The Week Ahead

We have a busy calendar as September starts. While the focus is undoubtedly Thursday’s ECB meeting, we do not expect QE would be announced although further rate hike cannot be ruled out. The BOE minutes for the August meeting unveiled that 2 members voted to increase the policy rate by +25 bps. Yet, it remains uncertain whether their views would be shared by more members given recent softness of economic data in the country. In Asia, we will have RBA meeting and BOJ meeting on Tuesday and Wednesday respectively. In North America, the BOC meeting would be due Wednesday and few insights are expected. The US’ employment report due Friday should show a modest drop of unemployment rate to 6.1% in august. On the dataflow, manufacturing and services PMI would be due throughout the week.

ECB meeting (Thursday)

President Draghi’s dovish comments made in the Jackson Hole conference have raised speculations that the central bank would act in the September meeting. The final GDP estimates of the Eurozone and Germany for 2Q14 are expected to stay unchanged, i.e. staying flat and contracting -0.2% respectively from the prior quarter. On inflation, PPI might should further deterioration in July. Against this backdrop, we expect modest reduction of main refi rate, i.e. by -10bps, while the marginal lending and deposit rates would also be cut by the same amount. While Draghi’s speech indicated that the inflation outlook has deteriorated to an extent that QE might be needed, with the TLTROs and ABS purchased not yet started, we do not see high possibility that the ECB would accelerate QE measures in coming months.

BOE meeting (Thursday)

In August, Weale and McCafferty voted to increase the policy rate by +25 bps and cited the lagging effect of monetary policies. Both saw signs of accelerating growth that would start to drive faster growth in wages and hence inflation, suggesting that the existing economic backdrop was ‘sufficient to justify an immediate rise in bank rate’. Yet, we doubt if more members would join their camp in September as economic data since then have shown sharply lower inflation, softening earnings growth and lukewarm retail sales

RBA meeting (Tuesday)

We expect the central bank to leave the cash rate unchanged at 2.5% and the monetary statement would likely retain the language that ‘the most prudent course is likely to be a period of stability in interest rates’ and ‘the exchange rate remains high by historical standards, particularly given the declines in key commodity prices, and hence is offering less assistance than it might in achieving balanced growth in the economy’. RBA’s policy rate has stayed unchanged since August 2013.

US Data

In the US, payrolls probably rose +216K in August, following a +209k in July. The unemployment rate is expected to have fallen to 6.1% from 6.2% in July. The manufacturing ISM due Tuesday is expected to show a modest drop to 56.8 in August from 57.1 in July. The data should continue to depict a robust picture in the US manufacturing sector. The services ISM due Thursday probably dropped to 57 from 58.7 in July. Separately, the Fed’s Beige Book would be released on Wednesday.

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