The Labor Day holiday in the US should make for a fairly sedate start to the week; but it should be plenty busy with several central bank meetings. The central banks of Australia and Canada will are in action but all eyes are on Thursday’ crucial European Central Bank (ECB) meeting.

ECB

 

Tapering is the word of every trader’s lips as markets look to the ECB for direction. A lack of bonds, strong growth and the arrival of reflationary pressures means markets are hungry for an outline of how the bank will scale back its quantitative easing programme.

It’s increasingly hard for the ECB to argue against tapering soon and momentum has been building, with bid for the euro pushing EURUSD to its highest since January 2015 above $1.20.

But don’t expect it to come this time. With the euro rising rapidly and core inflation undershooting, the ECB has to avoid any mistakes.

According to a majority of economists in a Reuters poll, the ECB is likely to announce a reduction of its monthly asset purchases in October.

The lack of inflation remains the biggest risk to disappointing markets and it must be said the ECB is a cautious animal that’s been burned before. Twice in the past the ECB has tightened too quickly and will likely opt for a gradual reduction in monthly asset purchases. That said it does seem like the time is right as growth looks very firm and tapering poses limited risk to the recovery.

Markets will also be watching for any further signs that the ECB is bothered by the euro’s recent strength, after it was reported several on the Governing Council have raised concerns about the rapid appreciation in the euro against the dollar, 

RBA

 

Australia’s central bank convenes on Tuesday for its next policy meeting, part of a series of macro releases this week affecting the Aussie dollar. The Reserve Bank of Australia (RBA) stood pat on rates in August, leaving the cash rate target at 1.5% as expected.

Governor Philip Lowe noted that a stronger exchange rate could hit inflation, although a tightening labour market will help. The RBA took the labour market off its watchlist after improvements in the number of full-time jobs, hours worked and the labour force participation rate. The Australian dollar was close to its strongest level against the US dollar since January 2015 last week as a bout of greenback weakness lifted commodity currencies.

Bank of Canada

 

Canada’s central bank convenes on Wednesday with markets looking for hints about when the next rate hike may come. The Bank of Canada (BoC) raised rates in July after a standout first half of growth and is expected to raise them again in October. Traders will be watching this meeting for a surprise early hike or any hints about the likelihood one next month. Odds of a hike this week jumped along with the Canadian dollar after growth was revealed to have hit 4.5% in the second quarter, the fastest pace of expansion since 2011.

PMIs

 

Monthly PMIs do the rounds this week. Highlights include the UK’s all-important services PMI for August. July’s report pointed to sluggish growth in Q3 despite rising to 53.8 from June’s four-month low of 53.4. Expectations for the year ahead are close to their lowest since 2012.

 

Economic Calendar

(All times BST)

Monday, 4 September

All day – US and Canada Labor Day holiday

02:30 – Australia company operating profits

08:00 – Spanish unemployment change

09:30 – UK construction PMI

10:00 – Eurozone PPI

Tuesday, 5 September

Tentative – UK inflation report hearings

00:01 – UK BRC retail sales monitor

02:30 – Australia current account

05:30 – Australia cash rate, RBA rate statement

08:15 – Swiss CPI inflation

09:00 – Eurozone final services PMI

09:30 – UK services PMI

15:00 – US factory orders

Wednesday, 6 September

02:30 – Australia GDP

07:00 – German factory orders

13:30 – Canada trade balance, labour productivity

15:00 – Bank of Canada rate statement

15:00 – US ISM non-manufacturing PMI

Thursday, 7 September

02:30 – Australia retail sales, trade balance

08:30 – UK Halifax house price index

12:45 – ECB monetary policy decision

13:30 – ECB press conference

13:30 – US weekly unemployment claims

15:00 – Canada Ivey PMI

16:00 – US crude oil inventories

Friday, 8 September

00:50 – Japan final GDP

Tentative – China trade balance

07:00 – German trade balance

07:45 – French government budget balance, industrial production

09:30 – UK manufacturing production, goods trade balance, industrial production, construction output

13:00 – UK NIESR GDP estimate

13:30 – Canada employment rate

Saturday, 9 September

02:30 – China CPI and PPI inflation

Corporate Calendar

 

Tuesday, 5 September

Halfords Group (HFD) – trading update

888 Holdings (888) – interim results

Redrow (RDW) – final results

Belvoir Lettings (BLV) – interim results

Wednesday, 6 September

Barratt Developments (BDEV) – final results

Thursday, 7 September

Ashmore Group (ASHM) – final results

Go-Ahead Group (GOG) – final results

Dixons Carphone (DC) – Q1 trading update




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