The Week Ahead – Geo-Politics and the FED to Drive the Markets

A choppy week ahead, with Trump at the UN, Theresa May at Tory Party Conference and the FED delivering a rate hike and projections.
Bob Mason
geopolitics and the fed

On the Macro

For the Dollar, it’s a busy week ahead on the data front, key stats due out including September consumer confidence numbers on Monday, finalized 2nd quarter GDP numbers and August durable goods orders on Wednesday, with the FED’s preferred core PCE price index figures, personal spending numbers and finalised September consumer sentiment numbers due out on Friday. While we will expect consumer confidence, inflation and personal spending to be the key drivers on the data front, the FED and Trump are also in action. One other thing to consider is housing sector numbers due out, a market view being that the housing sector may well be the U.S economy’s early warning system. The Dollar Spot Index ended the week down 0.76% to $94.206.

For the EUR, while a relatively quiet week on the data front, key stats that will influence the EUR include business expectations figures on Monday, consumer confidence and unemployment numbers out of Germany on Thursday and Friday, with August retail sales and prelim September inflation numbers unlikely to have a material influence. Thursday’s release of the ECB Economic Bulletin will also need to be considered. The EUR/USD ended the week up 1.07% to $1.1749.

For the Pound, stats include August CBI industrial trend orders on Monday and finalized 2nd quarter GDP and business investment figures on Friday. While the numbers will have some influence, it’s going to come down to Brexit chatter through the week, with the release of the BoE Financial Stability Report on Monday also there for consideration. The GBP/USD ended the week up 0.03% to $1.3072.

For the Loonie, stats through the week are limited to July wholesale sales on Monday and July GDP and August RMPI numbers on Friday, the GDP number the key driver, though it may all boil down to NAFTA. The Loonie ended the week up 0.92% to C$1.2916 against the U.S Dollar.

Out of Asia, it’s a quieter week ahead.

For the Aussie Dollar, stats are limited to August private sector credit figures on Friday, with sentiment towards trade and impact on commodity prices likely to be of greater influence. The AUD/USD ended the week up 1.92% to $0.7290.

For the Japanese yen, stats through the week include prelim industrial production, retail sales and inflation figures due out on Friday, with focus likely to be on the retail sales and industrial production numbers, though direction through the week will ultimately be hinged on market risk appetite, the BoJ unlikely to waver from its current stance on policy any time soon. The release of the policy meeting minutes from the August meeting on Tuesday should be a non-event. The Japanese Yen ended the week down 0.47% to ¥112.59 against the U.S Dollar.

For the Kiwi Dollar, it’s a busy week ahead, with August trade data and September business confidence figures due out on Wednesday, ahead of the RBNZ’s interest rate decision on Thursday, which will decide the fate of the Kiwi for the week. Building consent numbers on Friday will unlikely have too much influence. The Kiwi Dollar ended the week up 1.75% to $0.6687.

Out of China, stats are limited to September’s manufacturing PMI number due out Friday. We can expect heightened sensitivity to the numbers as the markets continue to look for effects of the ongoing trade war on the world’s two largest economies. Ahead of the numbers, direction in the Yuan and trade chatter will influence risk sentiment.

Geo-Politics

Brexit: With the EU slamming the British PM’s proposals, without alternative options provided, things went from optimistic to dark on the Brexit. Little else will be in focus in the week ahead, Brexit remaining the key driver for the Pound, with the coming week’s Tory party conference likely to see the British PM and the Pound hot under the collar.

Loonie Woes: No progress last week and talks to continue, though there will be some debate on whether the U.S has any interest in wrapping things up. We will expect some pressure on the Loonie should talks drag out through the week ahead, the latest deadline being 1st October.

U.S – China Trade War:  Tariffs are being handed out like candy and Chinese Premier Xi has been particularly quiet, hopes of the Republicans losing both houses may be more wishful thinking than tactical. Trump’s latest tariffs roll out on Monday.

Iran: Simmering away in the background, providing support to crude oil prices, $80 per barrel now target, though the U.S are as capable as bringing down the price as OPEC. Trump will be speaking at the U.N on Tuesday, which will likely impact crude oil prices.

Italy: 27th September is the deadline for Italy’s coalition government to roll out its 2019 budget. Will we see Italy conforming or will we see a populist coalition flex its muscles and attempt to ruffle the Establishment’s feathers. The latter would certainly be a negative for the EUR and European equity markets, as would more coalition government disagreements.

The Rest

On the monetary policy front, it’s a busy week ahead…

  • For the U.S. Dollar, Wednesday’s monetary policy decision is the main event. A rate hike is priced in and, while the probability of a December rate hike is sitting at 80% according to the FED Funds Futures, focus will be on the economic projections and median forecast for rate hikes through 2019. At present, the probability of a March rate hike sits at 50%. If there’s a resolution to the U.S – China trade war, we would expect that to spike. It’s not just the trade war though, with talks of the economy topping out another factor to consider in the projections and statements.
  • For the Kiwi Dollar, Thursday’s interest rate decision is unlikely to deliver a surprise, whilst better than expected economic data of late could see the RBNZ shift from its dovish tones to give the Kiwi another boost.

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