Last Thursday, the European Central Bank lowered the interest rate on deposits by 0.1% to -0.5%, resumed the quantitative easing program, which was completed in December last year, and also lowered the cost of long-term loans for banks.
At a subsequent press conference, European Central Bank President Mario Draghi said that "the slowdown in growth reflects the prevailing weakness in international trade and the lingering uncertainty". He also noted that the balance of risks for the economic prospects of the Eurozone "is still shifted in a negative direction". The euro fell sharply after the publication of the ECB decision, but then rose, including in relation to the US dollar.
Now investors are turning their attention to the Fed meeting, which will be held next week. With regard to monetary policy, the Fed has more room to maneuver and mitigate it than other major global central banks.
Now the Fed rate is 2.25%. The Fed is expected to lower the rate by 0.25% next week. In anticipation of this decision, US and global stock indices are rising. At the same time, economists believe that accelerating inflation in the United States may prompt the Fed to report on the limited space for lower interest rates.
As the U.S. Department of Labor reported last Thursday, the base consumer price index rose 0.3% in August compared with the previous month and 2.4% compared with the same period in 2018, more than economists had expected.
If the Fed does not give signals aimed at further easing monetary policy, the dollar may resume growth after a short-term decline. At the same time, this will not be an obstacle to the further growth of US stock indices. US consumers are in good shape, consumer confidence is high, incomes are rising, and this allows to be optimistic about the US economy and the American stock market.
Also, next week, the central banks of Japan, Switzerland, and the United Kingdom will announce their decisions regarding monetary policy. If investors do not expect any unexpected decisions from the Central Bank of Japan and Switzerland, then intrigue around the actions of the Bank of England remains.
The pound receives support from positive macro statistics, indicating a decrease in unemployment in the UK in May-July to 3.8% from 3.9% in April-June and an increase in income of British. The average earnings excluding premiums in May-July increased by 3.8%, which is higher than the forecast of 3.7%. The growth of income of British is a positive factor for the pound, since it speaks in favor of an increase in spending on personal consumption and, accordingly, is an inflationary indicator.
Many economists believe that if it were not for Brexit, the Bank of England would seriously consider raising interest rates.
In addition to the meetings of the central banks of the USA, Japan, Switzerland and the UK, the focus of traders next week will also be the publication of important macro statistics on China, Australia, Germany, the USA, Great Britain, Canada, New Zealand.
Thus, an extremely volatile trading week is ahead of us, and this must be taken into account when drawing up trading plans.
As always, the publication of a number of important macroeconomic data is expected during the new trading week and number important news will be published.
*) specified time – GMT
Monday, September 16
The publication of important macro statistics is not planned.
However, it is worth paying attention to the press conference of the National Bureau of Statistics of China and the publication of data on retail sales and industrial production of China for August, scheduled for 02:00 (GMT).
China's economy is the second largest in the world after the American one. Therefore, the publication of important macroeconomic indicators of this country has a significant impact on global financial markets, primarily on the position of the renminbi, other Asian currencies, the dollar, commodity currencies, as well as Chinese and Asian stock indices. China is the largest buyer of commodities and a supplier to the global commodity market of finished products of a wide range. Therefore, a decrease in the macroeconomic indicators of this country may negatively affect the dynamics of the renminbi and the entire financial market.
Tuesday, September 17
01:30 AUD Protocol from the last meeting of the RB of Australia
This document is published two weeks after the meeting and the decision on the interest rate. If the RBA positively assesses the state of the labor market in the country, the GDP growth rate, and also shows a hawkish attitude towards the inflation forecast in the economy, the markets regard this as a higher probability of a rate increase at the next meeting, which is a positive factor for AUD. The bank’s soft rhetoric, especially with regard to inflation, will put pressure on the AUD.
At a meeting held on July 3, the central bank (the second time this year and for the first time since August 2016) lowered its key rate to a record low of 1.00% from 1.25%, but did not change its policy in August and September. At the same time, the RB of Australia did not rule out further softening of the policy in the coming months in the event of a worsening situation on the labor market and a threat to economic growth from external shocks.
