Read on the Trading Floor - 18 Sept 2023

Today’s focus… Like London buses, all the central banks arrive at once ...

One central bank after another on the docket this week. Just as the market spent the weekend digesting the ECB's signal (Steno Research - Sunday Macro: Was that a pause from Lagarde?), the focus has flipped to Fed (unchanged), BoE (most likely hike), BoJ (unchanged), SNB (hike), BCB (cut), TCMB (hike), Norges (hike) and Riksbank (hike). Most G10 central banks will deliver well priced hikes but really the market is looking for hints that the CB's are done, the 2024 cuts in the curve are correct and "higher for longer" is what they need to say to stop an asset price bull run and/or inflation reigniting. However, we all know (or hope) that at the first sign of trouble in H1 2024, the CB's will cut once again to soften any economic pain (even if the battle on inflation is not yet done... e.g. SVB and Fed's balance sheet expansion). The market is in a very optimistic mood that the Fed put is not too far away, disinflation is apparent, and a soft landing is upon us... After all, the final hike brings with it a nice risk rally.... 

• SEB: "If history repeats itself for the US S&P 500: (1) the stock market will rise 13% from the last Fed hike to the first cut, and (2) the stock market will rise another 6.5% in the first six months after the first" (Important central bank week ahead)

The "Week Ahead" channel on app.harkster.com has been dominated by previews from sell side podcasts through to third party independent pieces... 

• JPM Global FX Podcast: FX views going into G10 central bank Superweek

• Chris Weston of Pepperstone: The Week Ahead Playbook – Hasta la vista rate hikes

• Christophe Baurrad: Week Ahead Preview: BOE, BOJ and FED Meetings; ECB Speakers; OECD Economic Outlook; U.S. Housing Data

• DB Podcast: A busy week for central banks

• Scotiabank: The Global Week Ahead: They’rrrrre Baaaaccckk

The focus for the Fed will once again be on the dots (even though JPow said not to focus on the dots), the market will of course want to see if the dot plot and his presser keeps one more autumn hike on the table. On Wednesday, we will be trading the probability of a November hike, will Powell be able to thread the needle between the tight labour market, rising gas prices as well as leading indicators pointing to an economic slowdown, most noticeably in the housing market as > 7% mortgage rates kills one off large ticket consumption. The impact of higher interest rates is growing across the economy and into equities as companies change their behaviour. 

• FT: Companies ease off on buybacks as rising interest rates push up costs

Who can surprise us? Norges and Riksbank should deliver the expected hikes, which leaves BoJ, SNB and BoE. Without any new economic forecasts (due in Oct) and the market still finding its way following the widening of the YCC band, it seems unlikely that the BoJ will go this week which combined with a hawkish JPow presser or US real rates selling off further will open-up 150 in USDJPY. For the SNB the focus will be on their currency policy, will they look to slow CHF recent gains as inflation returns to target. As always, a wide range of opinion as well as an ever-present voting split, leaves the BoE as the one that can surprise the most. Inflation remains elevated but the maturity wall is certainly starting to encroach on household activity, as well as the strikes and bad summer. Will Bailey deliver one more for the road?

• Nordea: Norges Bank Preview - The last hike, probably

• ING: Fed set to hold, but signal the potential for a final hike 

• ING: Why the Bank of England might not raise rates on Thursday

• SEB: Riksbank to hike 25bps to 4.0%

• Notayesmanseconomics: The Bank of England should not raise interest rates this week

• MacroHive: Get Ready for the BoE’s Final Hike

Outside of CB policy, housing affordability, wealth inequality and strikes are bubbling themes underneath the surface just as another US government shutdown deadline approaches. The impact of the UAW strike has done little (yet) to weigh on US data, but the longer it continues the bigger it's impact on supply chains will be. CNN report a potential $5bln headwind to US manufacturing every 10days of the strike, suppliers may start to lay off workers as contracts slow as well as potential higher car prices as inventories dwindle...  (Beyond the automakers: How the UAW strike may hit the US economy) .. 

• BMO: Will the Auto Strike Drive the Economy off a Cliff?

• FT: Strike pits US auto union in existential struggle over shift to electric vehicles

• FT: The stakes of the US autoworker strike could not be higher

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• Brent Donnelly: Friday Speedrun (Sept 15)

• Steno Signals #65: THE 4 THINGS THAT WORRIES ME THE MOST IN GLOBAL MACRO RIGHT NOW

• MS Thoughts on the Market: Thematic Research - How AI Can Transform Travel Booking

• BCA Research Podcast: Is the Disinflation Trend Intact? Implications for Fed Policy

• Macro Hive: Phil Suttle on US Recession Risks, AI Impact and BoJ to 1%

Have a great day and keep smiling! 

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