The week ahead is striking in the sheer number of central bank speakers, but with the Fed on hold until December and the BoJ’s new framework now revealed, focus turns squarely from central banks to US politics. The first US presidential debate at the start of the week will be a key focus.
We are speaking, of course, of the Fed’s decision to punt yet again, and for a reason that is not mysterious at all. To wit, our financial rulers are petrified of a stock market hissy fit, and will go to any length of dissimulation and double-talk to avoid triggering a crash of the very bubbles their policies have inflated.
Currently no-one expects the Fed to hike today and it probably won’t. It is definitely possible though that the FOMC statement will contain a strong hint regarding a likely rate hike in November or December, since the Fed for some reason no longer wants to surprise markets. Such an announcement could well have the same effect on the markets as an actual hike though.
University of Michigan survey results show Current Economic Conditions plunged to 103.5 - the lowest since Oct 2015. The biggest driver of this weakness is tumbling inflation expectations (with 1Y outlook dropping to 2.3% - the lowest since Sept 2010).
"The Fed is increasingly F#ked," exclaimed one veteran market participant as Core CPI - among The Fed's favorite inflation indicators - surged to +2.3% YoY, the highest since Sept 2008. This is the 10th month in a row above the Fed's mandated 2% 'stable' growth as shelter and healthcare costs continue to surge.
The spotlight turns to US data and Fed speakers ahead of the Fed blackout period this week. The BoE and SNB meet to decide policy but consensus expect no change from either. Elsewhere we get inflation data from the US, UK, Sweden & EZ (F), Q2 GDP from NZ & SW and labor market data from the UK & AU.
"The only thing keeping the US out of recession is the US consumer (see chart below). It is difficult to say consumption is driving the economy forward ? rather it is like a woodwormridden crutch creaking under the strain of holding up a deadweight economy. This recovery ? the fourth longest in history ? is surely nearing its end."
After Friday's Jackson Hole repricing of Fed hike expectations, which made it clear that the fate of a September rate hike is now in the hands of the August payrolls number, the main risk event of the week is therefore this Friday's US NFPs for which consensus expects a reading of 180K, down from last month's 217K print. A number substantially above this will make a September hike virtually certain, and potentially risks roiling markets as good news will likely be bad news this time around.
Core CPI (ex food and energy) rose 2.2% YoY (below the 2.3% expectations) but remains above The Fed's 2%-mandate for the 9th straight month. The modest disappointments across the board in CPI data were led by a drop in energy-related prices (down 1.6%) with food prices unchanged. The headline CPI data was unchanged month-over-month, the weakest price change since Feb 2016.
With Wall Street hitting peak vacation season, it is a quiet week for news. The key economic release this week is CPI inflation on Tuesday. There are several scheduled speaking engagements from Fed officials this week. Many will be looking for signs of hawkishness Minutes from the July FOMC meeting will be released on Wednesday.
With the BOJ already a top-five owner of 81 companies in Japan’s Nikkei 225 Stock Average, the BOJ is on course to become the No. 1 shareholder in 55 of those firms by the end of next year. Just as insane, the central bank owned about 60% of Japan’s domestic ETFs at the end of June. This is up from just over half as of a few months ago suggesting that the BOJ is gobbling up equities at an unprecedented pace.
"More striking, at least in our eyes, was his language on the Dollar, where he essentially made the case that weaker fundamentals elsewhere require a dovish offset from the Fed, to prevent the Dollar from appreciating. This language comes very close to “Dollar targeting."