The Labour Day holiday in the US should make for a fairly sedate start to the week; but it should be plenty busy with several central bank meetings. The central banks of Australia and Canada will are in action but all eyes are on Thursday’s crucial European Central Bank (ECB) meeting.
Tapering is the word on every trader’s lips as markets look to the ECB for direction. A lack of bonds, strong growth and the arrival of reflationary pressures means markets are hungry for an outline of how the bank will scale back its quantitative easing programme.
It’s increasingly hard for the ECB to argue against tapering soon and momentum has been building, with bid for the euro pushing EURUSD to its highest since January 2015 above $1.20.But don’t expect it to come this time. With the euro rising rapidly and core inflation undershooting, the ECB has to avoid any mistakes.
According to a majority of economists in a Reuters poll, the ECB is likely to announce a reduction of its monthly asset purchases in October.
The lack of inflation remains the biggest risk to disappointing markets and it must be said the ECB is a cautious animal that’s been burned before. Twice in the past the ECB has tightened too quickly and will likely opt for a gradual reduction in monthly asset purchases. That said it does seem like the time is right as growth looks very firm and tapering poses limited risk to the recovery.
Markets will also be watching for any further signs that the ECB is bothered by the euro’s recent strength, after it was reported several on the Governing Council have raised concerns about the rapid appreciation in the euro against the dollar,
Australia’s central bank convenes on Tuesday for its next policy meeting, part of a series of macro releases this week affecting the Aussie dollar. The Reserve Bank of Australia (RBA) stood pat on rates in August, leaving the cash rate target at 1.5% as expected.
Governor Philip Lowe noted that a stronger exchange rate could hit inflation, although a tightening labour market will help. The RBA took the labour market off its watchlist after improvements in the number of full-time jobs, hours worked and the labour force participation rate. The Australian dollar was close to its strongest level against the US dollar since January 2015 last week as a bout of greenback weakness lifted commodity currencies.
Canada’s central bank convenes on Wednesday with markets looking for hints about when the next rate hike may come. The Bank of Canada (BoC) raised rates in July after a standout first half of growth and is expected to raise them again in October. Traders will be watching this meeting for a surprise early hike or any hints about the likelihood of one next month. Odds of a hike this week jumped along with the Canadian dollar after growth was revealed to have hit 4.5% in the second quarter, the fastest pace of expansion since 2011.
PMIs
Monthly PMIs do the rounds this week. Highlights include the UK’s all-important services PMI for August. July’s report pointed to sluggish growth in Q3 despite rising to 53.8 from June’s four-month low of 53.4. Expectations for the year ahead are close to their lowest since 2012.
(All times BST)
Monday, 4 September
All day – US and Canada Labor Day holiday
02:30 – Australia company operating profits
08:00 – Spanish unemployment change
09:30 – UK construction PMI
10:00 – Eurozone PPI
Tuesday, 5 September
Tentative – UK inflation report hearings
00:01 – UK BRC retail sales monitor
02:30 – Australia current account
05:30 – Australia cash rate, RBA rate statement
08:15 – Swiss CPI inflation
09:00 – Eurozone final services PMI
09:30 – UK services PMI
15:00 – US factory orders
Wednesday, 6 September
02:30 – Australia GDP
07:00 – German factory orders
13:30 – Canada trade balance, labour productivity
15:00 – Bank of Canada rate statement
15:00 – US ISM non-manufacturing PMI
Thursday, 7 September
02:30 – Australia retail sales, trade balance
08:30 – UK Halifax house price index
12:45 – ECB monetary policy decision
13:30 – ECB press conference
13:30 – US weekly unemployment claims
15:00 – Canada Ivey PMI
16:00 – US crude oil inventories
Friday, 8 September
00:50 – Japan final GDP
Tentative – China trade balance
07:00 – German trade balance
07:45 – French government budget balance, industrial production
09:30 – UK manufacturing production, goods trade balance, industrial production, construction output
13:00 – UK NIESR GDP estimate
13:30 – Canada employment rate
Saturday, 9 September
02:30 – China CPI and PPI inflation
Corporate Calendar
Tuesday, 5 Septembera
Halfords Group (LON:HFD) – trading update
888 Holdings (LON:888) (888) – interim results
Redrow(LON (LON:RDW) – final results
Belvoir Let (LON:BLVB) (BLV) – interim results
Wednesday, 6 September
Barratt Developments (LON:BDEV) – final results
Thursday, 7 September
Ashmore Group (LON:ASHM) (ASHM) – final results
Go-Ahead Group(LON (LON:GOG) – final results
Dixons Carphone (LON:DC) – Q1 trading update
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