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- U.S. Federal Reserve takes center stage in the coming week, eclipsing industry data from China, another grim inflation reading from the euro zone and rate decisions in Japan and Switzerland. Guessing whether the Fed hikes rates on Thursday or opts for a later date, perhaps December, is something of a futile exercise because even the rate setters appear to be wavering and the decision will probably come down to the wire. An unexpected drop in the jobless rate to 5.1 percent and an upward revision in second quarter growth to 3.7% support calls for a hike as the labor market tighten and utilization is at its best level since the global financial crisis.
- China’s slowdown is likely to be a key worry for the Fed and a 14 % drop in Chinese imports over the past year, the 10th straight monthly drop, along with an annual factory gate price deflation of almost 6 %, does not help rate hike arguments. Data on Sunday showed growth in China’s investment and factory output missed forecasts in August, raising the chances that third-quarter economic growth will dip below 7 % for the first time since the global crisis. Factory output rose 6.1 % last month from a year earlier, less than the 6.4 % expected but up from July’s 6.0 %. Fears of a hard landing, the prospect of deflation and billions of dollars spent on keeping the yuan steady raise the prospect of more rate cuts and currency devaluation by Beijing, setting markets up for more volatility.
- In Europe, the key item will be final August euro zone inflation data due on Wednesday, likely supplying another argument for the European Central Bank to beef up quantitative easing. Price growth is seen holding steady at 0.2 %, far off the ECB’s target of just under 2 % and ECB President Mario Draghi has already warned that the euro zone could dip back into deflation on lower commodity prices and weaker growth from emerging markets. The big inflation miss and a modification of quantitative easing are just the latest in a long list of troubles for central banks around the globe as developed nations struggle with weak growth and anemic inflation.
- BoJ announces its rate decision on Tuesday and Governor Haruhiko Kuroda is expected to offer a bleaker view on overseas economies and may lower its assessment on the country’s exports next week. Yet the bank already said it was not considering cutting or abandoning” the 0.1 % interest its pays on excess reserves financial institutions park with the central bank. The Swiss National Bank is also expected to keep policy steady but markets expect the bank to say that it was ready to cut the deposit rate even further into negative territory if necessary.
- Oil markets edged up in early Asian trading on Monday, with U.S. crude contracts receiving support from reduced American drilling, although weakening demand weighed on international markets. The International Energy Agency (IEA) said on Friday that a cut in production from non-OPEC suppliers, especially from the United States, would lead to a rebalancing of the market by next year. The outlook for oil markets outside the United States remained weak, however, as high production clashed with stalling demand, creating a market in which more oil is produced than needed. In part due to oversupply and to defend market share, Middle East supplier Kuwait set its October Official Selling Price (OSP) for crude oil to Asia 60 cents lower compared with September at a discount of $1.95 per barrel versus Oman/Dubai prices.