Market movers today
A key event today is the ECB meeting. Albeit we do not expect big communication changes, the ECB will present new staff projections. We expect a marginal downward revision of the 2019 and 2020 projections, but no new policy signals as the central bank has been content with the current economic path and the market reaction to the recent increased forward guidance in June. See ECB Preview – For the feinschmeckeres .
In addition, we have the Bank of England (BoE) meeting . This is unlikely to be a major market mover, as it is one of the interim meetings without updated projections and no press conference. After the August hike, we believe the BoE is on hold until next year. We do not think it is necessary for the BoE to send any new signals now.
The Turkish central bank meeting is also set to be interesting as this is keenly awaited by the financial markets after the central bank signalled a rate hike last week: The key question is whether the central bank will satisfy market expectation? We believe the answer is no if the hike is less than 600bp. We have been expecting a 300bp hike in September. Last week’s statement indicates that a larger hike could be delivered, which is TRY positive. Erdogan has no other ‘politically neutral’ tool to help the TRY than a significant hike, especially ahead of a possible rate hike by the Fed.
In the US, the CPI data for August is due for release, which we expect to show that the core index continues to rise around 0.2% m/m. Even if inflation surprises on the upside, the Fed has said it will tolerate inflation moving above the 2% target as inflation has been too low for a long time. Furthermore, retail sales data for August are due.
Selected market news
Risk sentiment is the rise as trade talks between the US and China might be brewing. US Treasury Secretary Steven Mnuchin is reportedly looking to meet China’s key economic official, Liu He, to resume talks. This comes as the trade dispute is set to intensify this week with the Trump administration imposing tariffs on another USD200bn of imports from China. Equities assumed an upbeat tone in both the US and Asian session.
US Treasury yields fell yesterday as the US PPI figures came out on the weak side of expectations ahead of today’s CPI release, and the US 10Y faded its rise to now trade around 2.97%. USD also softened a bit on the news of US-China talks and EUR/USD is back above 1.16. Meanwhile crude oil prices continued to edge higher, with Brent briefly above USD80/bbl yesterday, led by a combination of worries over hurricane Florence amid US sanctions against Iran and low US inventories.
Furthermore, an ECB sources story yesterday hinted that Draghi and co today will present slightly lower GDP forecasts and stress downside risks to growth due to the weaker external demand (likely trade war driven) whereas the ECB is likely to keep its inflation outlook unchanged. The market reaction was limited and we expect today’s meeting to be one for the ‘feinschmeckers’ as no major announcements should be due.
