Week Ahead: BOJ, FED, BOE and much more

With the potential for lots of surprises this week, markets may see some volatility!

Stocks (2)

Last week was a set-up week, with lots of economic data to thicken the plot as central banks head into “taper, no taper” meetings this week.  The BOJ is likely on hold, but will the US Federal Reserve announce that they are going to begin tapering bond purchases?  The BOE seemingly has been more hawkish, but will they taper?  In addition to the central bank meetings, the US is beginning to talk about raising the debt ceiling.  Treasury Secretary Janet Yellen said the US will run out of money in about a month unless the debt ceiling is raised. Also, as the Evergrande saga continues in China, will they be saved, or will they be left to fail?  Also keep an eye on the Canadian Dollar as voters head to the polls on Monday!

Central Banks

Inflation, Retail Sales, and Employment data set the table for the BOJ, FED and BOE this coming week.  Was the sell-off in stocks last week all about positioning and profit taking ahead of central bank meetings this week?  Two weeks ago, we had meetings from the RBA, BOC and ECB which were “as expected”, for the most part.  No big waves were made.  However, this week may be different, with the BOJ, FED, and BOE (among others) all meeting. 

See our full report on where major central banks stand regarding monetary policy

BOJ

Last week, despite Kuroda’s upbeat news conference on the economy, he also noted that inflation will only be around 1% in 2023 and that he is ready to do more to support the economy, if needed.  With upcoming elections and potential candidates promising new fiscal stimulus measures, the BOJ is likely to be on hold this week when the meet on Wednesday. 

Everything you wanted to know about the BOJ

FOMC

The Federal Open Market Committee, led by dovish Governor Jerome Powell, meets on Wednesday as well.  Before Powell spoke at the Jackson Hole Symposium, in which he gave no indication that the Fed was ready to taper, hawk after hawk spoke. This seemed as a chance for Powell to announce that the Fed will begin tapering.  Alas, it was not to be, as Powell said that there is still much ground to cover in terms of maximizing employment.  What did we learn that morning?  We learned that Powell’s voice is the only one that matters.  August’s Non-Farm Payroll report was the only one since Jackson Hole.  The print was much weaker than the +750,000 expected, with the actual figure at +235,000.  It appears the Fed will taper by the end of the year; however, the question remains one of timing.  Will it be announced at the meeting this week?  Not if Powell is as dovish as he was at Jackson Hole!

Everything you need to know about the Federal Reserve

BOE

With inflation on the rise and the number of people on employment benefit falling,  BOE members will be tempted to reduce the pace of their bond buying into year-end.  The central bank noted at its last meeting that they will start reducing the number of bonds it owns by not reinvesting proceeds when rates reach 0.5%.  In addition, they said they will begin selling off bonds they own when rates hit 1%.  That’s great going out a couple of years, but how about now?  Inflation released last week showed that headline inflation reached a pandemic high of 3.2%.  Central bankers said they except inflation to rise to 4% in Q4 and early 2022.  The claimant count was -58,600, move than double the expectation!  However, retail sales for August were -0.9% vs +0.7% expected and a lower revised -2.8% print for July. Traders will be watching to see if the BOE votes to cut back on bond purchases, and if so, by how much.  If they don’t cut back, traders will watch for the number of members to vote for a cut (taper).  Last meeting, the vote was 8-1, with Saunders being the lone dissenter.

Everything you need to know about the Bank of England

US debt ceiling

Treasury Secretary Janet Yellen warned that the US will run out of money in a month if the debt ceiling is not raised. If that happens, the US will be unable to fulfill its obligations to repay it debt.  This would cause downgrades to the US by ratings agencies, thus leaving everyone unhappy. Will they raise it?  US Republican Senate minority leader Mitch McConnell says that the Democrats have that tools and the means to do it and they will have to “go it alone”. Democratic Senate Majority Leader Chuck Schumer said he is working with President Biden and House Leader Nancy Pelosi on a number of different options.  Could nervousness have caused the risk-off move in US stocks last week?

Worries with China

Tensions between China and the US have been heating up once again.  In addition to China’s concerns over the US-UK-Australia agreement, which gives Australia nuclear submarines, human rights issues and government regulation over Chinese companies continue to be an increasing source of tension.  Notwithstanding, there is also the issue of  China’s number two property developer, Evergrande.  The company has no funds and can’t sell assets. Owners of the company’s debt are trying to dump it at much lower prices but are having difficulty finding buyers.  If the firm goes under, it may cause a ripple affect into global markets.  Thus far, it has been contained, however watch for contagion over the weekend into next week. 

Canadian elections

Canadian voters head to the polls on Monday for Federal Elections.  Currently, Prime Minster Trudeau has a minority in Parliament.  He is hoping that the success of the vaccine rollout will vault him to Prime Minister with a majority in Parliament.  See my colleague Matt Weller’s complete election preview here.  

Earnings

Earnings season is well past us now, however there are a few companies releasing earnings this week that are worth nothing.  They are as follows:   ADBE, FDX, KBH, BB, COST, NKE, CAN

Economic Data

As previously mentioned, most of the major economic data that would affect central bankers’ decisions was released last week.  However,  this week brings the first look at global PMI’s for September and a sting of US housing data throughout the week.  See here for a complete look at our economic calendar.  Other notable economic data releases this week are as follows:

Monday

  • New Zealand: Services NZ PSI (AUG)
  • Germany: PPI (AUG)
  • US: NAHB Housing Market Index (SEP)
  • Canada: Federal Elections

Tuesday

  • New Zealand: Westpac Consumer Confidence (Q3)
  • Australia: RBA Minutes
  • UK: CBI Industrial Trends Orders (SEP)
  • Canada: New Housing Price Index (AUG)
  • US: Housing Starts (AUG)
  • US: Building Permits (AUG)

Wednesday

  • Japan: BOJ Interest Rate Decision
  • EU: Consumer Confidence Flash (SEP)
  • US: Existing Home Sales (AUG)
  • US: FED Interest Rate Decision
  • Crude Inventories

Thursday

  • Global: Manufacturing and Services PMI Flashes (SEP)
  • UK: BOE Interest Rate Decision
  • Canada: Retail Sales (JUL)

Friday

  • New Zealand: Trade Balance (AUG)
  • Japan: CPI (AUG)
  • Japan: Manufacturing and Services PMI Flash (SEP)
  • Germany: Ifo Business Climate (SEP)
  • US: New Home Sales (AUG)

Chart of the Week:  Daily SPX 500


Source: Tradingview, Stone X

The S&P 500 closed the Friday down 1% and under the 50 Day Moving Average for the first time since June 18th.  On September 10th, the large cap US index had broken below the ascending wedge it has been in since September 2020.  Each time the S&P 500 has fallen below the wedge, buyers came in and pushed price back inside.  However, thus far, buyers have not stepped in and the index closed on the lows of the week.  Could it be profit taking ahead of the FOMC meeting next week?  Horizontal support on the daily timeframe is at 4352.6, 4234.2 and 4138.6.  The 200 Day Moving Average sits just below there at 4118.2.  If buyers do come back into the market, short term resistance is at the 50 Day Moving Average at 4441.1, previous highs and the bottom trendline of the ascending wedge at 4550,  and then the top line of the ascending wedge near 4615.

There will be plenty of events for the market to pay attention to this week, including central bank meetings from the BOJ, FED, and the BOE.  In addition, markets will be watching developments in the US regarding the debt ceiling, tensions with China, the Evergrande drama, and elections in Canada!  With the potential for lots of surprises this week, markets may see some volatility!

Have a great weekend!

Learn more about forex trading opportunities.


More from Week Ahead

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.