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Weekly Outlook: Sep 27 – Oct 01: Central Bank Speeches And Evergrande Under The Radar

Sep. 27, 2021 3:56 AM ET
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  • We don’t have any central bank meetings on this week’s calendar, but we will get to hear from several central bankers, including Fed Chair Jerome Powell, ECB President Christine Lagarde,.
  • It will be interesting to see whether we will get any new piece of information with regards to monetary policy.
  • Market participants are likely to stay focused on developments surrounding the Evergrande saga, as the firm missed a payment on offshore bonds last week, and more payments are due this.

We don’t have any central bank meetings on this week’s calendar, but we will get to hear from several central bankers, including Fed Chair Jerome Powell, ECB President Christine Lagarde, and BoE Governor Andrew Bailey. Therefore, it will be interesting to see whether we will get any new piece of information with regards to monetary policy. On top of that, market participants are likely to stay focused on developments surrounding the Evergrande saga, as the firm missed a payment on offshore bonds last week, and more payments are due this week.

On Monday, the first piece of news in the morning was that Germany’s Social Democrats narrowly won Sunday’s national elections, claiming a “clear mandate” to lead a government for the first time since 2005. However, with neither major party securing a majority, and also both reluctant to repeat their “grand coalition”, it may take weeks or even months before a government coalition is formed. Perhaps, that’s why the euro opened the week in a quiet mode.

As for today’s data, the only worth mentioning is the US durable goods orders for August. Headline orders are forecast to have rebounded 0.7% mom after sliding 0.1%, but the core rate is expected to have declined to +0.5% mom from +0.8%.

Despite not having top tier data on Monday’s agenda, we will get to hear from ECB President Christine Lagarde, ahead of the ECB’s forum on Central Banking, starting tomorrow, where we will also get speeches from Fed Chief Jerome Powell, BoE Governor Andrew Bailey, and BoJ Governor Haruhiko Kuroda. Other policymakers are also scheduled to speak throughout the week. Therefore, we will pay extra attention to their remarks, as they could provide extra clues and hints with regards to monetary policy.

Fed funds futures market expectations on US interest rates

For example, last week, the Fed confirmed that QE tapering is likely to start this year, with investors hoping that this will happen as early as in November. Thus, remarks adding credence to that view may result in further dollar buying. In the UK, the BoE appeared more hawkish than expected, encouraging participants to bring forth their rate-hike expectations. Therefore, it would be interesting to see whether we will get any hints on when the first hike may take place. With regards to the ECB, officials of this Bank announced a “moderately lower pace” in its Pandemic Emergency Purchase Program (PEPP) purchases but made it clear that this is not a tapering move, and that when PEPP is over they have all the other tools available. With that in mind, we look for any comments as to whether the Bank intends to compensate by buying more through other schemes, like the Asset Purchase Program (APP). As far as the BoJ is concerned, there is not much to anticipate, as Japanese policymakers have been stuck with extra loose monetary policy, showing no intention to proceed with any changes any time soon.

On Tuesday, besides speaking at the ECB’s forum, Fed Chair Jerome Powell will testify before Congress on the central bank’s policy response to the pandemic. He will speak before the Senate Banking Committee on Tuesday, while on Wednesday, he will present the same testimony before the House Financial Services Committee. As we already noted, we will be looking for clear clues as to whether November is the better choice for the Fed to start scaling back its QE purchases, and with Powell speaking several times this week, as well as various other officials scheduled to step up to the rostrum this week, the chances of getting some kind of new information may be decent.

As for Tuesday’s data, we have the Conference Board Consumer Confidence Index for September, which is expected to have risen to 114.5 from 113.8.

On Wednesday, the main event may be the leadership elections of Japan’s ruling Liberal Democratic Party (LDP), the winner of which will succeed Yoshihide Suga as a Prime Minister as well. However, he may not hold that position for long as national elections will take place on or before November 28th. Taro Kono appears to be the favorite, a candidate that supports a spending package that focuses on boosting wages and growth. However, we don’t expect Japanese markets to react massively on the outcome. Remember that in the days after Suga’s announcement that he will step down, Japan’s Nikkei 225 surged almost 12%, suggesting that investors have already cheered the prospect of better days with a new PM.

As for the rest of Wednesday’s events, we do have Germany’s retail sales for August and the US pending home sales for the same month.

On Thursday, during the Asian session, Japan’s preliminary industrial production and retail sales, both for August, are coming out. Industrial production is expected to have slid again, but at a slower pace than in July, while retail sales are forecast to have fallen 1.0% mom, after rising 2.4% the month before.

China’s official PMIs for September are also due to be released, but we only have a forecast for the manufacturing index, which is expected to have ticked up to 50.2 from 50.1. Even if the data come in stronger than expected, we believe that market participants will stay more focused on developments surrounding the Evergrande saga. Last week, the firm missed a payment on offshore bonds, with more payments due this week. We repeat that Evergrande has 30 days to settle the payments following their scheduled date, otherwise, the bonds will default. So, with that in mind, the default risks remain will on the table, and therefore, they could weigh more on the broader market sentiment. Appetite was soft on Friday, while today, China’s Shanghai Composite fell around 1%.

Major global stock indices performance

During the European session, Germany releases its preliminary inflation data for September. Both the CPI and HICP yoy rates are expected to have risen further, to +4.2% and +3.8%, from +3.9% and +3.4% respectively. This may raise speculation that Eurozone’s headline rate may rise as well. From the UK and the US, we get the final GDP prints for Q2, but as it is the case most of the times, they are expected to confirm their preliminary or second estimates.

Finally, on Friday, Asian time, Japan’s Tankan survey for Q3 is due to be released, with the Large Manufacturers Index expected to have ticked down to 13 from 14, but the Large Non-manufacturers index forecast to have risen to 3 from 1. The nation’s employment report for August is also coming out.

During the EU session, we have Eurozone’s preliminary CPIs for September. The headline CPI rate is expected to have risen to +3.3% yoy from +3.0%, while the HICP excluding Energy and Food one is forecast to have inched up to +1.8% yoy from +1.6%. Despite the headline rate moving further above the ECB’s objective of 2%, underlying inflation is expected to stay below that target, something that may add more credence to the ECB’s view that policy should stay accommodative, despite the slowdown in PEPP purchases.

Later in the day, from the US, we have the personal income and spending numbers for August, as well as the core PCE index for the month. The ISM non-manufacturing index for September is also on the agenda and the forecast points to a small decline, to 59.5 from 59.9. From Canada, we get the monthly GDP for July.

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