The Week Ahead 06/09/2021

 The Weekend: 

Felt like a relatively quiet weekend with not a huge amount of news flow. Usual coverage of delta variant and growth concerns as well as some after the fact reporting / opinion pieces on Afganistan. I particularly enjoyed this one from the WSJ. Also starting to get a lot more focus on the upcoming German election (26 September) with the SPD still polling pretty well against the CDU. Outgoing Chancellor Angela Merkel is going out to fight a little more for her potential replacement Laschet as polls keep pointing against them. 

In other news, the military seized power in Guinea and suspended constitution. The market impact is likely to be limited except perhaps in the aluminium markets where Guinea has a key role in providing raw material. For reference, Guinea vies with Australia as China's largest supplier of bauxite, so this is actually a pretty big deal - especially in commodity markets already pretty hot. Bauxite and aluminium definitely ones to watch at the open tomorrow. 

Source: Bloomberg 

In UK news, lots of back and forth in the columns over the weekend about possible changes to both the triple lock on pensions and on additional national insurance to fund social care. Some reports over the weekend the government intends to introduce a cap on social care costs at £80,000, although there is some significant back and forth with Chancellor Rishi Sunak who is resistant to loosen the pursestrings at such an already indebted level. 

The Week Ahead: 

Update: Forgot to mention originally that Monday is Labor Day in the US so US market is closed. Likely to be a quiet day, so I will probably we away from screens most of the day. 

Focus: 

Plenty of action in the central bank space in the week ahead. The RBA will be kicking things off Tuesday with their cash rate target which is expected to be held at 0.1%. With additional lockdowns shuttering a significant portion of the economy, it seems unlikely to me that we will hear much more hawkish rhetoric than we have already seen, but the RBA is supposed to be reducing bond purchases (from A$5bn to A$4bn). I wouldn't be surprised at all to see them hold off on the back on lockdowns though, and this could be a source of weakness for the AUD - I refer you back to my SELL AUDCAD trade idea from last week. 

Then on Wednesday we get the BoC rate decision, again there is an expectation rates will be held at 0.25%, but the BoC has been relatively hawkish and was one of the first to reduce the pace of asset purchases. With COVID-19 risks still strong it is unlikely we see any kind of taper at this meeting, especially with the snap election also looming in the background. But with hikes still priced for the H2 of 2022, I still like the look of the CAD as a medium term trade, and think there is significant room for outperformance over the AUD. So this meeting is likely to be a little boring, but there is room for a possible cut to QE purchases again at the October meeting, with some suggesting a taper of an additional CAD500mn. 

Source: Bloomberg 

Thursday will be the highlight with the ECB meeting possibly due to delivery some fireworks. The meeting should be interesting firstly because we expect to see how the committee considers its new monetary policy framework of a symmetrical 2% target, and secondly because inflation pressures have been mounting in the Eurozone and the hawks might start calling for a taper. Handy voting guide for the hawks and the doves below. 

Source: Bloomberg

With inflation at 3% in the Eurozone, the highest in a decade, many policymakers are rightly trying to work out if now is the time to reduce some of the emergency stimulus which has been flowing for the last year. In the last week or so, some of the rhetoric from policymakers has been quite interesting (albeit these are mainly from the hawks), with those like Knot saying the objective of PEPP has now been achieved. 

Later in the week, I will give a much more detailed preview of the ECB meeting, as well as outlining my expectations so stay tuned. 

Economic Calendar Highlights: 

Monday: 

Quiet day - 09:30 UK Construction PMI could be interesting to watch. 

Tuesday: 

05:30 - RBA Cash Rate Target

06:45 - Switzerland Unemployment Rate

07:00 - Norway Industrial Production 

08:00 - Switzerland Foreign Currency Reserves 

10:00 - Eurozone Final GDPs & ZEW

Wednesday: 

12:00 - US Mortgage Applications

13:30 - BoC Rate Decision

15:00 - July JOLTS openings (US). 

Thursday: 

07:00 - Norway Mainland GPD

12:45 - ECB RATE DECISION 

13:30 - Lagarde Press Conference & US Initial Jobless Claims 

Friday: 

07:00 - UK Monthly GDP, Industrial Production, Manufacturing Production & Norway CPI 

13:30 - Canadian Employment Data & US PPIs

Worth a Read: 

UAE seeks to become a major finance hub (Bloomberg)

Italy's Economy to Grow 5.8% (Bloomberg) 

ECB dares to ask if crisis era stimulus can be pulled back (Bloomberg)

Green bond sales set for record (Bloomberg) 

Fantastic from the NYT - Crypto's rapid move into banking elicits alarm in Washington 

Great article on Apple from NYT and app wars - Why Apple is Giving Ground to App Developers

Global Dealmaking to Set Records After Frenzied Summer (FT)

Tories warn over NI increase (FT)

Non-Sequitur: 

If you're ever looking for a way to compliment someone with more words than you'd usually choose... try The Surrealist Compliment Generator. 

Some examples I've used (not really) include: 

I would sing by an aria of pain to your endearments and wiles.

Your fingers sublimate into volcanic gases with the slightest cooling touch from the antennae of a passing lyre.

Or for those of you finding yourself lacking an appropriate retort, I had more fun with The Shakespearean Insult Generator

Thou mumbling elf-skinned imbossed carbunkle!

Thou overwheening open-arsed horn-beast!

Thou abominable clay-brained mangy-dog!