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Week Ahead – New Tariffs Begin on China as RBA, BOC, Riksbank and CBR Have Rate Decisions

Labor Day will not be quiet at all, as the US-China trade war remains tense, as certain tariffs kick in and will start to weigh on the US economy.  Politics will remain a focal point as some UK officials will try to stop Boris Johnson’s plan to suspend Parliament.  Continued deterioration with Chinese manufacturing data also have global recession concerns on high alert and have markets bracing for the next wave of monetary and fiscal stimulus.

Markets remain firmly focused on the ECB’s September 12th meeting and September 18th FOMC decision, but we can’t overlook a plethora of rate decisions that will likely signal continued additional rate cuts are coming and stimulus is just around the corner.  The RBA is expected to remain on hold for just one month, while the BOC and Riksbank are expected to deliver dovish messages that will see them join the global rate cutting club.  The Russian Central Bank (CBR) is expected to cut rates by 25-basis points.

Geopolitical risks remain giant thorns to the global outlook and heavy attention will remain on Hong Kong’s turmoil and the ongoing saga of Brexit.  In Germany, Saxony and Brandenburg will hold regional elections.  AFD seems to be gaining momentum and we could see Merkel’s party continue to struggle, prompting concerns she will depart sooner.

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The bond market will be focused on whether we see a record low made with the 10-year Treasury yield.  Fed speak will closely be watched from the hawkish Rosengren, centrists Bowman and Williams, and doves Kashkari, Evans, Williams and Bullard.

Central Banks this week (for currencies that we offer):

  • Monday – No meetings
  • Tuesday – Reserve Bank of Australia (RBA)
  • Wednesday – Bank of Canada (BOC)
  • Thursday – Sweden Central Bank (Riksbank)
  • Friday – Russia Central Bank (CBR)

Central Bank Speakers (at the time of writing)

  • Monday – No speeches
  • Tuesday – SNB Presentation of new 100-Franc note, Fed’s Rosengren (hawk, dissenter), BOJ Goshi Kataoka
  • Wednesday – ECB’s Lane (dove), Fed’s Williams (moderate, voter) in NY, Fed’s Bowman and St Louis Fed President Bullard speak, Fed’s Kashkari (dove, non-voter) speaks in Minneapolis, Fed’s Beige Book released, Fed’s Evan’s (dove, voter) speaks on trade.
  • Thursday – ECB’s Guindos (centrist) speaks in Frankfurt, Riksbank post-rate decision press conference, BOE’s Tenreyro speaks in Frankfurt, BOC Schembri give economic progress report
  • Friday – No speeches


New US import tariffs on Chinese goods kick in on Sunday, September 1st.  If we continue to see a conciliatory tone from both China and the US, we could see risk appetite improve and safe-havens may soften. If we don’t see US or Chinese officials agree on a face-to-face meeting date in DC, we could see risk aversion quickly return and drive US stock markets and dollar-yen lower. Another key risk event for USD/JPY is if we see the inversion between the 10-year and 2-year Treasury yields deepen. The longer we stay in inverted territory, the greater the calls will be for the US to see a recession next year.


Bitcoin seems to be losing bullish momentum as concerns grow that tighter regulation is about to come from China as they prepare to launch their own cryptocurrency.  Short-term bullish bets seem to be coming off quickly as the psychological $10,000 level has been unable to hold up.


Oil remains highly sensitive to trade war movements and its impact on the global economic – and demand – outlook. Risks remain to the upside for oil as Hurricane season heats up and US stockpiles are declining at a fast pace, easing some recession worries.


Gold’s bullish trade is extremely overcrowded as the prospects of fresh global stimulus grow, more countries are adopting negative interest rates, along with geopolitical risks from Brexit and Hong Kong. If we do see a major de-escalation with the US-China trade war, we could see an exaggerated selloff to squeeze out some weak bullish positions. From a macroeconomic standpoint, gold should out-perform the other safe-haven currencies once we see the Fed capitulate and commit to an easing cycle.



