WEEKLY MARKET SNAPSHOT 11/9-15/9 | Could the Swiss National Bank and the Bank of England, deliver shock interest rate rises?

Sep 8 • Extras • 69 Views • No Comments

In our industry it always pays to expect the unexpected and to be aware how fundamental news drives our FX markets. A perfect illustration of the phenomena of calendar news moving markets, came our way on Wednesday, as Canada’s central bank raised the interest rate by 0.25%, causing a spike in the value of the Canadian dollar versus its peers. The USD/CAD pair slumped by approx. 1.5% shortly after the decision was revealed.

With that in mind, let’s turn our attention to the Swiss National Bank, who currently operate a NIRP policy (negative interest rate), charging -0.75% for the privilege of depositing cash. Regarded as one of the most stable global currencies, many of us fail to pick up on Swiss calendar news, despite the appeal of the franc remaining universal; the state has always been a critical, discreet and highly secretive destination to bank in. And many of us will recall the exponential rise in the value of the Swiss franc in 2015, when the SNB took away their currency’s loose peg to the euro.

The U.K. economy currently looks fragile, when judged by many metrics, perhaps governor Mark Carney and his monetary policy committee displayed incredible predictive abilities in getting ahead of the curve to lower rates and increase Q.E., shortly after the UK’s population voted 52% in favour of Brexit in June 2016. However, if the pound weakens further and if Europe and the USA raise rates before the year end, the U.K. will surely have to follow suit, to protect the pound’s value.

Whilst the economists polled predict that the SNB and the BoE will announce no adjustment to their current monetary policies next week, it’s only a matter of time before they’re compelled to act in a hawkish manner.

Sunday evening starts the week with a crucial high impact news event, in the form of new loans issued in yuan, by Chinese banks. Whilst the news is unlikely to directly effect the majority of the currency pairs our clients trade, the data will be scrutinised by analysts in order to determine the overall health of the Chinese economy and to establish if the Chinese administration and authorities are reeling in the available levels of credit to the general population, or if consumer demand for debt is waning. The consensus forecast is for a rise in August to 950b yuan, from 825.5b in July. Aggregate financing and general money supply figures, complete the series of releases on Sunday evening/Monday morning relating to China. Further Asian economic calendar news comes from Japan, as monthly and YoY machine orders and money stock detail is published. Machine orders are predicted to improve for July, from the negative -5.2% growth figure, registered for June.

Monday continues the theme of machining and tooling in Japan, with the release of the machine tools order data, the YoY (August) figure is expected to maintain a similar level to the 28% annual increase, registered for the month of July. Swiss total sight and domestic sight deposits information is published, whilst not considered to be high impact news, these releases do have the power to move the value of the Swiss franc. As attention shifts to North America, Canadian housing starts detail for August will be revealed, the July (YoY) figure came in at 222.3k, analysts will be monitoring the release carefully (and with hindsight), begin to evaluate the overall logic of Canada’s central bank raising the key interest rate, on Wednesday September 6th.

Tuesday’s significant calendar events begin with recruitment firm Manpower’s employment surveys relating to: Japan, China and Australia, Germany is added to the firm’s surveys published during late afternoon. The NAB bank in Australia reveals its business confidence and conditions survey, credit card balances and purchases detail in Australia is also revealed; delivering a subtle indication of Australian consumers’ confidence. As the time zones move onto European news, a raft of official U.K. data is published by the ONS. Producer prices (which may have risen as a consequence of the pound falling versus the euro), house prices, RPI and the more notable CPI figure, both monthly and YoY are revealed. The monthly CPI figure fell by -0.1% in July, with annual prices coming in at 2.6%, a return to positive inflation for the month, with the annual level expected to be maintained, appears to be the majority view predicted by the economists polled.

Early Wednesday morning Australian bank Westpac publishes its consumer confidence reading and index for September, the August confidence reading came in at a negative -1.2%, an improvement is expected. Following the various 1-10 year outright bond purchase results in Japan, the German CPI for August is revealed, the expectation is for the current rate of 1.8% to be maintained. Remaining on the theme of European data, the UK’s latest monthly publication of employment and unemployment data is published, the unemployment rate is forecast to remain at 4.4%, whilst earnings growth is scheduled to remain at 2.1% per year, below both the CPI and RPI figures. Eurozone second quarter employment data is also published on Wednesday, the prediction is for annual employment growth to be maintained at a similar level to that recorded in Q1, at 1.5%. Eurozone industrial production data is also revealed, the anticipation is that growth will stay at the July level of 2.6% YoY. As attention turns to the USA, various PPI metrics are published, as are the various energy inventories which, given the disruption caused by the various tropical storms, will be closely scrutinised. The USA monthly budget statement for August and the UK’s house price balance report by RICS, completes the day’s economic data.

Thursday could witness activity in both Antipodean currencies, as New Zealand’s confidence data and Australian detail on CPI and the unemployment and employment changes are published, with little change across both countries data releases predicted. China’s retail sales for August are forecast to reveal a similar rate to July’s 10.4% growth, whilst Chinese YoY industrial production growth is expected to remain at a similar level, to the 6.8% growth recorded in July. Japan’s industrial production data is also published, before European data begins to come into close focus, beginning with European car sales numbers and the Swiss deposit rate decision, currently at -0.75%. The UK’s retail sales (YoY) are forecast to maintain the July 1.5% growth rate, later in the London session the Bank of England will reveal its decision regarding the base interest rate, currently at an all time record low of 0.25%, there is little consensus opinion for a rise, whilst the asset purchase scheme is not expected to expand, beyond the current total level of £435b. Housing price data (new houses) for Canada will be published, followed by the weekly jobless claims in the USA and the number of citizens continuing to claim. The USA’s CPI figure will be revealed, the prediction is for a rise to 1.8%, YoY from 1.7% in July. Average YoY weekly wage increases for August are forecast to remain at relatively stagnant levels; July’s reading coming in at 1.1% growth.

On Friday morning Japan publishes department store sales and the results of various bond auctions, of varying maturity. When European markets open, the latest trade balance and labour costs figures are revealed. As focus moves to the USA, the Empire manufacturing results are published for September, as is the key advanced retail sales data, which is expected to fall to 0.3%, from the 0.6% figure recorded in July. Capacity utilisation detail is revealed for the USA, as is manufacturing production growth, which came in negative in July, at -0.1%. The university of Michigan confidence report for September is published, the 96.8 reading reported in August is forecast to be closely matched. Business inventories in the USA for July are predicted to fall to 0.2% from the 0.5% registered in June. Finally, as is customary, the week’s calendar events conclude with the Baker Hughes rig count, of increased interest given the recent storms disrupting energy extraction and production in the USA gulf area.

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