World Week Ahead: Central banks in focus

Monday 31st October 2016

Central bank policy meetings in the US, Japan, the UK and Australia as well as the latest US jobs data will draw the key focus in the coming days.

Few expect the Federal Open Market Committee to announce an interest rate increase at the end of their two-day policy meeting on Wednesday, though investors expect the US central bank to move in December.

Last Friday, a Commerce Department report showed US gross domestic product rose at a 2.9 percent annual rate in the third quarter, following a 1.4 percent pace in the second quarter. That was better than economists had anticipated.

"Admittedly, there is an outside chance that the Fed will hike rates on Thursday following decent Q3 GDP growth," according to a note by Capital Economics. "But with the US presidential election due to be held on November 8, the FOMC will probably hold fire until December.”

"By contrast, there is no clear end in sight to easy money elsewhere. Even if the Bank of Japan and Bank of England leave monetary policy unchanged this week, we doubt it will be long before either loosen again," according to Capital Economics. "And the [European Central Bank] is also far more likely to ease monetary conditions again in the near future than to tighten them, given that data due [today] will probably confirm that inflation pressures remain thin on the ground."

This week also offers the latest US jobs data with the ADP private employment report on Wednesday, weekly jobless claims on Thursday, and the government’s official statistics on Friday.

Economists polled by Reuters predict that nonfarm payrolls increased by 175,000 in October, up from 156,000 the previous month.

Also on Friday, Atlanta Fed President Dennis Lockhart and Dallas Fed Bank President Rob Kaplan are scheduled to speak, and their comments will scrutinised for rate clues.

Last week, the Dow Jones Industrial Average rose 0.1 percent. The Standard & Poor’s 500 Index slid 0.7 percent and the Nasdaq Composite Index dropped 1.3 percent.

Other US economic data this week will show up in reports on personal income and outlays, Chicago PMI, and the Dallas Fed manufacturing survey, due today; motor vehicle sales, PMI and ISM manufacturing indices, and constructing spending, due Tuesday; productivity and costs, PMI services index, factory orders, and ISM non-manufacturing index, due Thursday; as well as international trade on Friday.

Caution might reign as US voters have started heading to the polls to pick their next president, with polls showing Democratic candidate Hillary Clinton is favoured to beat Republican rival Donald Trump.

“We're so close to the election, and the pots are boiling. There's always something going on," Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama, told Reuters. "And where there's uncertainty with the Oval Office, it seems to historically cause problems for the market.”

Indeed, an ABC News/Washington Post tracking poll released on Saturday Clinton’s lead over Trump has shrunk to two points from as many as 12 points less than a week ago, according to Bloomberg. The poll was conducted October 24-27, before the FBI announced it might open a new investigation into Clinton’s emails.

“Clinton is clearly priced to win, and anything that disrupts the market’s predictions will have an adverse reaction,” Michael Antonelli, an institutional equity sales trader and managing director at Robert W Baird & Co in Milwaukee, told Bloomberg.

In Europe, the Stoxx 600 Index declined 1 percent last week.

Here, economic reports slated for release this week include the euro-zone consumer price index and German retail sales, due today, as well as German unemployment data, due Wednesday, and eurozone unemployment data, due Thursday.

BusinessDesk.co.nz

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