Week Ahead Fed set to disappoint Trump with 25bp cut

The week ahead features more central bank meetings, with the Fed, BoJ, SNB and BoE all set to decide on the direction of their respective monetary policies.

The week ahead features more central bank meetings, with the Fed, BoJ, SNB and BoE all set to decide on the direction of their respective monetary policies. In addition, we will have a handful of market-moving macro pointers from the likes of Australia and New Zealand. But the early part of the week will be dominated by the aftershocks of the ECB’s policy decision from Thursday and fresh data from China. Here are the week’s data highlights:

  • Monday: Chinese industrial production, fixed asset investment and retail sales
  • Tuesday: German ZEW economic sentiment and US industrial production, among a handful of other second tier data
  • Wednesday: UK and Canada CPI; FOMC and NZ GDP (early Thursday morning NZ time)
  • Thursday: Australian employment; BoJ; SNB and BoE rate decisions.
  • Friday: Canadian retail sales

Clearly, most of the attention will be on the Federal Reserve next week. A 25-basis point rate cut is widely expected, and it would be a major shock if the Fed doesn’t deliver. But some, including Donald Trump, want more than just 25 basis points. In fact, the US President has called for “boneheads” Fed to cut rates to zero or lower in a tweet this week. Understandably, with US data not deteriorating as badly as, say, Germany, the Fed is reluctant to cut aggressively and rightly so. The risk therefore is that the Fed refuses to provide a dovish outlook for interest rates. In this potential scenario, a rate cut might only weigh on the dollar momentarily. With most other major central banks already being or turning dovish, the Fed will also need to be super dovish for the dollar to end its bullish trend. Otherwise, the greenback may find renewed bullish momentum, even if the Fed cuts by 25 basis points.

As far as the other central banks are concerned, well we don’t expect too much market reaction from their actions – or lack thereof. That being said, it will be interesting to see what – if anything – the Swiss National Bank will have to say about the European Central Bank’s decision to resume bond buying, given the recent appreciation of the franc against the shared currency. The Bank of Japan, on the other hand, is unlikely to respond to the ECB’s resumption of bond buying. We think it will keep the current policy of controlling the yield curve. For one, the global economy hasn’t deteriorated too significantly to exacerbate deflationary pressures in the export-oriented Japanese economy. For another, the there’s only limited number of policy options left at the BoJ's disposal. Thus, cutting short-term interest rates further into the negative – as some have suggested – may be an option, but to be used on another occasion. Finally, the Bank of England is likely to retain its status as one of the most boring central banks out there on Thursday. Don’t expect anything – you will be disappointed. Reason? UK data has been not bad enough to warrant a cut, and inflation has not been high enough to warrant a hike.

Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.