All eyes are now on the September 18 Federal Reserve Open Market Committee’s (FOMC) decision to taper now or later and the German elections on September 22. Note that the state election in Bavaria will be held on Sunday and could provide clues on the outcome of the federal election.
The Eurozone’s finance ministers will hold an informal meeting today, followed by the Ecofin meeting tomorrow, when the aid programmes for Greece and Cyprus will be discussed. The Troika is visiting Greece and Portugal next week and bad news is expected from both countries. In anticipation of this, the meetings could discuss Portugal’s financing needs after the current aid programme ends in June 2014 – a probable solution is some sort of credit line from the European Stability Mechanism. The leaders know that leaving the arrangement to the last minute would only create uncertainty in the markets, so the decision has to be in place in early 2014 – which makes today’s meeting an opportune moment to discuss this informally.
The European Central Bank is rumoured to be preparing a new LTRO-programme. As the OMT-programme has been effective even without it ever being used, perhaps the idea is to counter possible tapering by the Federal Reserve by floating a test balloon of a threat (or promise) of another LTRO should the situation in credit markets deteriorate further.
Euro area July Trade Balance (09:00 GMT): The surplus is expected to have increased to EUR 15.3 billion in July from EUR 14.9bn in June, continuing the story of an export-led slow recovery of the euro area. The national level data is already out, so the market impact should be limited.
US August Retail Sales (12:30 GMT): The advance overall retail sales are forecast to increase by 0.5 percent in August after July’s disappointing 0.2 percent rise. The less volatile sales excluding autos are expected to have increased by 0.3 percent after a rise of 0.5 percent in July. July’s consumer credit release earlier this week was disappointing and together with the higher interest rates and the again-looming debt ceiling, it could have lowered expectations from the last consensus poll. Note that the August producer price index is released at the same time and ahead of next week’s consumer price index and the FOMC’s tapering decision, it is worth watching out for possible surprises.
US September Thomson Reuters / U. Michigan Survey of Consumers (13:55 GMT): After a moderate fall in September to 80, the preliminary sentiment index is expected to have increased slightly to 81.8 in September. While this is the first data point for September and is thus of some interest to market economists, it does not have an effect on the FOMC’s decision and any impact should be limited. The confidence index is still on a low-angle upward trajectory, with plenty of room on both sides. The main story remains unchanged: slow recovery and sentiment at post-crisis highs, but note that if fears over the Fed’s tapering and the debt ceiling hit the markets, there is room for a deep dip lower similar to 2011.