- Bank of England monetary policy meeting needs to address inflationary concerns
- PMI data from US could provide welcome respite for policymakers if this continues to cool
- Sluggish Eurozone consumer confidence could complicate ECB’s battle with inflation
The week starts with German PPI data for August, which again has the potential to cause a degree of concern at the ECB. On Thursday 16th Sept, there was renewed interest in monetary policy for the Eurozone after a policymaker offered up a fresh forecast from the central bank over the timing of a first rate hike. The ECB may have back pedalled, but with this reading expected to come possibly as high as 12%, those inflationary pressures will be building and careful management is necessary.
On Tuesday we have US Housing Starts and US Building Permits releases for August. These both act as broad economic barometers, with the forward looking ‘permits’ reading being especially valuable. A meaningful slowdown here could signal concern over the economic outlook or the impact of rising borrowing costs in the future. Expectations are for a 1.8% month-on-month decline in permit applications – in isolation this will be fine, but anything much below could send a ripple of concern across the market.
Wednesday offers up Eurozone Consumer Confidence for September. In light of inflationary pressures and the ongoing vaccination program, policymakers would be hoping for an improvement here, but expectations are that we will see a third consecutive monthly decline down to -5.7. It’s worth noting that this reading is always negative, but consumer weakness at a time of ultra-low borrowing costs and off the back of a supposed economic bounce doesn’t make for the most encouraging of outcomes.
Also on Wednesday, the Federal Reserve will conclude its latest FOMC Meeting. Following that softer than expected US inflation reading on Tuesday 14th Sept which took a toll on the dollar, markets are eyeing a more hawkish view from the central bank. There’s an expectation more details over tapering will be revealed, along with further hints over the timing of a rate hike. Excepting any dovish surprises, that’s likely to be positive for the greenback but could also rattle emerging markets, where rising costs of dollar borrowing have the potential to be damaging.
Weekly Oil Inventory data from the US will also be in focus today, given rising energy prices and the impact that this could have on inflation moving into the Northern hemisphere winter. With price pressures already evident, big declines here could fuel concerns that central banks will need to deploy monetary policy tactics sooner than they may like.
Thursday sees the publication of the latest Services and Manufacturing PMI readings for September from both sides of the Atlantic. Modest declines are expected in readings from the US and Eurozone, whereas the UK prints are tipped to hold broadly steady. They’re all called to come in well above the break even 50 level and a decline in the pace here – especially in the US – is likely to be welcome. The risks seem to be that the US fails to hold in that “Goldilocks zone” of neither too hot nor too cold, or that UK or EU figures end up veering sharply lower.
The Bank of England’s Monetary Policy Committee also concludes its meeting on Thursday, with policy makers again having to contend with ongoing inflationary pressures. There’s mounting expectation that interest rates could start to rise in as little as eight months’ time, so if supply bottlenecks and labour shortages are seen as likely to keep fuelling price pressures then action will need to be taken. The minutes will be carefully dissected to look for any clues here.
Friday sees Gfk Consumer Confidence data from the UK for September being published. There are hopes that this could print as high as -6, making for the most bullish reading since the pandemic took hold in Europe – and again is likely to be something that could fuel the need to hike rates faster, a move which would cheer the pound but weigh on those bigger stocks with overseas profits.