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With Live Ammo, Caution Is Warranted: Global Week Ahead


I think globally to start each week. Do you? Follow me on twitter @johnblank100

In the global week ahead, the all-important U.S. Fed September rate decision arrives on Wednesday. The Bank of Japan will be giving us its updated decisions on its unprecedented negative rate on Wednesday too. A host of other central banks follow up with their rate decisions in the coming week, tagging along with the two big hitters.

On Monday, in advance of that crucial FOMC monetary policy meeting, key interest rates held steady, while stocks in Asia, Europe, and the U.S. marked up green buying arrows. A bounce in crude oil prices appeared to send a modest amount of positive sentiment into risk markets.

However, don’t read too much into any global risk market trading… until the FOMC September rate decision is in the bag.

Consensus is for no Fed rate hike this time around. With an election in November, the next likely time to see a Fed rate hike is December. On the CME FedWatch tool on Monday, Sept. 19th, the probability of a 25 bps Fed rate hike was just 12%. Two FOMC members have come out publicly in the last week expressing caution. The last time a FOMC meeting led to a Fed rate hike with 2 dissenters was in 1993.

Given this low a probability of an actual rate hike, the real question is: why do risk markets get held up at all? It’s a good question to answer publicly.

The issue is likely not the looming policy rate decision, but the "dot plot" forecast for future rates, and statements made by Chair Yellen in her press conference. FOMC meetings are always done with live ammo. Not getting shot by a stray unforeseen comment — that is what keeps risk markets on their toes.

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For Global/Macro this week—

The key matters this week are a bunch of monetary policy meetings, all synced up to the all-important U.S. FOMC meeting that ends on Wednesday.

On Monday, the proxy GDP for Brazil could be -4.3% y/y, worse than the prior -3.14%.

Poland is forecast to see industrial output decline -3.05 y/y, while retail sales rise +2.0% y/y.

On Tuesday, the Bank of England FPC (financial policy committee) meets. This is a different function than the MPC (monetary policy committee) which sets interest rates.

The Bank of Japan (BoJ) starts its 2- day meeting, as does the U.S. Fed.
U.S. building permits look to rise to 1.18 million from 1.15 million. U.S. housing starts look to hold at 1.2 million.

On Wednesday, the Bank of Indonesia and the Bank of Taiwan announces its interest rate decision.

The Bank of Japan (BoJ) meets again and announces its overnight rate, with a forecast for continuing -0.0% negative rates. Kuroda holds a press conference.
The all-important U.S. Federal Reserve FOMC meeting concludes and a press conference is held. The consensus is for holding at 50 basis points on the policy rate.

The OECD releases its economic outlook.

On Thursday, the EU’s Juncker speaks.

The Reserve Bank of South Africa (SARB) and Norway (Norges Bank) announce their rate decisions.

Unemployment in Taiwan is forecast at 3.96%.

The Bloomberg Economic Survey for Brazil comes out.

U.S. initial clams look super-low again, at 260K.

Mario Draghi speaks at a ESRB conference in Frankfurt, Germany, and the BoE’s Carney speaks in Berlin.

On Friday, the preliminary PMI for manufacturing in France comes out. Look for an improvement to 51.7 from a prior 48.3.

For Germany, the preliminary PMI for manufacturing has a prior of 53.6 and services of 51.7. New updates will show up to close the week out.

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