Federal Reserve meeting set to dominate all the attention in the markets as balance sheet reduction comes into focus.

FOMC meeting

 

Hold on to your hats: the time has arrived for the Federal Reserve to start unwinding its gigantic balance sheet. At least that is what the market is expecting from the Federal Open Market Committee (FOMC) when it convenes this week for a key policy meeting.

Minutes from recent meetings show a fissure opening up between those who favour waiting before reducing the $4.5 trillion balance sheet and those who think the US economy is ready for stimulus to be removed. As far back as June, Fed chair Janet Yellen said the central bank would start to reduce the size of its balance sheet “relatively soon”. 

Markets expect soon to mean this week’s meeting. The next FOMC meeting is in October, but without a press conference to explain the Fed’s decisions, she may prefer to act now rather than waiting until December.

On hikes to the federal funds rate, whilst the market seems to doubt the Fed’s desire to act again, conditions do not appear to have altered significantly enough to warrant taking the foot off the tightening gas. Another hike by December should not be ruled out.

On the balance sheet, taking a simplistic view, if QE was good for stocks and drove down bond yields then unwinding it will be bad for equities, while Treasury yields should rise and the dollar with them. The market may be underestimating the potential for a dollar bounce on the expected reduction of the balance sheet. USD has suffered significant losses this year but appears well placed for recovery with core inflation expected to turn higher in to year-end.

PMIs

 

With the European Central Bank ready to embark on tapering in October, the latest batch of purchasing managers’ indices will be parsed for clues about the pace of recovery in the Eurozone. Manufacturing and services flash PMIs are due on Friday.

New Zealand

 

Potentially a big week is in store for the New Zealand dollar. Current account figures and the latest GDP print are due out this week ahead of closely watched parliamentary elections. The kiwi has been particularly sensitive to news after a tight campaign that has so far failed to produce a clear favourite and left investors a little jittery. New Zealanders will head to the polls on Saturday.

Economic Calendar

(All times BST)

Monday, 18 September

00:01 – UK Rightmove house price index

10:00 – Eurozone final CPI

Tuesday, 19 September

02:30 – Australia RBA monetary policy meeting minutes, house price index

10:00 – German ZEW economic sentiment

13:30 – Canada manufacturing sales

13:30 – US current account, housing starts, building permits

23:45 – New Zealand current account

Tentative – New Zealand GDT price index

Wednesday, 20 September

00:50 – Japan trade balance

07:00 – German PPI inflation

15:00 – US existing home sales

19:00 – FOMC statement, economic projections & federal funds rate

19:30 – FOMC press conference

23:45 – New Zealand GDP

Thursday, 21 September

Tentative – Bank of Japan monetary policy statement, policy rate

07:30 – Bank of Japan press conference

09:30 – Public sector net borrowing

13:30 – Canada wholesale sales

13:30 –US weekly unemployment claims, Philly Fed manufacturing index

Friday, 22 September

08:00 – France flash manufacturing & services PMIs

08:30 – German flash manufacturing & services PMIs

09:00 – Eurozone flash manufacturing & services PMIs

13:30 – Canada CPI inflation, retail sales

Saturday, 23 September

All day – New Zealand parliamentary elections

Corporate Calendar

 

Monday, 18 September

Petra Diamonds (PDL) – FY 2017 preliminary results

Tuesday, 19 September

Ocado Group (OCDO) – Q3 trading update

Wednesday, 20 September

Kingfisher (KGF) – Interim results

Babcock International Group (BAB) – trading update

Thursday, 21 September

Kier Group (KIE) – Preliminary results

Pan African Resources (PAF) – Preliminary results

Safestyle UK (SFE) – Interim results

Friday, 22 September

Saga (SAGA) – Interim results

Smiths Group (SMIN) – Preliminary results

Source: Bloomberg



 

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