With a fairly light economic calendar, speculation and reaction around Wednesday’s FOMC decision is likely to dominate trading sentiment this week.

US economic data particularly strong employment growth and rising inflation, has been supportive of the Fed continuing to reduce monetary stimulus. This week, the Fed is expected to announce the start of its balance sheet normalization plan.  Member projections, including the dot plot, along with comments in the statement may also be scrutinized by the street for clues on when the next rate hike may arrive.

The Fed is heading into a transition period with Vice-Chair Fischer leaving in mid-October and Chair Yellen’s term ending in January. A number of Governor spots remain open as well, so President Trump has a chance to put his stamp on the central bank in the coming months.

For now, the US Dollar and US stocks could react to any hints as to whether or not the Fed is still considering a December rate hike. The party line at the Fed has been calling for three rate hikes this year, so far there have been two. It had looked like the Fed would only be able to make a move in either September or December due to US domestic political strife but with the White House and the Democrats cutting a short term government funding and hurricane aid deal and starting to discuss immigration, the risk of a government shutdown this year has declined, reopening a window for the Fed to act that had been partially closed.

In other markets, crude oil, gasoline and natural gas may continue to unwind recent hurricane action as traders put the storms behind them and focus on seasonal factors.

Sterling is coming off a big week but this week is slower for UK news with only retail sales on the calendar. We could see some short term swings as traders adjust to a more hawkish Bank of England and await the next round of Brexit talks. The FTSE has been under pressure and may continue to move opposite to its currency.

The Bank of Japan is holding a meeting this week which may indicate. Traders may be looking to see if it plans to continue its increasingly lonely ultra-dovish stance or if any shifts in policy could be on the horizon. The market has been reacting less and less to news from North Korea but that could flare back up any time.

It’s a relatively light week for news from Canada. Bank of Canada Deputy Governor Lane is speaking. The street may look for hints as to whether the BoC is done raising rates for now or if a third rate hike this year is on the table. Canadian retail sales and inflation data due Friday may impact trading in the Loonie as well.

We also could see positioning in the markets ahead of next weekend’s overseas elections in Germany and New Zealand. Although the German election is likely to attract more media attention, the New Zealand vote has sparked more market action so far. Labour and the incumbent National party have been trading the polling lead back and forth, while the Kiwi Dollar has been rising and falling along with the fortunes of the incumbent National Party with traders apparently wary of Labour to date.  

 

Economic/Political news (North America time):

Sunday evening          NZ service PMI

Monday                       Bank of Canada Lane speaking

Tuesday                       Canada manufacturing sales

                                    US housing starts

Wednesday                 US Fed decision (no rate change expected, start of balance sheet normalization possible)

                                    UK retail sales

Wednesday evening    Bank of Japan meeting (no changes expected)

                                    BOJ Kuroda press conference

                                    RBA Lowe speaking

Thursday                     US Philadelphia Fed

                                    ECB economic bulletin

Friday                          Canada retail sales, consumer prices

                                    Flash PMI reports for US, Germany, France

                                    FOMC George, Kaplan, Williams speaking

Saturday 23                 New Zealand general election

Sunday 24                   Germany election

 

Earnings Reports and Corporate Events:

Tuesday                       FedEx

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