“Trade wars and technology conflicts affect international trade and investment, while companies cut spending plans due to uncertainty”, said RBA managing director Philip Lowe.
Earlier, RBA leaders called increasing uncertainty in global trade a risk to the Australian economy. “There is reason to expect a lower key rate”, said Philip Lowe.
The Australian economy is growing at the slowest pace in ten years. Economists believe that the regulator will make another cut in rates by the end of the year, trying to spur GDP growth.
09:00 EUR Sentiment in the business environment of the ZEW Institute in Germany
This index reflects the difference between the share of optimistic and pessimistic investors, thus assessing the mood of investors and business. The growth of the indicator and its positive value indicates an optimistic attitude of investors, which is a bullish factor for EUR. Conversely, a decrease in the indicator's value is a negative factor for EUR. In August, the indicator value was -44.1, in July -24.5, in June -21.1.
Forecast: the indicator's value for September will be -38.0, which is likely to have a negative impact on the euro. And the weaker the forecast will be, the stronger the euro will decline.
Wednesday, September 18
08:30 GBP Consumer Price Index. Core Consumer Price Index
Consumer Price Index (CPI) reflects the dynamics of retail prices for a group of goods and services that are part of the British consumer basket. The CPI is a key indicator of inflation. Around its publication will be the main movement of the pound in the foreign exchange market and of the London Stock Exchange Index FTSE100.
In the previous month (in July), growth in consumer inflation turned out to be zero (in annual terms, inflation in July amounted to + 2.1%).
Forecast for August: + 0.5% (+ 1.9% in annual terms). This value can positively affect the pound. An indicator below the forecast and previous values may trigger the weakening of the pound, since low inflation will force the Bank of England to maintain a soft monetary policy.
The Core CPI is published by the Office of National Statistics and determines the change in prices of a selected basket of goods and services (except food and energy) for a given period. It is a key indicator for assessing inflation and changing consumer preferences. A positive result strengthens the GBP, a negative result - weakens.
In July, the Core CPI (in annual terms) grew by + 1.9%. It is likely that the publication of the indicator will positively affect the pound if its value is higher than the forecast. Forecast for August: + 1.7% (in annual terms). An indicator below the forecast and previous values can trigger a weakening pound.
12:30 CAD Canadian Consumer Price Indices
The Bank of Canada's Core Consumer Price Index (Core CPI) reflects the dynamics of retail prices for a basket of goods and services (excluding fruits, vegetables, gasoline, fuel oil, natural gas, mortgage interest, long-distance transport and tobacco products). The target inflation rate for the Bank of Canada is in the range of 1% -3%. The increase in CPI is a harbinger of a rate increase and a positive factor for CAD. Consumer prices rose in July by 2.0% (on an annualized basis) and the basic consumer price index also increased by 2.0%.
If the data for August is worse than the previous values, then this will negatively affect CAD. Data is better than expected and above the previous values will strengthen the Canadian dollar.
Forecast for August: the consumer price index will come out with a value of + 1.7%, which probably will not provide significant support for CAD.
18:00 USD The Fed's decision on the interest rate. Fed commentary on monetary policy. Summary of Economic Forecasts from the US Federal Open Market Committee
It is widely expected that the rate will be reduced by 0.25% to 2.00%. After deciding on the interest rate, the Fed will publish a comment on the monetary policy (FOMC Statement). The report increases USD volatility. The harsh tone of comments on the Fed's future plans strengthens the US dollar, while the soft tone - weakens one.
A summary of the economic forecasts from the Fed Open Market Committee (FOMC Economic Projections) includes the Fed report with the FOMC forecast for inflation and economic growth over the next 2 years and, just as importantly, shows individual opinions of FOMC members regarding interest rates.
During the publication of the rate decision, the FOMC report and the Fed's comments, a surge in volatility is expected throughout the financial market, primarily in the US stock market and in dollar quotes.
Powell's comments can affect both short-term and long-term USD trading. A more “hawkish” position regarding the monetary policy of the Fed is seen as positive and strengthens the US dollar, while a more cautious position is assessed as negative for the USD. Any Powell’s allusions to further lower interest rates will cause the dollar to fall and US stock indices to rise.
