By Ben Robson
This week we zone in on the US and a much-awaited interest rate announcement from the Federal Reserve as well as Consumer Confidence, Personal Consumption Expenditure (PCE) and a final second quarter GDP reading. On the interest rate side, New Zealand also makes its interest rate decision and both the UK and Canada release figures for GDP. We can also expect Eurozone Consumer Price Index and press conferences involving Fed Chair Powell, Bank of England Governor Carney, ECB President Draghi and Bank of Japan Governor Kuroda.
It is more or less academic that the US will raise interest rates by a quarter of one percent to 2.25% on Wednesday. Fed Chair Powell will explain why/why not shortly after the decision. In my mind, most metrics support an interest rate hike: from the various business and consumer sentiment indices, to employment, to GDP and inflation gauges. Consumer confidence (September) is reported on Tuesday expected at 132.2. I think it will hit the mark and possibly exceed it. After all, US stock markets are raging higher and that can only mean that people are confident! GDP at anything over 4% is impressive, and GDP is likely to be very impressive. I feel it will beat expectations of 4.2% when it is released on Thursday. A measured 2.0% for Core P.C.E. for August, released on Friday completes the dream narrative of strong growth and contained inflation. Fed Chair Powell is likely to play on the inflation aspect of the US economy as a reason for “not” aggressively hiking US interest rates.
New Zealand releases its interest rate decision late on Wednesday evening. There were some who were hoping that New Zealand might even cut interest rates, but last week’s 2nd quarter GDP reading of 2.8% (Y.o.Y) probably put paid to that hope. The New Zealand dollar rallied strongly after the economic release. I expect New Zealand interest rates to stay on hold at 1.75%.
The British pound has been trading with a reasonable amount of volatility. Last week, both inflation and retail sales came in above expectations sending the pound soaring higher, only for Brexit tempers, arguments and political rhetoric to dampen hopes and push the pound back to where it started. Unless there is some progress in negotiations the prospects of a “no- deal” become more of a reality. Prime Minister May remains under huge pressure from all sides. If Friday’s UK 2nd quarter GDP at 1.3% (Y.o.Y) fails to come out in line with expectations, then I can see GBP heading lower.
Friday, we see the release of Eurozone CPI (Y.o.Y) September expected at 2.1% and Canadian GDP (Y.o.Y) July expected at 2.4%. The Eurozone is not dictating any market moves with its economic announcements and is rather acting as a counter-currency to the more exciting politics and economic figures from elsewhere. Likewise, the Canadian dollar is generally fluctuating around non-domestic news events and its cross-border relationships with the US. The US very much remains the driver of worldwide currency moves. Expect more of the same this week and pay particular attention to the speech of Fed Chair Powell on Wednesday evening!
Good Luck and good trading! Watch out for me on video this Thursday and Friday.
This Article was prepared and accomplished by Mr. Ben Robson in his personal capacity. The opinions expressed in this article are Ben’s own and do not reflect the view of Equiti.
