Week ahead: central banks face the dilemma of inflation

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A difficult period for the markets

The markets are starting to get nervous, which will make the final months of the year very interesting. The list of downside risks to the economy and the markets keeps growing, something that investors are relatively comfortable with, but something seems to be pushing them too far.

Over the years, many have questioned whether central banks have been a safety net for the markets, ensuring that investors keep buying dips and that sales don’t turn into something more serious in times of downturn. troubles. Which makes their current situation all the more difficult.

For more than a decade, central banks have not been able to generate enough inflation to meet their targets, often not even close, which has allowed them to be patient as their economies regain their full strength. . With inflation in many countries now exceeding the target and policymakers appearing less confident that it will be temporary, the theory could be tested as the stimulus is withdrawn and rates start to rise.

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Risks to the US economic recovery increase as pressures intensify, an overseas energy crisis could push prices to growth-threatening levels, and the battle in Washington DC over debt will likely end. when the last cent is almost used up around October. 18.

Congress was able to pass an interim bill that avoided a government shutdown, at least until early December. It is clear that doing anything among Democrats, both conservative and progressive, will be difficult in the future.

Investors will remain under central bank watch as price pressures do not appear to ease anytime soon. If some of the accommodating members of the Fed turn hawkish, it could allow the bond market liquidation to continue.

On Monday, the Fed’s Bullard speaks at the Global Strategy Forum. Thursday will have an appearance by the Fed at the Business Cycle Dynamics in Open Economies conference.

Friday’s report is expected to be strong, with 500,000 Americans finding jobs. September included the expiration of unemployment benefits in the event of a pandemic, but the impact of the delta variant on the short-term outlook prompted some employers to refrain from hiring. An announcement of taper from the Fed in November is widely expected, with strong employment reports likely accelerating the pace of the decline.

EU

The German election was narrowly won by the SPD, as expected, but coalition talks will take some time. The most likely outcome is the traffic light coalition with the Greens and Free Democrats, but a grand coalition cannot be ruled out.

PMI and retail sales early next week are the biggest data points, but ultimately the focus will be on the central bank ahead of the meeting in a few weeks. Others are looking to remove stimulus or even raise rates, and we are seeing some inflation in the region. The spell or PEPP program in March and what, if anything, will replace it is what traders want to know.

UK

A little light on the data side next week, with the PMIs for Tuesday and Wednesday as the only releases, to note.

Key for the UK right now is interest rate expectations with market pricing in three by the end of next year despite the country facing an energy crisis this winter, the fuel crisis. currently, the challenges of Brexit, the end of the leave and universal credit for complementary schemes and an increase in national insurance in March.

It’s not the ideal environment to tighten up unless, of course, policymakers aren’t completely honest in their assessment of the rigidity of the. The has been under pressure even as bullish expectations rise, not what you would expect in this scenario and a worrying signal.

Emerging Markets

Russia

The economic calendar is a bit thin next week, with Wednesday’s data being the strongest, along with Tuesday’s.

South Africa

Next week promises to be very quiet, with Tuesday’s data being the only notable release.

Turkey

The CBRT came under more pressure this week after the CBRT’s decision last week to cut despite the recent rise in inflation destroyed the credibility of the new governors. With that in mind, Monday’s inflation data could be important, with another rise to 19.7%. The central bank may now prefer to focus on core inflation, but the headline figure is impossible to ignore, especially when the central bank appears to be caving in to political pressure. The currency could come under further pressure.

Asia Pacific

China

China is on vacation all week until Friday, so there is no release of meaningful data this week.

Although the Evergrande (HK 🙂 story grabbed the headlines, it hasn’t gone away despite some recent announcements of asset sales and partial payments to retail investors. Evergrande missed two foreign currency coupon payments. Any deterioration or sign of a government bailout will reflect on their Hong Kong listed stocks and cause directional volatility on the closed mainland.

Energy shortages in China are making headlines, with the government asking state-owned energy companies to secure their supplies at all costs. This will keep energy prices strong, but any signs of worsening the situation will again lead to selling on the HKEX.

India

All attention will be focused on Friday when the central bank may lack leeway to keep rates below. They are likely to maintain rates this week, however.

Pressure has picked up on what has been boosted in recent times by international flows in India’s hot IPO market, money moving from Chinese stocks and weaker than usual sales from importers of oil. These flows appear to be receding and the aggressive rally in oil prices could see further selling of INR.

