In view of analysts at Nordea Markets, all eyes will be on the Fed this week, when the meeting minutes of the big U-turn FOMC meeting are out on Wednesday.
“Given the huge rally that Powell’s back-tracking has resulted in, we see risks tilted to the hawkish side ahead of those meeting minutes in general.”
“We look for clues on whether the Fed will be more concrete on a potential timing for the end of QT. For technical reasons, we know that quantitative tightening cannot run forever. The system probably needs at least USD 1,000bn in excess reserves, which could already be reached before the end of 2019 on our projections.”
“Consensus has moved towards an October stop to QT (Fed’s Brainard said that she favoured a late 2019 QT-end on Thursday), so the Fed will have to hint at an earlier stop than that to really surprise dovishly now. We don’t put a large probability on that. The earlier a QT stop, the worse a scenario for the USD, the better a scenario for risky assets. We wouldn’t bet on dovish surprises though.”
“On Thursday, we will get new clues whether the recession fears could be fuelled further in the Euro area. And while we now see a little light at the end of the tunnel 4-5 months out, our models suggest another drop in the Composite PMI figure for the Euro area next week. Our monthly model suggests a drop in the range of 0.5-0.7 index points. Not really a figure that will keep the recession wolf from the door, at least not in the eyes of markets.”
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