‘Central bank watching’ will be the name of the game this week with financial markets remaining highly sensitive to any shifts in the interest rate outlook, particularly given the recent ramping up of energy prices.
The move higher in energy costs was born out in the US inflation data last week, which could nudge the FOMC onto a more hawkish footing come the policy decision this week. While a hold for September is expected, the rise in headline inflation and resilience in the core CPI data will be keeping the Fed very much on their toes in coming months.
Also, this week we have the Reserve Bank of Australia (RBA) policy meeting minutes, as well as decisions by the Bank of England (BOE) and Bank of Japan (BOJ) later in the week. While we will also be keeping an eye on the LPR from China this week to see if authorities decide to tweak any rates as a follow-up to the RRR cut.
The feeling is that the People’s Bank of China (PBOC) still has more to do regarding incentivising the consumer sector and shoring up the troubled property sector, as such we could see more loosening on the 1-yr and 5-yr LPR before the end of the quarter. It remains to be seen if the authorities act on the LPR this week or not, with China’s retail sales and industrial production data released last Friday finally showing some signs of promise.
Gold gets some shine
Gold was making some moves to the upside to start the week on some safe-haven buying, with the upcoming economic calendar containing plenty of possible central bank event-risk. The precious metal was also recently buoyed by the better-than-expected Chinese data at the back end of last week. Today, spot gold moved to the mid $1920’s, below some moderate resistance levels at $1935 and $1942. If we happen to see any hawkish language from the Fed later in the week this could provide a set-back for gold which continues to be at a yield disadvantage in the current environment.
Oil keeps momentum
Elsewhere, oil maintained its momentum thanks to the existence of some potential green shoots among the Chinese macroeconomic indicators (Industrial Production and Retail Sales). The WTI contract is attempting to make a home above the $90 per barrel level. Although the technical indicators are starting to look a little stretched. Nonetheless, supply-side cuts should limit any downside moves for the time being in the oil market.
All up, it was a cautious start to the week across equity markets ahead of what will be a busy week on the central bank front. Risk appetite will be heavily influenced by any shifts in interest rate expectations over the coming week.
Market commentary from Tim Waterer, chief market analyst at KCM Trade
