Central banks will dominate the coming week with the US Fed, the Bank of Japan and the smaller RBNZ – all meeting to decide on interest rates.
Of the trio, two matter – the Fed, followed by the Bank of Japan.
The Fed’s Open Market Committee and the Bank of Japan are both scheduled to end their policy meetings on Wednesday with statements to follow.
The BOJ could reveal a further small easing in its already very loose monetary policy (Wednesday afternoon, our time), while the Fed is widely expected to keep rates on hold in its post meeting statement around 4 am Thursday, Sydney time.
The RBNZ reveals its decision around three hours later, Sydney time and could reveal another rate cut, but some economists reckon it will wait after cutting its cash rate to a low of 2.0% at the last meeting in early August.
According to the assessment from the AMP’s Chief Economist, Dr Shane Oliver "the Fed will remain on hold. Recent economic activity data has been mixed – with strong jobs data but weak ISM business surveys, industrial production and retail sales – pointing to growth averaging below the Fed’s own expectations and a long way from any overheating.”
"So with wages growth remaining subdued and its preferred inflation measure stuck at just 1.6% yoy the Fed can afford to wait.
"This is particularly the case with global growth remaining subdued and the risk that a Fed rate hike could lead to a renewed surge in the $US which will weigh on US growth and create problems in currency markets and the emerging world including China.
"A September hike can’t be ruled out but with the US money market only attaching an 18% probability to it, a surprise hike would unleash market ructions that the Fed would probably prefer to avoid.
“So our base case is that the Fed will be on hold but it may send a signal that it anticipates economic conditions to justify a hike in December (with the “dot plot” dropping to just one hike for this year from two) but indicate that this remains data dependent (as it should be).”
On the US data front there are figures on home builder conditions index (tonight,our time), housing starts tomorrow night, our time), existing home sales on Thursday night and the early figures from a monthly survey of manufacturing conditions PMI (Friday night, our time).
US earnings results will include figures from FedEx, the logistics giant, food group, General Mills, car dealer, Autozone, drug store chain, Rite Aid and homewares group, Bed Bath and Beyond.
In the Eurozone the composite business conditions PMI (Friday night our time) are expected to show little change, indicating industry in the zone remains in a healthy state.
So far as the Bank of Japan’s decision is concerned, Dr Oliver says "expectations are low for the Bank of Japan’s meeting on Wednesday and it’s likely that only modest measures will be announced. "
“While its adoption of a 2% inflation target and massive monetary expansion initially had some success this has flagged in the last 18 months thanks to the GST tax hike which knocked Japan back into recession, the slump in oil prices which knocked inflation back down and global growth worries and share market weakness since mid-last year that have pushed the Yen higher, “ he wrote at the weekend.
"It now appears to be positioning the 2% inflation target as a longer term objective.
"The BoJ appears to be reluctant to add to its purchases of Japanese Government Bonds (it already owns more than 40% of them) and various reports suggest that it is looking to try and encourage a steeper yield curve by buying shorter dated bonds and possibly even lowering its negative interest rate.
“Logically the next step for Japan is “helicopter money” i.e. direct BoJ financing of fiscal stimulus so as to achieve a more guaranteed impact than just bond buying but without ramping up Japan’s already high public debt. But while the BoJ may stress close cooperation with fiscal policy, it’s doubtful it’s ready to announce helicopter money just yet,” according to Dr Oliver.
In Australia, it will be a quiet week. The Bureau of Statistics home price data for the June quarter (tomorrow should show modest rise, based on CoreLogic data (which rose 3.3%) which is now the source for ABS home price data.
Skilled vacancy data and March quarter population figures will also be released.
Tuesday sees the release of the minutes of the September board meeting – the last presided over by Glenn Stevens. The RBA Governor is now Phil Lowe, with Guy Debelle as his deputy.
The RBA’s head of economic analysts, Alex Heath speaks in Brisbane later in the week.
And there will be a number of corporate results in Australia this week – TPG Telecom, New Hope Group, Brickworks and Washington H. Soul Pattinson, Nufarm and Premier Investments.
In Asia the major release will be the house price figures for August in China which will tell us if the rebound in housing activity is still being maintained.
And besides the Bank of Japan meeting, the August trade figures for Japan will be issued mid week.
