The coming week will bring a flurry of interest rate decisions from major central banks, as policymakers react to a softer global economy and uncertainties over US-China trade and Brexit.
The UK’s pending divorce from the EU will also remain in focus for investors next week with Prime Minister Boris Johnson due to hold talks. Here’s what to watch.
Buckle up for a busy week in rate calls. Central banks in the US, UK, Switzerland, Japan and Brazil are all due to set policy in the coming week, on the heels of dovish moves by the European Central Bank.
The Federal Reserve is in the spotlight after lowering interest rates at the end of July, and the market widely expects its policy-setting committee to follow up with another cut at the conclusion of its two-day meeting on September 18.
Investors have placed 84.2 per cent odds of a quarter-point rate cut, with 15.8 per cent odds on no change in policy, according to CME Group.
Still, expectations for a rate cut have diminished in recent weeks. During the central bank’s annual summit in Jackson Hole, Wyoming, Fed chair Jay Powell said setting trade policy is a job for Congress and characterised fitting trade uncertainty into the Fed’s policy framework as a “new challenge”. Some Fed officials suggested robust employment and healthy consumer data lessens the case for another cut. Meanwhile, the US and China have made goodwill gestures on tariffs ahead of planned trade talks, easing fears over the economic fallout from a prolonged trade dispute.
Wall Street will be closely following Mr Powell’s remarks during a post-meeting press conference.
Paul Ashworth, chief US economist at Capital Economics, said the Fed is “almost certain” to cut rates by 25 basis points next week. “But rising core inflation, the still-solid incoming activity data and the temporary thaw in the US-China trade war all support our view that the Fed will then skip a meeting, before cutting rates one final time in December,” he added.
The Bank of England is not expected to alter rates, but investors will be watching for potential commentary on the economic outlook amid Brexit worries.
The BoE’s decision will land September 19, as will those by the Swiss National Bank and Bank of Japan.
Mr Johnson and European Commission president Jean-Claude Juncker plan to hold talks at the start of the week amid a Brexit deadlock.
With the October 31 deadline looming, UK lawmakers have dealt a blow to Mr Johnson’s hopes of delivering on Brexit with or without an agreement, passing a law that requires the prime minister to seek another extension if no deal materialises. Mr Johnson said Friday he remains “cautiously optimistic” of securing a withdrawal agreement.
The scheduled meeting with Mr Juncker in Luxembourg will be the first face-to-face Brexit negotiations between the two leaders. UK chief negotiator David Frost and EU commission officials have held several rounds of talks in Brussels.
Also this week, a legal battle over Mr Johnson’s suspension of parliament will head to the UK Supreme Court, after a Scottish court ruled the move to be unlawful.
Earnings and economic data
There will be plenty of fresh data on the US housing market, with reports due on homebuilder sentiment, housing starts and existing home sales. In other economic data, investors will get reports on Chinese industrial production and retail sales; Canadian CPI retail sales; and UK and euro-area CPI.
FedEx, the logistics giant considered a bellwether for the US economy, will report quarterly financial results. Online pet-supplies retailer Chewy, General Mills, Adobe, Olive Garden owner Darden Restaurants and UK retailers Kingfisher and Next will also report earnings.
In case next week was not already shaping up as a wild one for markets, there is another factor to consider as the week comes to a close. Forget Friday the 13th — Friday the 20th is a “quadruple witching” day, when contracts for stock-index futures, stock-index options, stock options and stock futures expire. The expirations can stoke volatility, especially late in the session.