Last week, much of the focus was on the BoE meeting. After the previous week’s ECB meeting there was an element of the market that was anticipating the same cautious tone echoed by ECB President Draghi. As expected the BoE kept rates on hold with Ian McCafferty once again dissenting and voting for a rate hike in a 8-1 vote. The key statement was “global developments do not as yet appear sufficient to alter materially the central outlook described in the August report”. As a result Sterling made gains as the market maintained its forecasts for increasing rates in Q1 2016. Meanwhile, staying on the topic of interest rates we saw the Reserve Bank of New Zealand cut rates from 3% to 2.75% as expected. This week much of the focus will be on the FOMC and rhetoric that will follow surrounding the subject of “lift off”.
Quiet start to the week with only the Eurozone industrial production hitting the wires.
Global inflation levels are the main restrictions that central banks are finding when discussing the raising of interest rates. Today we see the key consumer price index (CPI) from the UK, which is the preferred inflation measure by the BoE. Inflation is expected to have ground to a halt and thus posting a zero annual reading. There is other key data released today with the German ZEW which surveys about 275 German institutional investors and analysts about the 6 month view. Given the impact of the Chinese turnmoil and intervention it will be interesting to see how this posts. Crossing the pond to the US, the focus is on the consumer with the release of the retail sales.
The UK and US are in focus once again. From the UK the labour numbers will be closely monitored in terms of the claimant count and the unemployment rate. In addition, the average earnings for the last 3 months is set for release. As stated earlier, inflation numbers are being closely monitored on a global basis for clues on the timing for hiking rates. Both Eurozone and US CPI numbers are released today.
The main focus of the week is in the evening after the European markets close with the release of the FOMC statement. There is an outside chance of a rate hike in some way shape or form (26% chance). Whilst we do not believe that the Fed will increase by 25 basis points, we believe there is a slim possibility that they could meet halfway with a 12.5 basis point move. Ultimately there will never be the perfect time to raise rates but a smaller increase could signal their intentions whilst taking into consideration market conditions. It will be the rhetoric that follows in the press conference that the market will mainly focus on for clues on future policy, action and forecasts
However, before the big event we have other key data readings. From the UK the retails sales numbers will be closely monitored as consumer spending makes up a large proportion of the GDP. In the US there is a host of data before the FOMC meeting. The US weekly jobless claims, building permits and Philly fed manufacturing are due to post.
The docket is quiet today. It is likely that the market will be still deciphering the rhetoric and impact from the FOMC meeting. Of note to the UK is the BoE quarterly bulletin but this is likely to echo the same information discussed at last week’s meeting.