What to Watch: US Plan For Syria, China, Taper Talk And RBNZ

The markets made it through another week without missiles being launched at Damascus and we now know more about the Alawites than we ever thought we’d know. The metals and energy complexes are, well – complex – and don’t appear to be noticing the contingent of Russian warships parked off the Syrian coast. Obama and Putin had some a tense photo-op at the St. Petersburg G-20 with the former’s ‘anywhere but here’ aloofness rewarded by some late-week support from the European Union for military action. EUR remains in the doghouse and GBP is showing some semblance of not being impervious to gravity. Here’s what we’re watching next week:

1. The Great Winner of Oz

Tony Abbott’s Liberal-National coalition romped to electoral victory this weekend with what appears to be the largest parliamentary majority since 1996. The Rudd-Gillard-Rudd show that coincided with a significant expansion in Australia’s US$ 1.5 trillion economy activity is yielding way to a centre-right cabal of Canberra cronies and the markets are curious to see how Abbott’s policies are perceived and received by the markets. Our earliest clues will be how A$ trades during the Australasian session on Monday with a gap (higher?) not being ruled out. Abbott has pledged to abolish the controversial mining tax but a bigger achievement will be figuring out how to contend with China’s waning mining bid and economic moderation. With deeper budget deficits forecast for the next three years and unemployment projected to reach a multi-year high of 6.25% by mid-2014, the Great Winner of Oz has his work cut out for him behind the Canberra Curtain.

2. US Congress back on Monday

We’ve all been reading the congressional tea leaves over the past several trading days to discern whether US legislators will authorise Obama to attack Syrian chemical weapons facilities for 60-90 days. The Senate Foreign Relations Committee jumped on that bandwagon this past week, but there are apparently more skeptics over in the House. Putin has deftly maneuvered more Russian warships into the Mediterranean in case Obama’s go-at-it-alone attitude is more substance than style. After trading as low as a US$ 1362 handle on Friday, Gold closed at $1391 and Silver found a late-week bid to close around US$ 23.84. Brent crude recovered nicely last week and stopped just short of testing US$ 115 while WTI stopped just short of US$ 110. A surprising round of support by the House – or a unilateral decision by Obama – could set the complexes ablaze.

3. It’s RBNZ’s turn

After this past week’s blitzkrieg of monetary madness, it’s time for Wellington’s Wheeler to weigh in. After spending much of the second half of August on the defensive, Kiwi is the brightest shining star on our screens thus far in September. NZD/USD closed above the psychologically-important US$ 0.8000 figure on Friday for the first time since 19 August. Wheeler previously noted that RBNZ has additional policymaking tools at its disposal to slow the hyperactive housing hoopla. New lending restrictions go into effect from 1 October and RBNZ will not want to do too much to spook the markets in the wake of the Fonterra milk scandal.

4. Big C

Nope, ‘Big C’ isn’t Citigroup but rather China, and we’ll see a lot of China this week starting with the August trade balance where a US$ 20 billion print is expected. Beijing will follow that up with August new loans, August money supply, and August CPI numbers on Monday and August industrial production and August retail sales on Tuesday. This will be a baptism-by-fire for Oz’s Abbott. PBoC’s Zhou has made it abundantly clear he is ready to deal with the Fed’s taper, and Chinese brass has been very vocal about enacting reforms at the expense of economic growth. Chinese GDP is probably running somewhere around a 7% to 8% handle, and given all of the mayhem in the emerging markets lately, Beijing is likely pleased with that. Big C’s big quandary remains how to rein in shadow banking and the monster balance sheet problems that has engendered.

5. Fed up over taper talk

Other than San Francisco Fed’s Williams speaking at a NABE event on Monday, Fed rate-setters are in purdah ahead of the most closely-watched FOMC meeting in anyone’s recent memory. An August non-farm payrolls print of +169,000 underwhelmed a market that is already on pins and needles. The Fed and Obama administration appear to believe they are the only ones who notice the US labour participation rate has moved to its lowest level since 1978, reaching 63.2%. These pretty stinky prints place fresh emphasis on this week’s upcoming data with Friday’s August retail sales and University of Michigan consumer sentiment data being some of the last clues we’ll receive ahead of Team Bernanke’s decision. Even if the FOMC votes to taper monthly asset purchases by an estimated US$ 10 billion, we expect policymakers will continue to underscore how generous their stimulus will actually remain.