Following the August 25th flash crash lira volatility could see wild moves as Turkish liquidity returns from a national holiday on Monday. Continued weakness from Germany, Turkey’s largest export destination will continue to weigh on the economy. Turkish bond equity markets will be closed on Friday for a public holiday.


Boris Johnson will suspend parliament, commencing between 9th and 12th September (tbc) until the Queen’s speech on 14th October. The move leaves MPs that want to block no deal with little time to do so and increases the chance of no-deal Brexit. The next week could therefore be action-packed and full of surprises. Massive swings in the pound looks almost guaranteed, with there being particular vulnerability to the downside if government fails to block no-deal or bring down the government.


Five Star Movement has agreed to go into government with the Democratic Party, with Giussepe Conte returning as Prime Minister for a second term. One stumbling block to the alliance will be an online poll of Five Star members to back the coalition. The party has previously been hostile towards PD and so support may not be as straightforward as you’d typically expect. Italian equities and yields have been very sensitive to political developments and obstacles still lie ahead. The euro has so far shrugged off the political instability both because of the limited impact beyond its borders.

Hong Kong

Pro-democracy demonstrations are still ongoing, now approaching three months, and constantly shift from peaceful to violent at the drop of a hat. Hong Kong’s airport authority now has an indefinite court injunction against protesters which prevents them from storming and strangling airport traffic, like happened a few weeks ago. Reports suggest Carrie Lam is considering invoking the Emergency Regulations Ordinance, last used in 1967, which would give her sweeping powers to quell the protests. This has drawn criticism from members of her own cabinet and legal experts. Saturday marks the fifth anniversary of Beijing handing down a restrictive electoral framework on Hong Kong, and the Civil Human Rights Front is planning mass marches. The Hang Seng has a chance to post its first up-week since mid-July, but this is currently only marginal. It could quickly reverse depending on weekend developments. USD/HKD is constantly testing the upper limit of the trading band at 7.85.

The risk of protests turning violent increases the risk of a heavy-handed response from China. Troops moving in from across the “border” would be negative for global risk and China/HK shares, potentially fueling further capital outflows from the territory. Asia might be caught up in contagion risk. The next important date is October 1, China’s National Day, with big parades planned in Beijing and President Xi Jinping in attendance. There is growing speculation that the HK “situation” will be “sorted” before then, so as not to detract from the nationalistic headlines.


China’s response to Trumps latest tariff hike has been quite measured, with levies raised on just $75b worth of US goods. They are still promoting the “calm face” of negotiation, though it is unsure if the planned September meetings will still go ahead. The next significant data point will be the NBS manufacturing and non-manufacturing PMIs scheduled for release on Saturday August 31. Whilst only a marginal deterioration in the PMI is expected, it continues to build a picture of a weakening Chinese economy. No doubt Trump will tweet on weak data prompting greater volatility the following Monday. Meanwhile we face the risk rollercoaster from Trump and his actions and Tweets.

North Korea 

Latest intel reports suggest North Korea may be building a ballistic missile submarine and may be preparing for vessel-based test launches, though analysts suggest this could be more than a year away. This would be a significant advancement in the nuclear missile threat and more difficult to counter. So far, the test missile launches have proved to be nothing special or threatening, though Japan has expressed concern that any new type of weapons system may be able to breach its missile defence system.


Bilateral relations on the India-Pakistan border at Kashmir are deteriorating with India revoking its special status awarded to the region via the Constitution. Pakistan meanwhile is said to be considering closing its airspace to Indian carriers and blocking India’s land route to Afghanistan. The risk is further escalation to a war stance.

While not a global game-changer at the moment, a war between the two neighbours could hit risk appetite in the region and force superpowers from both East and West to be dragged into the skirmish and forced to choose sides. That would be a huge negative for risk appetite.


