Week Ahead
 | 21/09/2018

September 24th to 28st | Fed’s interest rate decision, along with New Zealand’s RBNZ and Eurozone’s inflation data could move the markets

Next week’s market movers

• On a quiet Monday, the release of Germany’s Ifo Business Climate indicator for September could grab the market’s attention.

• On Tuesday, the US CB consumer confidence indicator for September could come under the spotlight.

• On Wednesday, the Fed’s interest rate decision could be the star of the week and from the Czech Republic CNB’s interest rate decision could also draw some attention.

• On Thursday, the market’s focus could be on New Zealand’s RBNZ interest rate decision but also the release of Germany’s preliminary HICP rate for September as well as the final US GDP growth rate for the second quarter of 2018.

• On Friday, France’s and Eurozone’s preliminary HICP rates for September, Germany’s unemployment data for September UK’s final release of the GDP growth rate for Q2, Canada’s GDP growth rate for July and finally from the US the Personal Expenditure growth rate as well as the U. Michigan Consumer Sentiment, could rattle the markets.

In a busy upcoming week a number of financial data releases could get the attention of the markets. Our team handpicked the ones which it considers as the most influential and discusses their possible (current) forecasts and their respective effects on various currencies.

On Monday, during the European session Germany’s Ifo Business climate Indicator for September will be released. The indicator’s reading is forecasted to drop to 103.2, if compared to previous month’s reading of 103.8.

Should the forecast be realized we could see the common currency slipping as the decrease could be indicative of a less optimistic view on behalf of German businesses for the prospects of the German economy in the next six months.

On Tuesday, during the American session we get from the US the CB consumer confidence indicator for September. The indicator’s reading is forecasted to drop to 131.3, if compared to previous month’s reading of 133.4.

Should the actual reading meet the forecast we could see the greenback weakening as the drop is substantial and could imply that the average consumer may be less inclined in spending. It should be noted though that the market’s reaction maybe somewhat muted, as the indicator remains at rather high levels, if compared to previous months (actually the second highest in over three years).

On Wednesday, during the European session the Czech National Bank’s (CNB) interest rate decision will be released and all options are open. Currently CZK OIS imply a probability of 98.05% for the bank to cut rates by 25 basis points to +1.00%, however we tend to reject this case as Czech financial indicators are quite favourable for the economy, currently. The second scenario is of the bank standing pat, without any movement in interest rates, with a number of forecasts supporting such a notion currently and arguments that it may be too soon for the bank to hike rates for a third consecutive time as to soon, also weighing in. The last scenario, is for the bank to hike rates for a third consecutive time in four months, by 25 basis points reaching +1.50%. For the last scenario, arguments could focus on the strong financial data of the Czech economy, which has currently an inflation rate of +2.50% yoy which is in upper range of the bank’s target (+2.00%yoy ±1%), low unemployment (3.1%) and a healthy GDP growth rate of +2.4% yoy. Also should one read the minutes of the bank’s last meeting he could argue for a rate hike in the following session. The minutes reveal that members acknowledged that the mechanistic forecast was indicative of a rate hike of 50 basis points but as a precautionary measure in face of international trading uncertainty and a fear of the effects on the Koruna, they proceeded with only a 25 basis points rate hike. As the Korunas reaction until now was minimal and international trade tensions may have eased a bit, we could see the board members of the CNB, delivering the third rate hike in a row.

Later, in the American session, from the US we get the FOMC’s interest rate decision. The bank is widely expected to hike rates by 25 basis points elevating them to the +2.125% level from current +1.875%. Currently, Feds Funds Futures imply a probability of 100% for the FOMC to hike rates, rendering the interest rate decision as an open and shut case. At this point it should be noted that the US president, Donald Trump, had criticized the Fed for its current rate hike path which sights another rate hike in 2018 (most probably in December) as well as more hikes to come in 2019 (most probably 4), however we see the case for the Fed to remain undeterred from the criticism and proceed with the rate hikes based on the data, showcasing its independence. Hence, should the FOMC hike rates as expected the market’s focus could turn to the accompanying statement. Currently the US economy enjoys rather favorable financial indicators with the inflation rate being at +2.2% yoy, which is higher than the bank’s target of +2.0% yoy and Core PCE prices (Fed’s favorite) at +2.0% yoy, unemployment being at one of the lowest levels for US standards at 3.9% and the GDP growth rate being at a quite high level of +4.2% qoq (annualized). Overall, should the bank provide with a more hawkish tone in its accompanying statement we could see the USD getting additional support besides the one it is expected to get from the rate hike as such. It should be noted though that a key role in the market’s reaction towards the USD will be played by the following press conference as well as any updates of the FOMC’s economic projections.

