Week of September 15

The major events of the last week were US inflation numbers, the ECB's rate decision and China's trade balance, with markets expressing relief on the quick appointment of a new PM in France.

Next week features a busy schedule with the Fed's interest rate decision, the BOE also deciding on rates a day after the release of UK CPI data, and followed by the BOC and BOJ rate decisions.

Week in Review

The main event concentrating market attention last week was the release of US inflation data. First, the August PPI came in lower than anticipated, with the core monthly rate at -0.1%, down from 0.7% a month earlier and below the +0.3% consensus. The August CPI figure was a little more confusing, with headline monthly CPI exceeding the 0.3% forecast at 0.4%. However, the annual rate rose to 2.9% as expected. The more closely followed core rate was unchanged at 3.1%, as anticipated. Following the data release, markets affirmed their outlook for a rate cut in September. The odds of a third cut by the end of the year rose to nearly 90% from 75% previously, as US weekly unemployment claims rose to 263K, the highest level since the middle of the pandemic.

The ECB rate decision came in entirely as expected, with rates left unchanged and the accompanying statement doubling down on the rhetoric of uncertainty. The staff projections affirmed the consensus among economists of no rate cut anytime soon.

China's trade balance stood larger than expected by a marginal amount, but both imports and exports decelerated at a faster-than-anticipated rate. Imports grew at 1.3% annually, slower than the 3.0% in July but faster than the 4.1% in July. China's annual inflation rate fell to -0.4% from 0.0% the previous month. On Thursday, the central government announced a $1.0 trillion plan to bail out local governments in the latest measure to stimulate the economy.

In geopolitics, Japan's Prime Minister Shigeru Ishiba resigned, triggering a leadership contest to replace him among the ruling LDP party. French Prime Minister Francois Bayrou lost his vote of no-confidence on Monday, with President Emmanuel Macron appointing ally Sebastien Lecornu to try to form a government. US President Donald Trump urged the EU to impose secondary tariffs of 100% on China and India, aiming to pressure these countries to stop buying Russian oil. On Wednesday, Russian drones heading for Ukraine entered Polish airspace, with Poland firing the first shots in anger since the end of World War II. The incident raised tensions between Russia and NATO as peace talks over the war in Ukraine have stalled.

Biggest Market Movers

• The Nasdaq scored consecutive record highs throughout the week, receiving a boost from blowout earnings from tech firm Oracle on Tuesday.
• The FTSE 100 trended higher through the week amid recovery from two cabinet reshuffles.
• The AUDUSD was the best-performing of the majors after the Chinese government announced stimulus plans. The NZDUSD was a close second.
• Gold rose amid increasing odds of Fed easing, with the yellow metal scoring its fourth consecutive week of gains.

Top Events in the Week Ahead

Central banks will be the focus for the markets, with rate decisions from the BOC, BOE and Fed on deck. But the FOMC's decision to resume its easing cycle will likely steal the show. The BOJ is widely expected to keep its current stance and stay on the sidelines amid the election of a new Prime Minister.

Fed to Cut by 25 bps

There is a near-unanimous consensus that the Fed will cut rates by a quarter of a point at the conclusion of its two-day meeting on Thursday. This follows inflation settling in with expectations and a weakening of the jobs market, after Fed Chair Jerome Powell said during his Jackson Hole address that softer labour figures would incline the Fed towards cutting. The focus for the markets will likely be on what hints Powell drops for the October meeting. Markets have moved to price in a rate cut at each of the three remaining meetings this year and would likely expect confirmation from the Fed. Another point of focus is on Trump's appointment to replace Lisa Cook, as Stephen Miran is scheduled to be confirmed by Congress in time to participate in the upcoming FOMC meeting. Shy of just a few dollars from $3700 per ounce, gold might extend its gains to $3750 or fall towards $3600 if the dollar sees increased strength.

BOE to Hold Pat

Markets are pricing in zero chance of a rate cut from the BOE at its meeting on Thursday, following the razor-thin vote to cut at the last meeting. In fact, markets don't see another rate cut from the BOE for the rest of the year. Traders will likely be paying close attention to the vote split to see how many members join eternal dove Dhingra in favour of a cut, which could change the odds of further easing. What could modify expectations around the BOE is the release of the UK CPI the day before the meeting, with the inflation rate expected to stay unchanged at 3.8%. The core rate is anticipated to improve slightly to 3.7% from 3.8% previously. British jobs figures come out on Tuesday, with the unemployment rate predicted to stay unchanged at 4.7%. Cable has remained stuck under 1.3600 since July, with a break past exposing the 1.3700 and 1.3800 handles, while support lies at the 50-day moving average of 1.3460.

BOC to Match Fed's Cut

The BOC will hold its monetary policy meeting on the same day as the Fed and is widely expected to cut rates by a quarter of a point. The slowdown of the Canadian economy has left economists fretting that inflation could fall below target, while the unemployment rate has risen to 7.1%. The BOC itself has centred around the uncertainty caused by the trade war with the US. With 1.3900 holding firm, USDACD could still slide towards the swing low of 1.3725, followed by the 1.3700 round support. To the upside, resistance can be seen at 1.3925 and the 1.4000 barrier.

Other Events and Earnings

Monday has Chinese industrial production figures. US retail sales come out on Tuesday. Wednesday includes US building permits and housing starts. For Thursday, Japan machinery orders are expected. Friday sees UK retail sales. Amid a quiet corporate earnings calendar, a handful of companies will update investors, including Ferguson, General Mills, FedEx, Lennar and Cracker Barrel.