Wayne Cole’s outlook for European and global markets in the day ahead.
The time for Fed decision making is finally over
The analyst community is more cautious, with 92 of 101 forecasters surveyed by Askume expecting inflation to rise by 25 basis points. JPMorgan Chase expects deeper rate cuts, arguing that a 1% interest rate ceiling is too strict given the stage of the economic cycle.
As inflation falls, deeper cuts will be needed to prevent real interest rates from rising. Moreover, the next meeting won’t be until early November, which is one reason why the market expects 114 basis points of easing before Christmas and 142 basis points in 2025.
This meeting, which is taking place two days after the presidential election, is a politically important step. Talking about the election, Republican candidate Donald Trump is safe because the FBI foiled another attempt against him.
According to betting site PredictIt, Trump’s odds are at 47 cents on the dollar and Kamala Harris’s odds are down 1 percentage point to 56 cents.
All this, combined with holidays in Japan and China, suggests that trading in Asia will start cautiously, with most equity markets unchanged. USD/JPY remains at 140.50 as the yen continues to rise. This is the biggest drop this year, so there is the biggest room for growth. A break above 140.00 would open the way to the previous January low of 127.215.
Weekend data on China’s retail sales, industrial output and home prices also did nothing to boost sentiment, highlighting the need for more economic stimulus from Beijing.
At other central bank meetings this week, all 65 analysts expect the Bank of England to keep the policy rate at 5.0%, although the market has pegged the possibility of an unexpected rate cut at 31%. Inflation data on Wednesday will help improve the outlook.
The Bank of Japan is expected to keep its policy unchanged on Friday, but could lay the groundwork for tightening in October. The South African Reserve Bank is expected to begin easing policy this week, while Norway’s policymakers are holding off.
Key developments that will influence markets on Monday:
– German wholesale price inflation, EU trade balance
– New York Fed Manufacturing Index
– U.S. three-month and six-month Treasury bill auctions
