It will be a nervous start to the week for investors as markets anxiously await the Fed’s policy meeting decision next Thursday. Mixed US economic data and global economic uncertainty have kept markets guessing as to whether the Fed will raise rates next week. Recent events have lowered expectations of a rate hike but Fed policymakers have kept the door open. Before then, there is plenty to keep the markets busy with key data out of China and the Bank of Japan’s own policy decision.
China is likely to be the focus at the start of the week as industrial production data is released on Sunday. It’s expected to show output improving to 6.4% y/y in August from 6.0% in July. Retail sales data will also be important as the share of contribution of domestic consumption to China’s GDP has grown in recent years. Retail sales are forecast to have expanded by 10.5% y/y in August, unchanged from July. Another key indicator will be the fixed asset investment, which has fallen to the lowest since 2000 in recent months. It’s forecast to dip slightly at 11.1% in August.
On Monday, revised Japanese industrial production data for July are due and trade figures are released on Thursday. Exports growth is forecast to have slowed to 4.0% in August from 7.6% previously. But the main highlight for Japan will be the Bank of Japan’s monetary policy meeting on Tuesday. No change in policy is expected as the BoJ has so far remained confident that it will meet its inflation target by the second half of 2016, though analysts will for sure be scrutinizing the minutes for any clues on future easing when they’re published on Friday.
In the US, Tuesday’s retail sales data may offer some clues on Fed policy. Retail sales are estimated to have expanded 0.4% m/m in August. A stronger-than-expected rise would signal increased momentum in the US economy. On Wednesday, inflation data will be closely eyed on any signs of a pick-up in core inflation, which may influence the Fed’s decision. Annual CPI is expected to stay unchanged at 0.2% in August, while core CPI is expected to edge-up to 1.9%. Other indicators out before the FOMC meeting are the Empire State Manufacturing index and industrial production on Tuesday, and the building permits, housing starts and the Philadelphia Fed Manufacturing index on Thursday.
The FOMC is expected to conclude its 2-day policy meeting on Thursday at 18:00 GMT. Markets have lowered their expectations of a September rate hike since the turbulence in China rocked global financial markets in August. But some economists are still forecasting for the Federal Reserve to go ahead and raise its funds target rate for the first time since 2006 to 0.50% from the current level of between 0% and 0.25%. Although a rate rise sometime this year has already been priced in by the markets, some fear a significant negative impact on emerging economies given the current heightened uncertainty from recent developments.
In the Eurozone, industrial production figures out on Monday are expected to show a 0.2% rise m/m in July, versus a 0.4% drop the prior month. Final euro area CPI data is not forecast to show any revision on Wednesday. German ZEW survey on economic situation and current sentiment will be the main data that could impact the euro as the forward looking September readings are estimated to have worsened from the previous month.
After this week’s Bank of England minutes, which downplayed the impact of global events on the UK economy, pushed up the pound, next week’s inflation, unemployment and retail sales data will be highly important. UK annual inflation (out on Tuesday) is forecast to drop to 0% again in August from 0.1% in July. No change is expected in the unemployment rate on Wednesday but average weekly earnings (excluding bonuses) could give the Bank of England some cause for concern as it’s forecast to pick-up slightly to 2.9% y/y in July. On Thursday, August retail sales are expected to ease to 3.8% y/y from 4.2%.
The aussie and the kiwi could see some movement as the RBA releases the minutes of its latest meeting and Q2 GDP numbers are due for New Zealand. The Australian dollar has bounced back from recent lows after the RBA sounded more neutral at its last meeting. No surprises are expected from the minutes on Tuesday. New Zealand’s economy is estimated to have expanded by 0.6% q/q in April-June when data is published on Wednesday. This would be an improvement on the 0.2% growth seen in the first quarter, which prompted the RBNZ to cut rates three times this year.