Weekly Market Outlook

Weekly Market Outlook: Big Week for the Greenback and Euro

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After a full round of central banks meetings, investors will be watching a new pack of fresh economic releases. ISM Manufacturing PMI and PCE inflation will be on top of the US economic calendar. Fed Chair Powell will also testify on Coronavirus before the Senate as lawmakers will try to pass a funding plan to avoid a government shutdown on October 1st. The Evergrande dilemma is still in focus desperately hoping a default could be avoided. The ECB Forum on Central Banking will be closely watched for more clues on the monetary policy outlook while the outcome of German federal elections catches the attention of euro traders everywhere. 

Key Highlights of the week: 

  • German Federal Elections 
  • ECB President Lagarde Testimony on Economic and Monetary affairs
  • BOE Gov Bailey Speech 
  • ECB Forum on Central Banking
  • US Final GDP 
  • Canadian GDP 
  • US PCE Inflation Data 
  • ISM Manufacturing PMI 

The Dollar eyes PCE Inflation Data after Hawkish Fed 

It is a busy week for USD traders who will be watching the ISM Manufacturing PMI that is expected to show a slightly slower growth despite the strong rise in factory activity. Investors are paying special attention to any signs of rising inflationary pressures, supply constraints and weakness in the labor market.  Meanwhile, the final estimate of second-quarter GDP is expected to confirm the economic recovery during the April-June quarter, backed by the increases in household consumption, fixed investment, exports, and local government spending. 

The calendar also includes personal income, PCE price index, durable goods orders, construction spending, CB consumer confidence; pending home sales, the advance estimates of goods trade balance, wholesale inventories and Markit final Manufacturing PMI.

Meanwhile, Fed Chair Powell is due to testify on the Coronavirus and CARES Act before the Senate in Washington as lawmakers try to pass a funding plan to avoid a government shutdown on October 1st. The House passed a bill to keep the government funded until early December while suspending the borrowing limit through 2022, but the bill will be facing a strong battle in the Senate.

Weekly Market Outlook - The Federal Reserve
The Federal Reserve

Last week, the Federal Reserve kept the funds rate unchanged at 0.25% while officials hinted that a reduction in asset purchases may be needed with a growing number expect an interest rate hike in 2022. As the economy sustains recovery towards the committee’s goals; stable inflation around 2% and maximum employment, scaling down the massive stimulus package may be guaranteed as the policy statement showed. 

During the press conference, Powell said that it’s time to begin taper asset purchases. The central bank is expected to announce tapering its massive asset purchase programme in November to be ended completely by the middle of next year. 

Euro tracks German Elections and Inflation Data 

Investors will closely monitor the outcome of the German federal election. Preliminary results showed that SPD was leading with nearly 25.9% of the vote, followed closely behind by Mrs Merkel’s Christian Democrats and their candidate Armin Laschet with about 24.5%.

On the data front, important releases include the Eurozone September’s flash inflation rate that is likely to stay around 10-years high, influenced by soaring energy prices. Unemployment rate and Germany Gfk consumer confidence are also scheduled for through the week. 

The ECB forum on central banking on Wednesday will be another main driver. Heads of the European Central Bank, Federal Reserve, Bank of England and Bank of Japan will participate in a policy panel discussion. 

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