Australia and New Zealand

The dollar and the New Zealand dollar continue to rebound on daily changes in international risk sentiment, rather than domestic developments. Les and both have political decisions this week. Of the two, the RBNZ is more important as the RBNZ may well raise rates this month, having postponed a rate hike due to COVID-19 previously.

The remains are extremely vulnerable to the Delta variant jumping the fence around Auckland and the community at large. The two currencies are a proxy for the weakening of the nerves of the US Fed and concerns of China, and therefore appear quite vulnerable to further decline.

Japan

The selection of a new prime minister by the PLD went off without incident. The new prime minister has promised to turn on the tax taps as planned, but otherwise there are no far-reaching political decisions to move local markets.

Japanese stocks are rocked by a drop in US stocks and will maintain a strong correlation with Wall Street this week. After being boosted by hopes of a fiscal stimulus, Japanese stocks are among the most vulnerable in Asia to a significant pullback if speculative confidence weakens.

Key economic events

Sunday October 3

  • Start of 77th IATA Annual General Meeting and World Air Transport Summit
  • British Conservative Party conference begins

Monday October 4

  • Golden Week holiday: Mainland Chinese markets closed until Thursday
  • OPEC + meets to discuss November release
  • British Chancellor of the Exchequer Sunak speaks at the Conservative Party conference.
  • The Fed’s Bullard speaks at the World Strategic Forum – International Economic Forum of the Americas.
  • Ramsden of BOE chairs a session at the Money Macro & Finance Society Policy Conference.
  • Start of the plenary session of the European Parliament in Strasbourg, France
  • Eurogroup finance ministers meet in Luxembourg.

Economic data / Events

  • United States, durable goods
  • Spain unemployment
  • IPC Turkey,
  • Switzerland ,

Tuesday, October 5

  • BOJ Governor Kuroda speaks at the 2021 TCFD Summit.
  • OECD Ministerial Council meeting 2021 begins
  • The EU’s Economic and Financial Affairs Council meets in Luxembourg.
  • G-20 Trade Ministers Meeting in Sorrento, Italy.
  • Olsen of Norges Bank delivers a speech to the central bank’s regional network.

Economic data / Events

  • U.S. Commerce and Data
  • Australia Rate Decision: RBA to Keep Spot Target at 0.10%
  • Japan
  • Thailand
  • Australia
  • Eurozone
  • France
  • Mexico’s international reserves
  • Singapore
  • Eurozone
  • UK
  • South Africa PMI
  • South Africa Monetary Policy Review
  • Turkey’s effective exchange rate

Wednesday October 6

  • EU summit in Slovenia to discuss the future membership of six Balkan states.
  • Fed’s George speaks at the Kansas City Fed’s annual Banking and the Economy: A Forum for Women in Banking.
  • British Prime Minister Johnson speaks at the Conservative Party conference.

Economic data / Events

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  • New Zealand rate decision: Expected to increase official spot rate by 25 basis points to 0.50%
  • Poland: Maintain the base rate at 0.10%
  • Russia CPI
  • Eurozone retail sales
  • Germany
  • Spain
  • Sweden’s monthly GDP indicator
  • EIA Crude Oil Inventory Report

Thursday October 7

  • BOJ Governor Kuroda speaks at the branch managers meeting.
  • PBOC Governor Yi Gang speaks at the BIS Large Tech Regulation Virtual Conference.
  • Federal Reserve Bank of Cleveland and ECB Joint Annual Conference “Inflation: Drivers and Dynamics”
  • New York Fed Chairman Williams speaks at the Business Cycle Dynamics in Open Economies conference.
  • Bank of Canada Governor Macklem talks about the global financial architecture.
  • ECB Chief Economist Lane speaks during a Central Bank of Ireland webinar.
  • The final summit of the B20 begins in Rome.

Economic data / Events

  • Initial jobless claims in the United States,
  • Mexico
  • Russia CPI
  • exports from Chile,
  • China
  • Swiss foreign exchange reserves
  • France data
  • Industrial production in Germany
  • Turkey’s cash budget balance
  • Gross and net reserves, production and consumption of electricity in South Africa
  • Russia’s gold and currency reserves

Friday October 8

Economic data / Events

  • Change in the non-agricultural payroll in September in the United States: 500K against 235K before,,
  • India rate decision: expected to keep reverse repo rate at 4.00%
  • General election in the Czech Republic
  • Hungary
  • To exchange: ,
  • Norway GDP
  • Argentina
  • Canada
  • China
  • Japan

Sovereign Rating Updates

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