World Week Ahead: Finally, Fed week

Monday 19th September 2016

The US Federal Open Market Committee’s two-day policy meeting, ending on Wednesday, will be the focus of global attention in the coming days as investors fret whether the central bank will raise interest rates now or later.

Investors will also eye the Bank of Japan on Wednesday amid expectations it might ease monetary policy further to help stoke the country’s moribund economy. Just over half of economists surveyed by Bloomberg forecast an expansion of stimulus this week.

The latest US data kept bets alive the Fed won’t move this week but analysts and investors haven’t totally ruled a hike out either. On Friday a Labor Department report showed the consumer price index rose 0.2 percent in August, after it was unchanged in July. In the 12 months through August, the index climbed 1.1 percent, after rising 0.8 percent in the year through July.

"The economy may not be firing on all cylinders, but growth is enough to spark a little more inflation than we thought. The Fed decision is going down to the wire," Chris Rupkey," chief economist at MUFG Union Bank in New York, told Reuters.

The chances of a September rate increase are 20 percent, from 30 percent a week ago, according to Bloomberg.

The Fed will announce its decision as well as its latest forecasts for growth and inflation on Wednesday, and Chair Janet Yellen will hold a press conference.

On Friday the Dow Jones Industrial Average fell 0.5 percent, while the Standard & Poor’s 500 Index retreated 0.4 percent and the Nasdaq Composite Index slipped 0.1 percent.

"It's the uncertainty of [this] week, the complacency of investors trying to re-evaluate their portfolios as we prepare for an interest-rate hike,” Jeff Carbone, co-founder of Cornerstone Financial Partners in Charlotte, North Carolina, told Reuters.

For the week, the Dow added 0.2 percent, while the S&P 500 gained 0.5 percent and the Nasdaq rallied 2.3 percent.

The latest US economic reports slated for release this week include the housing market index, due today; housing starts, due Tuesday; weekly jobless claims, Chicago Fed national activity index, FHFA house price index, existing home sales, as well as leading indicators, due Thursday; and PMI manufacturing index, and Atlanta Fed business inflation expectations, due Friday.

On Friday, Philadelphia Fed President Patrick Harker, Atlanta Fed's Dennis Lockhart and Cleveland Fed's Loretta Mester are scheduled to speak on a panel.

Europe’s Stoxx 600 Index shed 0.7 percent on Friday, closing at the lowest level in six weeks.

Weighing on the market were Deutsche Bank shares, plunging 8.6 percent on Friday, after the US Department of Justice asked Germany's largest bank to pay US$14 billion to settle an investigation into its sale of bad mortgage-backed securities between 2005 and 2007.

Deutsche Bank will counter, it said.

“Deutsche Bank has no intent to settle these potential civil claims anywhere near the number cited,” the bank said in a statement. “The negotiations are only just beginning. The bank expects that they will lead to an outcome similar to those of peer banks which have settled at materially lower amounts.”

However, even a US$4 billion settlement “would put questions around capital position,” JP Morgan Chase analyst Kian Abouhossein said in a research note, according to the Wall Street Journal.

BusinessDesk.co.nz

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