Ahead of the game: September 18, 2023

US equity markets gained this week, and the greenback surged, benefiting from a dovish ECB rate hike, an in-line US inflation report, and strong consumer spending and labour market data.

In Australia, the ASX 200 gained ~2%, taking its lead from Wall Street, higher commodity prices, and a jobs report showing the Australian labor market remains in good shape despite the RBA’s 400bps of rate hikes.

• US headline inflation surged to 3.7% in August, beating expectations
• Core US inflation eased to 4.3% from the previous month's 4.7%
• ECB raised its deposit rate to a record 4%
• Australia added 64.9k jobs in August, defying expectations
• NAB Business Confidence rose to its highest level since January
• AU Westpac Consumer Confidence dipped 1.5% due to inflation worries
• Crude oil climbed 3.5% to over $90 per barrel
• Gold slid towards $1910
• UK GDP fell by 0.5% MoM, below market forecasts
• Wall Street's fear gauge, VIX, dropped 7.38% to 12.81.

• AU: RBA Meeting Minutes (Tuesday, September 19 at 11:30 am AEST)
• NZ: Q2 GDP (Thursday, September 21 at 8:45 am AEST)
• AU: Judo Bank Flash PMIs (Friday, September 22 at 9:00 am AEST)

• CN: Loan Prime Rate (Wednesday, September 22 at 11:15 am AEST)
• JP: Jibun Services and Manufacturing PMI (Friday, September 22 at 10:30 am AEST)
• JP: BoJ interest rate meeting (Friday, September 22 at 1 pm AEST)

• US: Building Permits (Tuesday, September 21 at 10:30 pm AEST)
• US: FOMC interest rate meeting (Thursday, September 21 at 4:30 am AEST)

• UK: Inflation (Wednesday, September 20 at 4:00 pm AEST)
• UK: BoE interest rate meeting (Thursday, September 21 at 9 pm AEST)
• UK: Retail Sales (Friday, September 22 at 4:00 pm AEST)
• GE: HCOB Manufacturing Flash PMI (Friday, September 22 at 5:30 pm AEST)

• AU

RBA meeting minutes

Date: Tuesday, September 19 at 11.30 am AEST

The minutes from the Reserve Bank's meeting in September are scheduled to be released on Tuesday, September 19th, at 11:30 am. At its September meeting, the RBA kept its cash rate on hold at 4.10% for a third consecutive month.

The RBA's decision to keep rates on hold provides further time to assess the impact of a cumulative 400 basis points (bp) of rate hikes and evidence that a sustainable rebalancing between supply and demand is underway.

Notably, there's a palpable shift in the RBA's stance compared to earlier in the year. While they retain their tightening bias, there's a discernible softening in their approach. In their own words, "Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe."

The Board Meeting Minutes would be expected to reiterate the sentiments outlined above. They will be closely scrutinized regarding what factors would prompt the RBA to act on its tightening bias and what factors might see the RBA extend its pause for a fourth consecutive month.

RBA cash rate chart

• US

FOMC interest rate meeting

Date: Thursday, September 21 at 4.30 am AEST

The FOMC is widely expected to maintain their target rate for the Fed Fund at 5.25%-5.50%. Fed Chair Powell is expected to provide a balanced tone, similar to Jackson Hole, providing optionality with a mix of dovish and hawkish comments, in line with the Fed's data-dependant stance.

The SEP (dots) will be of interest, with the 2023 median likely to reflect one more 25bp rate hike for a terminal rate of 5.50%-5.75%. This would be considered fine-tuning as the Fed approaches the end of its rate hiking cycle and is in line with our expectations. Further out, the 2024 median is likely to reflect 75bp of Fed rate cuts next year.

US Fed funds rate chart

• UK

Bank of England interest rate meeting

Thursday, September 21 at 9 pm AEST

The Bank of England (BoE) is widely expected to hike rates by 25 basis points (bp) to 5.5%. Despite inflation moderating to 6.8% in July from its October 2022 peak of 11.1%, it remains more than three times above the central bank’s 2% target.

However, its objective of taming inflation must also be juggled with weaker underlying growth momentum (July’s gross domestic product contracted more than forecast), and the BoE will need to tread carefully to avoid a recession.

To that effect, softer-than-expected inflation and services PMI data at the end of next week will likely see the BoE move to the sidelines after September. This aligns with recent comments from BoE Governor Andrew Bailey, who noted the BoE is “much nearer” to ending its run of interest rate increases.

Bank of England official bank rate chart

• JP

Bank of Japan interest rate meeting

Friday, September 22 at 1 pm AEST

Recent remarks from BoJ Governor Kazuo Ueda have pushed Japan's 10-year government bond yields to a fresh nine-year high. Investors are speculating that his comments may be paving the way for a quicker-than-expected normalization of Japan's ultra-accommodative policies.

These hawkish expectations will face a test in the upcoming week. Given that policymakers still want to see more confidence that prices and wages will continue to rise sustainably, the possibility of a policy status quo remains likely at the upcoming meeting. This follows a minor adjustment in its bond yield control policy during the previous meeting, which may also encourage a cautious approach for now.

Japan's 10-year government bond yields and volatility (VIX)

Economics calendar

All times shown in AEST (UTC+10) unless otherwise stated