of JGBs last week as they already repeated many times
that they will do so if the pace of the moves is too fast. Moreover, the wage
growth data continues to point to a slowdown, and this is something that the
BoJ watches very carefully.

The Flash PMIs are usually big market
movers as they are the most important leading indicators we have. The market
should focus on the Eurozone and the US PMIs, with the latter likely to have a
bigger impact on global markets depending on the outcome. The US Manufacturing
PMI is expected to match the prior reading at 47.9, while the Services PMI is
seen lower at 50.3 vs. 50.5 prior.