On Thursday, in the Asian session, New Zealand’s RBNZ will release its own interest rate decision. The bank is widely expected to remain on hold at +1.75%. Currently, NZD OIS imply a probability for the bank to remain on hold at 99.71% strengthening decisively the scenario of the bank standing pat. Also the bank’s previous accompanying statement clearly stated that they intend to keep the interest rate at this level through 2019. Should the bank remain on hold as expected the market’s focus could turn to the accompanying statement. Current financial data for the economy of New Zealand seem mixed as it has a rather low inflation rate of +1.5% yoy, which accelerated from its previous reading of +1.1% yoy, but is still considerably lower than the bank’s median inflation target (+2.00%±1%). On the other hand the GDP growth rate remains at a rather healthy level of +2.8% yoy and the unemployment rate remains rather low for New Zealand standards (4.5%). We could see the bank repeating most of the content in the latest accompanying statement, however some hawkish elements may be added as the inflation rate accelerated more than expected lately.

Also, in the European session, we get Germany’s preliminary release of the HICP rate for September. The rate is forecasted to remain unchanged at +1.9% yoy, if compared to the last month’s final release.

Should the rate remain unchanged as forecasted, we could see the EUR slipping as it would mark that the HICP for the largest economy of the Eurozone, remains below the ECB’s target of +2.00% yoy for a second consecutive month.

In the American session, we get the final US GDP growth rate for Q2. The rate is forecasted remain unchanged at +4.2% qoq (Annualized), if compared to the preliminary release.

Should the rate remain unchanged as forecasted, or even accelerate, we could see the greenback getting some support, as the acceleration of the growth rate is one of the highest in a number of years for the US economy.

On Friday, in the European session we get France’s preliminary release of the HICP rate for September. The rate is forecasted to remain unchanged at +2.6 yoy, if compared to the last month’s final release.

Should the rate remain unchanged as forecasted, we could see the EUR getting some support as it would mark that the HICP for the second largest economy of the Eurozone, remains above the ECB’s target of +2.00% yoy for a second consecutive month.

Also, in the European session, we get Germany’s unemployment data for September. The unemployment rate is forecasted unchanged at 5.2%, while the unemployment change figure to also remain unchanged if compared to its previous reading of -8k.

Should the forecasts be realized we could see the EUR getting some support as the data would imply that the German labour market, remains tight. Please note that the current level of unemployment is the lowest for Germany in a number of years.

A bit later in the European session we get UK’s final release of the GDP growth rate for Q2. The rate is forecasted to remain unchanged at +0.4% qoq, if compared to the preliminary reading for Q2.

Should the rate remain unchanged as forecasted, we could see the pound slipping as it would signal that the UK economy is expanding at a rather slow pace, amidst fears of an even lower growth rate in the future due to Brexit concerns.

Also in the European session we get the Eurozone’s preliminary HICP rate for September. The rate is forecasted to accelerate to +2.1% yoy if compared to previous month’s reading of +2.00% yoy.

Should the actual rate meet the forecast we could see the EUR getting some support as the rate remains above ECB’s target of +2.00% yoy.

In the American session, we get the Canada’s GDP growth rate for July. The rate’s last reading was of 0.0% mom, and should the new reading be higher it could provide some support for the CAD as it would be implying that Canada’s economy starts growing again.

Later in the American session we get the US U. of Michigan Consumer Sentiment for August. The indicator is forecasted to drop slightly reaching 100.6 if compared to previous month’s reading of 100.8.

Should the actual reading meet the forecast we could see the USD slipping as it would be indicative of the average consumer losing confidence. As the difference is rather small and the indicator remains at rather high levels we could see the market’s reaction be rather muted.