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However, over and above this driver for prices, pockets of data including US’ August CPI and China’s data barrage may divert the markets’ attention.
The present week had not been a rosy one for markets. The aggravation of geopolitical tensions triggered by North Korea’s hydrogen bomb testing had taken a toll on global markets at the fore of the week. Additionally, the expectation of Hurricane Irma to hit the coast of US had weighed upon US markets as well. Perhaps offering some consolation had been the extension of US’ debt ceiling until December, eliminating some of the near-term risks. Week-to-date (WTD) changes nevertheless saw most of Asian markets in red including the STI which declined more than 1.6% WTD.
Of the lot, Thursday’s European Central Bank (ECB) meeting had probably been the highlight with the central bank making a clear indication that the decision on quantitative easing (QE) plans will be floated in October. Coupled with the upgrade in Eurozone GDP forecast to the fastest pace since 2007, EUR was seen shooting up against the USD, back above the $1.20 level. This heightened focus on the currencies is expected to continue into the fresh week.
US inflation data
Geopolitical concerns aside, September is expected to be a significant month for monetary policy. Post the ECB meeting, we will also be expecting the Bank of England (BoE) and Swiss National Bank (SNB) meetings next Thursday. However, for the markets, the focus will likely be on the Federal Open Market Committee (FOMC) meeting in the following week. This week’s dovish rhetoric from Federal Reserve governor Lael Brainard and EUR strength had taken a significant toll on the USD index, sending prices down to the psychological support at 91.0 when last checked.
This may all change next week with inflation figures potentially helping prices reverse. Being the bottle neck for further interest rate hikes, the realisation of an expected uptick for CPI from the current 0.1% month-on-month (MoM) in July may fuel rate hike expectations and in turn provide a lift for the US dollar index. Of course, gains could be capped into the end of the week with data including retail sales, industrial production and the University of Michigan index expected to moderate. Watch this piece of inflation update, which could serve as a pre-empt for the Fed’s favourite core PCE gauge and potentially altering rake hike beliefs.
In the series of data releases in the Asia pacific region, the key focus likely remains on China’s indicators. Items including August’s retail sales, industrial production and fixed asset investments will be due on Thursday, with a slight acceleration expected for the former two. While the direction of expansion for China’s PMI and exports had gone in different directions, next week’s industrial production may offer insights into factory performances and in turn views on the manufacturing sector’s performances. This could in turn have an impact upon Asian bourses. Loan conditions featuring August's M2, new yuan loans and aggregate financing may also be released any time in the week.
Other data expected in the region includes Japan’s machine orders and industrial production while Australia’s employment figures will also be a key data point for AUD watchers. Given the focus on geopolitical tensions surrounding North Korea, the country’s founding day on Saturday 9 September marks significant risks for markets across the globe with another missile launch expected. As with any provocative acts by North Korea of late, watch also for the series of reaction from neighbouring countries and the US, and in turn the impact upon equity markets in the week.