Investors want to hear his opinion about the Fed’s plans for this year, after central bank executives, including Powell, have repeatedly expressed their cautious assessment of the prospects and pace of tightening the Fed’s monetary policy, focusing on trade conflicts risks. Many participants in the financial market bet that the Fed will lower the rate one more time before the end of the year.
Last week, Donald Trump, for the first time ever, called on the Fed to lower rates below zero. He said earlier that the Fed should cut the rate by at least 1%.
18:30 USD Press conference of the FOMC (US Federal Reserve Open Market Committee)
The press conference of the US Federal Open Market Committee lasts about an hour. In the first part, the decision is read, followed by a series of questions and answers that can increase market volatility.
Powell's comments can affect both short-term and long-term USD trading. A more “hawkish” position regarding the monetary policy of the Fed is seen as positive and strengthens the US dollar, while a more cautious position is assessed as negative for the USD. Powell’s soft rhetoric will negatively impact the dollar and support stock markets.
The Fed is expected to cut interest rates by 25 bp up to 2.00%. The purpose of reducing the rate, according to Fed officials, is to protect the economy from the effects of the global slowdown and the escalation of trade tension.
In July, the Fed lowered the rate by 0.25% to the current level of 2.25%. “The committee ... will continue to monitor the impact of the incoming information on economic prospects and will act accordingly to support growth”, the Fed said in a statement.
At a subsequent press conference, Fed Chairman Jerome Powell refrained from statements aimed at further easing the Fed's policies. When asked if this decision was the beginning of a cycle of lowering rates, Powell replied that "at present we do not expect this".
22:45 NZD New Zealand GDP for the 2nd quarter
Publishing data will cause increased volatility in NZD. Against the background of rising prices for agricultural products recently (especially for dairy products, which are the most important component of New Zealand exports), it is likely that the New Zealand GDP report for the 2nd quarter will come out with positive indicators, and this will favorably affect the positions of the New Zealand currency.
Forecast: + 0.4% (previous value + 0.6%) and + 2.0% in annual terms (previous value + 2.5%). If the data are better than expected, NZD will strengthen. Data worse than forecast and previous values may adversely affect NZD.
Thursday, September 19
01:30 AUD Level of employment. Unemployment rate. Labor force share in the total population
Employment rates reflect a monthly change in the number of Australian citizens employed. The growth of the indicator has a positive effect on consumer spending, which stimulates economic growth. A high value is a positive factor for AUD, and a low value is negative. Forecast: in August, the number of employed Australian citizens increased by 10,000 people (versus +41,100 in July, +500 in June, +42,300 in May).
Also, at the same time, the Australian Bureau of Statistics will publish a report on unemployment - an indicator that estimates the ratio of the proportion of unemployed to the total number of able-bodied citizens. The growth of the rate indicates a weak labor market, which leads to a weakening of the national economy. The decline of the rate is a positive factor for AUD. Forecast: Australia's unemployment in August was 5.3% compared to 5.2% in the previous 4 months.
Also, among the data provided by the Australian Bureau of Statistics, an indicator of the proportion of labor in the total population is published. This is the percentage value of the total number of able-bodied people considered to be workpeople (either employed, or are in search of work). Forecast for August: 66.1% against about the same level in previous months (66.1% in July, 66.0% in June and May, 65.8% in April, 65.7% in March).
In general, the indicators can be called weakly positive, with the exception that unemployment rose by 0.1%.
The RBA has repeatedly stated that in addition to the situation in international trade, the Australian economy and central bank monetary policy plans are affected by indicators of the level of debts and household expenses, the growth of workers' salaries, as well as of the labor market condition.
In the previous month, the RB of Australia left the key interest rate at a record low of 1%, but gave a more pessimistic forecast for the economy. According to the RBA management, for the growth of salaries and acceleration of inflation to the target range, an unemployment rate of 4.5% or lower is required. Unemployment in the country is not declining, and the return of inflation to the middle of the target range of 2% -3% is not visible even on a distant horizon.
