Macroeconomics: The Day Ahead for 22 September

This week’s central bank dominated schedule kicks into high gear over the next 48 hours, with the FOMC meeting front and centre, while this evening brings Brazil’s BCB meeting ahead of the SNB, BoE and SARB tomorrow. There are the no change China LPR and BoJ decisions to digest, and more importantly the PBOC’s CNY 90 Bln net liquidity injection, not only helping to soothe Evergrande related fears, but also help to offset the drain due to CNY 192.3 Bln of local govt Muni issuance this week. The data schedule is very meagre, with only South Africa’s CPI, US Existing Home Sales and advance Eurozone Consumer Confidence likely to attract attention. Following on from the blockbuster syndicated demand for the UK’s debut ‘green’ Gilt, the DMO offers a tiny £350 Mln of 5-yr I-L Gilt via auction, with Germany selling 15-yr and US a 2-yr FRN. Corporate earnings remain thin on the ground, but with the sharp rise in food prices globally, results from General Mills will get plenty of attention above all in terms of supply, demand, price and margin perspectives.

U.S.A – FOMC meeting

– The Fed is expected to hold rates and maintain its current $120 Bln/month QE pace, but tweak the statement’s ‘….  until substantial further progress has been made toward its maximum employment and price stability goals. Since then, the economy has made progress toward these goals, and the Committee will continue to assess progress in coming meetings’, to suggest that conditional on a solid September report, it will look to reduce the pace of QE purchases as of November. The infamous ‘dot plot’ could easily see a steeper rate trajectory emerge, above all in terms of 2022 projections (see attached chart), which would clearly be unsettling for markets, particularly at a seasonally sensitive time of the year in markets. Given that the run of incoming data has clearly been mixed, there is perhaps some risk of some downward tweaks to its near-term unemployment and growth projections, and upwards to PCE deflators, even if they should still convey the message that the FOMC still believes inflation pressures will prove to be ‘transitory’. The focus thereafter will be on Powell’s press conference, and the degree of confidence expressed about the inflation and labour market outlook, and the language around risks to the economic outlook both from infection rates as well as supply chain bottlenecks.

U.S.A – Aug Existing Home Sales

– Following on from two sets of better than expected housing related data (NAHB & yesterday’s Housing Starts & Building Permits), today’s Existing Home Sales are seen dipping 1.7% m/m, after recovering 1.6% and 2.0% in prior months. Covid infection rate concerns and the sharp increase in prices look likely to weigh on sales, both this month and going forward, though it should be stressed that the SAAR pace remains well above levels seen in the period 2007-2019.

Brazil – BCB rate decision

– Brazil’s BCB is expected to follow up on its signal of a further 100 bps rate hike (to 6.25%) at this week’s meeting, and signal further aggressive tightening, with this week’s IPCA-15 inflation data (published after the BCB meeting) seen rising yet again to 9.8% y/y from 9.3%, and likely to deter the BCB from offering any hints where it sees the terminal rate. Markets are discounting a further 200 bps by year end and 350 bps by the end of Q1 2022, despite the small contraction in Q2 GDP, and little likelihood of any improvement in H2, given the headwinds from the acute drought on the agricultural, mining, manufacturing and utility sectors.