Last week was a good week for equities but a very mixed week for many EM currencies, in particular in Asia. Despite continued debate in the market, it is still not clear what caused this disconnect. Two alternative hypotheses top the list: final capitulation on the highest conviction investments, or alternatively, the rebound in the EUR may have squeezed people out of Euro-funded positions in EM.
The Euro rebound was not a surprise in itself, given how short the market was positioned according to most indicators. The German government and other European policy makers calmed markets by insisting that there were no plans to let Greece default or for the country to leave the Eurozone.
The Eurozone crisis will remain on top of the agenda with a Monday conference call scheduled between the Greek Finance minister and the Troika to assess if the conditions have been met for the disbursement of the next tranche. Also on Monday, Chancellor Merkel will face the press after weak regional election results in Berlin. Likely, the Eurozone crisis will be on the agenda. The developments in Greece will remain important throughout the week, with speeches by German Finance Minister Schaeuble and the ECB's Mr. Stark potentially important at the end of the week, during the IMF/Worldbank/G20 meetings, which start at the end of the week. At the Washington gathering we expect plenty of public comments on the Eurozone crisis by global policymakers, giving the currency market an opportunity to move on every headline.
The other main event this week is the FOMC meeting, where Goldman expects “Operation Twist”. Some investors have started to wonder if there will be a QE3 surprise with additional asset purchases. Also on the central bank side, the latest BOE minutes will be interesting this week, given there had been some speculation the Bank may increase asset purchases. Sterling tends to react quite strongly to the MPC minutes.
Finally, on the macro data side, the advanced Eurozone PMIs, the Ifo and the Chicago Fed survey will be key to watch.
- IMF/EU/Greece Conference call: Enough progress to allowing disbursement of the next tranche?
- Chancellor Merkel press conference after weak Berlin election results: How much blame for the Eurozone crisis?
- NAHB Housing Market Index, Sept., est. 15 from 15
- France to sell EUR1b 336-day bills
- France to sell EUR2.5b 182-day bills
- France to sell EUR4.5b 91-day bills
- U.S. to sell $29b 3-month bills
- U.S. to Sell $27b 6-month bills
- Fed buying $0.5b-$1b, Mar. 31, 2013-Mar. 15, 2014 Treasuries (agency/MBS rolldown)
- Housing Starts, Aug., est 590k from 604k
- Housing Starts, Aug., M/m, est. -2.3% from -1.5%
- Building Permits, Aug., est. 590k from 601k (revised)
- Building Permits, Aug., M/m, est. -1.8% from -3.2%
- Spain to sell 12-month and 18-month bills
- U.S. to sell 4-week bills
- U.S. to sell $25b 52-week bills
- US FOMC decision: Operation Twist or more?
- BOE Minutes: How close was the MPC to implement additional QE?
- Norges Bank rate decision: Consensus expects unchanged rates.
- MBA Mortgage Applications, week of Sept. 16
- Existing Home Sales, Aug., est. 4.75m from 4.67m
- Existing Home Sales, M/m, Aug., est. 1.7% from -3.5%
- FOMC Rate Decision, est. 0.25% from 0.25%
- Germany to sell add’l EU5b 10-yr notes
- Portugal to sell 182-day bills
- Portugal to sell 91-day bills
- Euro area advanced PMI (Sep): More weakness expected by the market.
- G20 Meeting starts.
- Initial Jobless Claims, week Sept. 17, est. 420k from 428k
- Continuing Claims, week Sept. 10, est. 3720k from 3726k
- Bloomberg Economic Expectations, Sept.
- Bloomberg Consumer Comfort, week Sept. 18
- Leading Indicators, Aug., est. 0.1% from 0.5%
- House Price Index, M/m, July, est. 0.2% from 0.9%
- U.S. to sell $11b 10-yr TIPS (re-open)
- U.S. announces 2-yr, 5-yr, 7-yr auction sizes
- German Ifo (Sep).
- US Chicago Fed.
- IMF annual meeting begins.
- Speeches by Messrs Trichet, Dudley and Schaeuble at the IMF meeting.
- Fed’s Dudley to speak on panel in Washington D.C.
- Fed’s Williams on uncoventional monetary policy in Zurich
- ECB’s Trichet speaks in Washington D.C.
- Fed buying $0.5b-$1.25b, Nov. 15, 2021-Aug. 15, 2041 Treasuries (agency/MBS rolldown)
Two speeches by the ECB's Mr. Stark at the IMF meeting
Source: Goldman Sachs and Bloomberg