Week ahead: 18-22 September

As we prepare for the trading week ahead, it’s essential to have a thorough understanding of the pivotal economic events and company reports that can significantly impact financial markets. Here’s an in-depth preview of what to watch out for the week ahead.

Monday, September 18th

UK Rightmove house price index

Coming in the midst of a housing crisis that has seen housing costs surge thanks to elevated mortgage rates, the Rightmove HPI release will provide another fresh outlook for the sector. Halifax (-4.6%) and Nationwide (-5.3%) have been at the forefront of this warning over the collapse in house prices, with Rightmove expected to further highlight a weakening sector that is key to consumer spending and economic health. Last month saw the Rightmove survey decline 1.9% for August alone, with this metric often ahead of the game given that it measures market asking prices rather than the lagging completed house prices.

Tuesday, September 19th

RBA meeting minutes

The RBA, in its September meeting, held the cash rate steady at 4.10% for the third consecutive month. They cited the need for more time to evaluate the impact of the 400 basis-point rate hikes and evidence of a rebalancing in supply and demand. While the RBA maintained a tightening bias, it appeared more comfortable with the inflation outlook and signs of economic cooling. The upcoming RBA minutes will likely echo these sentiments and will be closely watched for insights into what could trigger further tightening or an extension of the rate pause.

Wednesday, September 20th

UK inflation report (August)

In the United Kingdom, all eyes are on the release of the Consumer Price Index (CPI) for August. July saw a substantial 1.1% decline in headline inflation, falling from 7.9% to 6.8%. This was largely attributed to the reduction in the energy price cap, and decreasing food price inflation (17.3% to 14.8%). However, core prices, which exclude volatile components like food and energy, remained persistently high at 6.9%. With that core figure still only moderately below the 7.1% peak seen in May, it is clear that the Bank of England continue to struggle in a bid to bring down the stickier elements of UK inflation. With their meeting taking place the next day, GBP will likely see plenty of volatility as traders weigh up the monetary policy repercussions to this data dump.

The key question for traders is whether the August figures will reveal that core inflation remains elevated. If so, this could prompt the Bank of England to consider raising interest rates at its meeting on Thursday, September 21st. While some argue that the UK economy has not yet experienced the full impact of the 14 rate hikes implemented since late 2021, others contend that the central bank has already taken sufficient measures. If inflation has indeed peaked, future rate hikes may not need to be substantial, but interest rates might need to be maintained at or near current levels for an extended period. It’s worth noting that while both headline and core CPI are expected to have eased in August, the deceleration may be more gradual than policymakers prefer.

US Federal Reserve Rate Meeting

The eagerly anticipated US Federal Reserve rate meeting is expected to dominate market sentiment this week, from off the back of the recent inflation report. In light of the recent surge in US unemployment, and a dip in core inflation, the consensus is growing that the Federal Reserve will opt to keep interest rates unchanged during this meeting. Federal Reserve Chair Jay Powell has consistently emphasized that the central bank’s rate decisions are data-dependent. That was a tone Powell touted at the Jackson Hole symposium, with his insistence that the bank remains open to higher rates if deemed necessary by the data. The ECB meeting saw a ‘dovish hike’, which helped lift market sentiment around the potential end to this tightening phase. However, with the Fed ahead of the curve and exhibiting significantly lower inflation, there is a good chance the Fed decides to keep rates as they are.

Powell has recently pushed back against speculation that the Fed’s inflation target could be raised to 3%, affirming the central bank’s commitment to the 2% target. While rising consumer prices could support a case for a rate hike, market expectations are leaning towards a rate pause. The CME FedWatch Tool, which tracks the probability of rate changes implied by 30-day Fed Funds futures pricing data, indicates a hefty 97% likelihood of the benchmark interest rate remaining in the range of 5.25% to 5.5%. Keep a close eye out for commentary, with the outlook often just as important as the decision itself. Rising energy prices are likely to put central banks into a nervous position over the potential for a second wave of inflation.

Thursday, September 21st

Bank of England Rate Meeting

The Bank of England faces a critical decision at its rate meeting scheduled for Thursday, September 21st. Markets have been pricing in at least one more rate hike this year, but there’s a divergence of views within the Monetary Policy Committee. Governor Andrew Bailey recently expressed skepticism about the necessity for further rate hikes, but other committee members, notably Catherine Mann, have advocated for additional increases to combat rising prices.

This divergence suggests that the nine-member panel may be split on the best course of action. While a quarter-point rate hike to 5.5% wouldn’t be surprising, there’s a strong argument for maintaining rates and giving prior rate hikes more time to take effect. Chief economist Huw Pill and deputy governor Ben Broadbent have indicated that the current level of monetary policy is sufficiently restrictive, possibly preparing the market for a rate pause.

The Fed’s decision on Wednesday could influence the Bank of England’s course of action. If the Fed chooses to keep rates unchanged, it could increase the likelihood of a similar move by the Bank of England.

Friday, September 22^nd

Bank of Japan interest rate decision

BoJ Governor Kazuo Ueda has stirred markets of late, with the new Governor causing a rebound in the Yen, and a nine-year high for the Japanese 10-year yield. That came off the back of Ueda’s claim that there could a move to normalise monetary policy by year end if inflation is not back under control. While the cynics will note that this is likely a move to reverse the recent USDJPY surge that took the pair back into the range that saw two previous BoJ interventions. However, those comments will come into question on Monday, when traders look out for further comments from the Governor.

It looks unlikely that we will see any shift to policy itself this week, with the bank having already tweaked their yield curve control policy last time around. However, we could see volatility as markets watch for any greater clarity over exactly what we would need to see for the bank to begin raising rates.

Global PMI surveys

Friday brings a host of PMI surveys throughout the world, with the likes of Japan, Australia, eurozone, UK, and the UK all of particular interest for markets. The recently declines seen in Europe should provide a focus this month, with signs of further weakness likely to feed into the perception over future interest rates. The PMI surveys are typically seen as a leading indicator, and thus any signs of economic strength or weakness can be particularly significant as a gauge of future growth prospects.