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The focus in the US shifts from the labor market to pricing pressures. Tuesday’s release of the August inflation report could move some Fed members into joining the ‘inflation is persistent’ camp. Prices that Americans pay for everyday goods and services are expected to continue to accelerate in August, with most core readings maintaining the jump seen last month.
On Wednesday, economists will also closely follow the Empire manufacturing report should show expansion continues to moderate and whether selling prices continue to surge. Thursday is all about the US consumer and if retail sales continued to weaken in August. Friday’s release of the University of Michigan sentiment is expected to steady.
With the Fed entering the blackout period for the Sept. 22 FOMC policy meeting, market position might be limited if risk aversion does not become the dominating theme.
EU economic and financial affairs ministers met in Slovenia. The meeting concluded on Saturday, Sept. 11. Also on Sept. 11, in France, the National Front, Marine Le Pen’s party, held a meeting near the Cote d’Azure. In Germany, Armin Laschet, the CDU’s candidate for chancellor, addressed a party congress in Nuremberg. On Sunday, candidates in the race to replace Angela Merkel as Chancellor were to participate in a debate on ARD TV.
France releases August industrial sentiment on Monday. The indicator is expected to remain steady at 105. On Wednesday, the Eurozone releases industrial production. Italy and France publish CPI.
On Thursday, ECB Governing Council member and Bank of Finland Governor Olli Rehn will host a press conference. Rehn will discuss monetary policy and the international economic situation. Also on Thursday, the Eurozone releases new car registrations and Italy publishes trade balance.
The EU trade policy committee will meet in Slovenia for a two-day gathering on Thursday and Friday.
The Eurozone releases CPI on Friday.
The UK releases August unemployment claims and the unemployment rate on Tuesday. August CPI will be released on Wednesday, with a consensus of 2.9% (YoY), up from 2.0% in July.
Norwegians vote in a general election on Monday. Polls show that the Labor Party, led by Jonas Gahr Store is favored to oust Prime Minister Erna Solberg, who has been in office for eight years.
On Tuesday, Sweden releases August CPI, which is expected to rise to 1.5%, up from 1.4% in July.
Hungary
The Governor of the National Bank of Hungary, Gyorgy Matolcsy, will deliver remarks at the Renminbi Initiative conference in Budapest.
Poland
Poland releases July current account balance and trade balance on Monday. The current account balance is expected to show a deficit of -165 million US dollars, compared to a surplus of 281 million dollars in June. The trade surplus is expected to fall to 375 million dollars, down from 761 million on June.
Russia
On Thursday, Russian President Vladimir Putin and other regional leaders are scheduled to hold a talk about the situation in Afghanistan. As well, Russia releases gold and forex reserves.
Russians will go to polls in parliamentary elections from Friday, Sept.17, to Sunday, Sept. 19. President Vladimir Putin has engaged in an extensive crackdown of the opposition and is expected to tighten his control of the country.
South Africa
South Africa publishes mining, gold and platinum production on Tuesday and retail sales on Wednesday.
Turkey
On Monday, Turkey releases Industrial Production for July. The indicator is expected to slow to 15.3%, down from 23.9% in June.
China
The government squeeze on the private sector continued this past week, but China equities rose after President Biden and President Xi had their first phone call in 7 months, dangling the carrot of improved relations. But with government restriction/investigations/interventions in the private sector now a daily occurrence, buying the dip in China equities remains a perilous endeavor.
USD/CNY remained range bound with no sign that the PBOC was looking to engineer a weaker currency to stimulate the economy, yet.
The data calendar is heavier in the week ahead featuring New Yuan Loans, Industrial Production, Retail Sales and Fixed Asset Investment. If the data comes in soft, like the PMIs, stimulus noise will increase once again. That will likely boost equities in the short-term.
India
India appears to be the major recipient of diverted China flows at the moment, with the INR and stock market rallying impressively. That rally in INR resumed into the end of the week, suggesting that positive momentum remained robust.
The data calendar is busier in the week ahead featuring Inflation, WPI and the Balance of Trade. Stagflationary pressures will still be evident but the Balance of Trade should show a large jump in imports, suggesting India is recovering from its last COVID-19 wave. That is what markets will be focusing on along with China rotation flows, should see another strong week for local equities.
Australia And New Zealand
The Australian and New Zealand dollars continued to bounce around on daily shifts in international risk sentiment, rather than domestic developments.
That could change this week for New Zealand which is making sterling progress in controlling its latest COVID-19 outbreak, with only Auckland remaining in full lockdown. If restrictions are eased there, that will put October RBNZ hikes front and center again and lead to sustained kiwi strength.
In contrast, the heavy data release schedule is expected to show the impact of the prolonged NSW and Victoria lockdowns on domestic consumption. NAB Business Confidence, Westpac Consumer Confidence will take a hit and Thursday’s Employment data should be flat. A surprise jump in employment should see the AUD spike higher but that is not the base case.
Local equity markets continued to ignore domestic consumption with resources and banks outperforming. Equities were being driven by international recovery sentiment and a potential thaw in US/China relation, and an olive branch extended by China over the TPP last week were both strong positives.
Japan
Japan has a packed data calendar this week including PPI, Industrial Production, the Tankan Survey, Machinery Orders and the Balance of Trade. Apart from the same supply change and material cost pressures that the rest of the world is experiencing, the data should highlight that Japan’s export machine is in good shape, even as domestic consumption falters.
However, none of that will matter to Japan equity markets which have enjoyed a stellar week. That should continue this week as equity investors remain myopically focused on Japan’s next Prime Minister, who will be selected at the end of the month. Markets are expecting the new PM to push through new fiscal stimulus ahead of an election due in November at the latest, giving a boost to the economy and equity prices.
USD/JPY remained a purely rate differential play between the US 10-year and Japan JGBs. Follow that for directions and bring a good book to read in between.
Oil
Crude prices could remain volatile as energy traders digest China’s rare reserve release, if Congress moves closer to deliver oil drilling ban across most US offshore waters, and if crude demand improves as the Delta variant peak appears to be across most of the world. US production was decimated by Hurricane Ida and should start returning. The 1.5 million hit to US production last week was helping keep the oil market heavily in deficit.
Oil market fundamentals are still mostly bullish and that could help WTI crude run higher if risk appetite remains in place. The $74 level remains key resistance for the US benchmark.
Gold
Gold was a choppy mess and that could last a while if Treasury yields continue trade rangebound. Tapering expectations for the Fed have been pushed to the end of the year, but the only thing that could get gold going is if pricing pressures start to ease. Right now, Treasury yields seem to be the primary beneficiary to hotter inflation and that should send the dollar higher, which is negative for gold right now. Gold needs a catalyst above the $1800 level soon, otherwise momentum selling could get ugly for bullion.
Bitcoin
Bitcoin volatility will likely remain elevated as further regulatory oversight appears to be just around the corner. The Fed is expected to unveil a research paper this summer that explores a move to a central bank digital currency. The heavily anticipated Fed research paper could show how the Fed anticipates regulation to deliver a safer environment for the public in using cryptos and how to make payment systems more efficient. The SEC might also deliver new guidelines that could disrupt how crypto lenders behave and which products they can offer.
Bitcoin prices were attempting to form a base after a crash was triggered on the first day El Salvador made it legal tender. If the floor gives, panic selling could lead to another massive drop.
Sunday, Sept. 12
Monday, Sept. 13
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