We have a busy week ahead with the focus clearly on the FOMC meeting and Scottish referendum. While the Fed’s move in September is widely expected, the monetary policy outlook is what investors mostly concerned about. A more hawkish statement would intensify speculations that the first rate hike would come earlier than expected. The Scottish referendum would be a highly uncertain event as various polls have shown that it would be very tight race. During the week, the RBA minutes for the September meeting would be released on Tuesday. On Wednesday, the BOE minutes would be released with investors focusing on whether there were more members dissenting on maintaining the status quo.
FOMC Meeting (September 17)
The US dollar strengthened while Treasuries plummeted after last week’s San Francisco Fed’s Economic Letter indicated that the market might have underestimated the Fed’s tightening schedule. The Fed would reduce a further US$10B in the QE program, leaving a final US$15B which will be removed at the October meeting. We expect to see the statement modified to signal clearly that the QE would end in October. We do not expect the Fed’s tone to turn more hawkish but should be more balanced with policymakers acknowledging improvement in the economic developments but continuing to note that the slack in the labor market remains significant. Whether the reference that it would hold rates steady for a ‘considerable time’ remains uncertain. US headline CPI probably moderated to +1.9% y/y in August from +2.0% in July
Scottish Referendum (September 18)
The latest polling result released by YouGov suggested that 52% of respondents saying they would vote ‘no’ for independence and 48% saying they’ll vote ‘yes’, following the ‘yes’ vote surpassing the ‘no’ in the prior week. However, the ICM poll for The Sunday Telegraph has the Yes campaign 8% ahead, signaling the fight for Scotland’s future is now neck and neck.
The uncertain outlook, economic, fiscal, monetary, political, etc, in the continuing UK (rest of UK, UK) after Scotland goes independent has been unnerving investors. Worse still, it appears that the British government has not prepared any contingency plan for the case of a breakup, although the BOE indicated that it has plans to provide emergency lending to Scottish banks in the case of deposit flight. The Scottish Government proposes that the Independence Day will be on March 24, 2016. That will ensure that the Scottish parliament elections would take place on May 5 2016 and there would be sufficient time for negotiation of various issues after the September 18 referendum. We believe the issues concerning investors the most are the currency and debt allocation/fiscal issues in rUK.
BOE Minutes (September 17)
The market would be focused on whether there were other members joining Weale and McCafferty in voting for a rate hike by + 25 bps. On the economic data, UK’s headline CPI probably stayed unchanged at 1.6% y/y in August. The job market should continue to show improvement. The ILO unemployment rate (3-month average) probably slid to 6.3% in July from 6.4% a month ago. Jobless claims might have dropped -297K in August after falling -33.6K in the prior month.