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Weekly Market Outlook

Weekly Market Outlook: ECB, BoC and RBA Meetings highlight the Week

The first full week of September is packed with central bank meetings in the Eurozone, Canada, and Australia. Despite the soft opening and closing of US markets on Monday, investors will be watching policy decisions with tapering steps seem closer. 

Main events on the economic calendar include: 

  • RBA Cash Rate Decision
  • Eurozone’s ZEW Economic Sentiment Index 
  • BoC Cash Rate Decision
  • Bank of England’s Monetary Policy Report Hearings 
  • ECB Policy Meeting 
  • Canadian Employment data 

RBA: Tapering Plans still Intact

BoC Market News
Australian Dollar

 The Reserve bank of Australia will be meeting on Tuesday, and it is widely expected to keep the interest rate on hold at 0.10%. Reducing the weekly asset purchases from A$5 to A$4 billion is still on the table for the September meeting, but the forward guidance will highly depend on how the economy will perform in the third quarter.  On the other hand, some economists expect the RBA to hold off tapering due to the uncertainty surrounding the economy.  

The Australian economy struggles to contain the spread of the virus despite the lockdowns and the acceleration in vaccination rates. However, the economy managed to expand by 9.6% in the second quarter. On a quarterly basis, the national GDP rose 0.7% in the June quarter, compared with a 1.9% increase in the first three months of the year. The employment rate fell to 4.6% in July. Despite the solid recovery, investors remain skeptical about the sustainability of recent growth as the country has been suffering from long lockdowns. The true impact of recent lockdowns is expected to reflect on the third-quarter figures, in line with the RBA’s expectations. 

BoC: No Changes Ahead 

The unexpected economic contraction in Q2 has tempered the odds for any policy changes in September’s meeting. The Bank of Canada to keep interest rates unchanged at 0.25% on Wednesday. No changes in the current policy stance are expected, especially as the country is heading to national elections in less than two weeks. 

In July, the bank announced a third cut to its weekly asset purchases to C$2 billion, reflecting its confidence that growth would rebound strongly in a more sustainable manner. BoC stated earlier that the economy should pick up in the third quarter, after the slowdown caused by the third pandemic wave in the first half of 2021. The Canadian economy is expected to show another contraction in July, dragged mainly by supply disruptions and residential investments. 

ECB: Tapering Debates to Rise 

On Thursday, the European Central Bank is expected to meet as markets are pricing the possibility of tapering discussions. Although no policy decisions will be made this meeting, investors will be watching closely any prospects for sooner tapering moves.  

The flash estimates of the Eurozone annual inflation rate show a 3% increase in August, marking the highest inflation rate since November 2011. The recent surge in headline inflation supported the possibility of cutting back the asset purchases under the pandemic emergency purchase programme, PEPP, currently at 1,850 billion euros. The programme was launched to support the block’s economy during the pandemic and is planned to end in March 2022, or until the bank judges that the coronavirus crisis phase is over. Net purchases under the APP should continue at a monthly pace of €20 billion. 

ECB, BoC and RBA Meetings
Euro

Given recent economic developments, some ECB members have expressed their concerns about high inflation. In its June projections, the bank expected inflation to settle around 1.9% by the end of this year before edging lower to 1.5% next year. This is expected to be revised higher; however, the bank may stick to its confidence that price pressures are transitory. 

Any possible tapering signals may help the euro to extend its gains, even though the ECB is not expected to fully abandon its loose policy anytime soon. 

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