Week Ahead: Timing the next taper
Joe Perry September 10, 2021 9:34 PM
With a host of economic data due out this week, traders will be carefully monitoring each piece for clues to the next taper
There was high focus last week on central bank meetings, including the RBA, BOC, and the ECB, as well as a host of central bank speakers! For the most part, last week’s meetings were “as expected”. That leaves little to look at in terms of big market events this week. Therefore, traders are left searching for more clues as to when central banks will taper next (or begin tapering). To help them, there are some important reoccurring monthly data releases, such as jobs reports from the UK and Australia, CPI data from the US, UK, and Canada, and Retail Sales from the US and UK. In addition, there will be a data dump from China on Wednesday. With a lack of focus, watch for unexpected flows as traders continue to position themselves for central banks’ next moves!
- RBA recap: RBA taper creates turbulence for AUDUSD
- BOC recap: USD/CAD: Loonie a loser as Bank of Canada cites supply chain risks
- ECB recap: ECB to moderately lower pace for PEPP; EUR/USD, EUR/GBP
Central Banks recap
The RBA cut bond purchases to A$4 billion per week, as they said they would, until at least mid-February 2022. They see Q3 growth falling and jobless rates moving higher as a result of lockdowns from the pandemic. They also said they will not increase interest rates until inflation is within their targeted 2% to 3% range, which they don’t expect to happen before 2024! The BOC left bond purchases unchanged at $2 billion per week, as expected. The Bank of Canada said they will continue to keep interest rates at the lower bound until their 2% inflation target is sustainably achieved, which they noted at their July meeting would not be until the second half of 2022. However, the ECB said it would moderately lower the pace of their bond buying under the Pandemic Emergency Purchase Program (PEPP). However, according to Christine Lagarde, the central bank is not tapering, they are recalibrating. The ECB can purchase as many bonds as they want, up to 1.85 trillion Euros, until the program expires in March 2022. They are not tied to a set amount of purchases, unlike the US Federal Reserve which is buying $120 billion per month. The ECB also raised growth and inflation targets for this year.
As for the BOE……
Although they don’t meet until next week (along with the FOMC), hawks were already on the wires last week. Bank of England Governor Bailey said that there was a 4-4 split at the last MPC meeting between those who thought the minimum criteria has been met for “considering an interest rate hike” and those who did not. BOE member Saunders seemed to echo his statement. Regardless of what they said at their last meeting, these are hawkish comments and suggest a rate hike may be coming sooner rather than later. This week, Bank of England members will get a fresh set of data to delve into, including the Claimant Count, CPI and Retail Sales.
As mentioned above there is a host of reoccurring economic data this week that may help traders determine which central bank could be the next to taper, as well as the timing of the taper. We already mentioned the upcoming data this week for BOE to review. The Fed will get both CPI and Retails Sales. These are generally considered measures of how well the consumer is holding up during the crisis. We already know from last week that there was a decrease in the pace of new jobs from the July reading. Will this data help traders decide if the Fed will mention tapering at their meeting next week? Or will it make them even more confused? We also get the Employment Change for Australia. We already know that the RBA expects a slowing in jobs growth. Current expectations for Thursday’s August print are -70,000 vs +2,200 in July. The unemployment rate is also expected to uptick from 4.6% to 4.9%. A negative reading will confirm the RBA’s view.
Other notable economic data releases are as follow: (Check out our full economic calendar here)
- Japan: BSI Large Manufacturing (Q3)
- Japan: PPI (AUG)
- US: Consumer Inflation Expectations (AUG)
- Australia: NAB Business Confidence (AUG)
- Japan: Industrial Production Final (JUL)
- UK: Claimant Count Change (AUG)
- Canada: Manufacturing Sales Final (JUL)
- US: CPI (AUG)
- New Zealand: Westpac Consumer Confidence (Q3)
- Japan: Reuters Tankan Index (SEP)
- Japan: Unemployment Rate (AUG)
- Australia: HIA New Home Sales (AUG)
- Australia: Westpac Consumer Confidence Index (SEP)
- China: House Price Index (AUG)
- China: Industrial Production (AUG)
- China: Retail Sales (AUG)
- China: Unemployment Rate (AUG)
- UK: Inflation Data (AUG)
- EU: Industrial Production (JUL)
- EU: Wage Growth (Q2)
- Canada: CPI (AUG)
- US: NY Empire State Manufacturing Index (SEP)
- US: Industrial Production (AUG)
- US: Manufacturing Production (AUG)
- US: Capacity Utilization (AUG)
- Crude Inventories
- New Zealand: GDP Growth Rate (Q2)
- Japan: Trade Balance (AUG)
- Australia: Employment Change (AUG)
- EU: Trade Balance (JUL)
- Canada: Housing Starts (AUG)
- US: Retail Sales (AUG)
- Us: Business Inventories (JUL)
- New Zealand: Business NZ PMI (AUG)
- UK: Retail Sales (AUG)
- EU: Construction Output (JUL)
- EU: CPI Final (AUG)
- US: Michigan Consumer Sentiment Prel (SEP)
Chart of the Week: Weekly Aluminum
Source: Tradingview, Stone X
Aluminum has gone parabolic! During the low of the pandemic in March 2020, price hit 128.30. However, since the beginning of this year, the metal has slowly been rising. Why? Why do prices of anything go up? More demand and less supply! After a 2.11% price increase during the week of August 23rd and a 2.12% price increase during the week of August 30th, last week aluminum spiked 7.62% to a 13 year high near 231. Notice on the RSI, that each time aluminum reached overbought conditions of 80, price pulled back or traded sideways, allowing the RSI to unwind back into neutral territory. Will it pull back? Probably at some point….but you may get run over if you try and pick a top! (Think of Bitcoin last fall or lumber, copper or iron ore in the spring). There is no resistance. In a move like this, you just have to wait for the buyers to stop buying. There are some support levels we can identify, such as last week’s lows at 215.00, then 2 horizontal support levels AND an upward sloping trendline between 206.15 and 208.75. Normally we would draw Fibonacci retracements on the chart as well, however we don’t yet know where the top is, so we can’t draw them. Getting long at the highs is always risky, however, if you are looking short, perhaps wait for price to pullback below the support zone and put a stop above it.
With a host of economic data due out this week, traders will be carefully monitoring each piece. Pay particular attention to jobs, inflation, and retail sales, as all will provide clues as to when the next central bank steps up to taper!
Have a great weekend!
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