Geopolitics and central banks to take centre stage this week – Rabobank

Analysts at Rabobank suggest that geopolitics and central banks meet are going to be the crucial market moving events for this week with focus mainly on Fed meet.

Key Quotes

“Thankfully there were no further provocations from North Korea over the weekend. That said, the threat from Pyongyang is expected to be the primary focus of President Trump’s address to the United Nations tomorrow.  Earlier this month The UN Security Council unanimously voted in favour of adopting tougher sanctions against N.Korea over its nuclear and ballistic missile programmes.  Haley, the US ambassador to the UN, has reported that N.Korea was beginning to feel the impact of these sanctions which include a restriction of oil shipments to the country.  However, Haley added that she would be prepared to hand over the matter to the US military to deal with the crisis if need be.  She stated that ““we all know that if North Korea continues with this reckless behaviour and if the United States has to defend itself or its allies in any way, North Korea will be destroyed.”  Trump tweeted that he had discussed the matter over the weekend with S.Korea President Moon Jae-in, asking him how “Rocket-Man is doing”.  The President also reported that there were “long gas lines forming in North Korea”.” 

“Assuming the market can keep its focus away from geopolitical risk, there is a lot of central bank activity to contend with this week. The FOMC meets on Tuesday and Wednesday and the BoJ is due to make a policy decision on Thursday.” 

“The Fed has already outlined how it intends to start trimming its balance sheet, but it is yet to announce when that will commence. Given that Yellen’s current term is due to end in February next year, the market is expecting that balance sheet reduction will start soon, even if the Fed (as we expect) decides that conditions cannot tolerate a third interest rate hike this year.  On Friday, US retail sales for August reported a surprisingly weak -0.2% m/m, suggesting that consumption in the current quarter has likely slowed from Q2.  Over the weekend the BIS warned about the risks to growth of higher interest rates.”  

“The German election will finally take place this coming weekend. As it stands it appears that the leadership is Chancellor Merkel’s to lose on September 24, with opinion polls suggesting that her party stands to win around 37% of the vote.  There could, however, be some re-working of the governing collation.  Elections are also scheduled to take place in New Zealand this week.  If the main opposition Labour Party wins victory, there could be a change to the RBNZ’s mandate to include full employment along with its price stability goal.”