AUD is unlikely to positively respond to the publication of data from the country's labor market. If the values of the indicators turn out to be worse than the forecast, then the Australian dollar may decrease significantly in the short term. Data better than forecast will strengthen AUD short-term.
02:00 JPY Bank of Japan interest rate decision. Bank of Japan press conference and monetary policy commentary
The Bank of Japan will decide on the interest rate. Currently, the main discount rate in Japan is in negative territory, amounting to -0.1%. Most likely, the rate will remain the same. If the rate is reduced and goes deeper into negative territory, such a decision will cause a sharp decrease in the yen in the foreign exchange market and growth in the Japanese stock market. In any case, during this period of time, a jump in volatility is expected in the yen trading and on the Asian financial market.
During the press conference, the head of the Bank of Japan Kuroda will give comments on the monetary policy of the bank. The Bank of Japan continues to adhere to its super-soft monetary policy. As Kuroda has repeatedly stated before, "it is appropriate to patiently continue the current soft monetary policy". Markets usually react noticeably to Kuroda's performances. Surely, he will again touch upon the topic of monetary policy during his speech, which will cause an increase in volatility not only in yen trading, but throughout the Asian and world financial markets.
06:00 JPY Bank of Japan Press Conference
During the press conference, the head of the Bank of Japan Kuroda will give comments on the monetary policy of the bank. Despite the bank’s earlier measures to stimulate the Japanese economy, inflation remains low, production and consumption are falling, the yen is growing, which negatively affects export-oriented Japanese producers.
Markets usually react noticeably to Kuroda's performances. If he touches on the topic of monetary policy during his speech, volatility will increase not only in yen trading, but also throughout the Asian and world financial markets.
07:30 CHF NBS decision on the interest rate. NBS Monetary Policy Statement
The current deposit rate is in negative territory and amounts to -0.75%. At the previous meeting in June, rates remained unchanged. The Central Bank of Switzerland has consistently advocated soft monetary policy in the country, and the national currency has traditionally been considered "overvalued". The franc has largely lost the status of a safe haven currency, and the threat of intervention certainly restrains the franc from excessive growth.
Traders will carefully study the statement of the NBS in order to catch signals regarding further plans of the monetary policy of the NBS. Rigid rhetoric of the statement will strengthen the franc. The soft tone and the tendency to continue the extra soft monetary policy of the NBS will negatively affect the franc. High volatility is expected in the foreign exchange market and, above all, in franc trading, especially if the management of the NBS makes unexpected statements.
11:00 GBP Bank of England decision on interest rate. Minutes of the meeting of the Bank of England. Planned by the Bank of England, asset purchases
It is expected that the rate will be left at the same level of 0.75%. In August 2018, the rate was increased by 0.25%, the second time in 10 years, despite the fact that salary growth has slowed, and the uncertainties associated with Brexit have intensified. Economists believe that the next increase in interest rates will not occur until 2020, but the balance of risks is shifted towards an even later date in the continuation of monetary tightening.
Despite the postponement of Brexit, uncertainty about further relations between the UK and the EU remains, and the postponement of Brexit does not exclude its "hard" scenario. In addition, the former mayor of London, Boris Johnson, who replaced Theresa May as Prime Minister of Great Britain, is considered a supporter of “hard" Brexit.
In this situation, the Bank of England, most likely, will not change its monetary policy.
Also, at this time the minutes of the Monetary Policy Committee (MPC) of the Bank of England are published with the votes cast for and against the increase / decrease in the interest rate. The main risks for the UK after Brexit are associated with expectations of a slowdown in the country's economic growth, as well as with a large current account deficit in the UK balance of payments.
The Bank of England Asset Purchase Program, also called Quantitative Mitigation, has remained unchanged since August 2016 at £ 435 billion per month. It is likely that the volume of bond purchases by the Bank of England on the open market in the coming month will remain at the previous level of 435 billion pounds.
Nevertheless, the intrigue over further actions of the Bank of England remains. And in the pound and the FTSE100 index trade, a lot of trading opportunities are provided during the publication of the bank's decision on rates.
Friday, September 20
The publication of important macro statistics is not planned.
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