One of the few positive notes is that the US and Japan appear to be edging closer to a mini-FTA, with Trump and Abe announcing a tentative deal on Aug. 25, with a goal of working out final details by the end of September. Things are not so rosy with South Korea, where trade relations are souring rapidly, which started a few weeks ago when Japan removed Korea from a trusted exporter list. More likely a skirmish that will be contained locally as China is the focus for the majority of Asia’s export-oriented economies.


The RBA meeting on Tuesday could be another one on pause mode, with market pricing only assigning a 10% chance of a 25 bps cut from the current record low of 1%. The last set of employment data was strong, with solid jobs growth and a stable unemployment rate at 5.2%. There is a slight risk of a surprise cut, but more likely we could get a more dovish tone to the statement. Q2 GDP data on Wednesday could spring a positive surprise, with latest estimates suggesting a slight improvement to +0.5% q/q from +0.4%. A dovish statement or a surprise cut would pile additional pressure on an already weak Aussie dollar. It’s fallen vs the US dollar for the past six weeks. Other G-7 Q2 data has been flat to negative, so positive growth could be a boon for AUD.


The central bank has indicated its intention to raise interest rates from the current level of -0.25% later this year or early next. The central bank did emphasize the need for caution given the easing tendency of the Fed and ECB and weaker global economic developments. The market is no longer pricing in the next move to be a rate hike, but now see odds slowly growing for the Riksbank to join the rest of the world in providing stimulus.


The biggest risk in LatAm is the presidential address by AMLO in Mexico. His first year in power has been plagued by low growth and rising violence, but this type of events are more ceremonial and not likely to influence the markets. Yet, given he is known for going off script there is a small possibility that his comments influence the MXN. Mexico avoided a technical recession by having a growth rate of 0, instead of a contraction in the second quarter. The USDMXN is at yearly highs and continues to be pressured by EU-China trade war and Argentina default risks and contagion.   The US holiday on Monday will mitigate any reactions, but could be a gap when the market opens on Tuesday, although that is unlikely.

South Africa

Speculation is growing that South Africa will lose their last investment grade status. Moody’s is expected to move up their review from November as government takes on too much debt from Eskom. The rand will likely trade on EM flows, which will mirror the overall direction of the dollar. A downgrade to junk however should see a major selloff with the rand.

This Week:

Sunday, September 1st

  • 8:30pm ET      JPY Final Manufacturing PMI
  • 9:45pm ET      CNY Caixin Manufacturing PMI

Monday, September 2nd

  • 1:00am ET      JPY Japan Vehicle Sales y/y
  • 3:00am ET      TRY Turkey GDP y/y
  • 3:15am ET      EUR Spain Manufacturing PMI
  • 3:45am ET      EUR Italy Manufacturing PMI
  • 3:50am ET      EUR France Manufacturing PMI
  • 3:55am ET      EUR Germany Manufacturing PMI
  • 4:00am ET      EUR Eurozone Manufacturing PMI
  • 4:30am ET      GBP Manufacturing PMI
  • 9:30pm ET      AUD Retail Sales m/m

Tuesday, September 3rd

  • 12:30am ET   AUD RBA Interest Rate Decision
  • 2:30am ET      CHF Swiss CPI m/m
  • 3:00am ET      TRY Turkey CPI m/m
  • 5:30am ET      ZAR GDP Annualized q/q
  • 8:30am ET      CAD Manufacturing PMI m/m
  • 9:45am ET      USD Markit PMI data
  • 10:00am ET    US ISM Manufacturing PMI
  • 10:00am ET    USD Construction Spending
  • 1:00pm ET      NZD QV House Prices y/y
  • 9:30pm ET      AUD Q2 GDP q/q
  • 9:45pm ET      CNY Caixin Services PMI

Wednesday, September 4th

  • 4:30am ET      GBP Services PMI
  • 5:00am ET      EUR Eurozone retail sales m/m
  • 10:00am ET   CAD Bank of Canada (BOC) Interest Rate Decision
  • 2:00pm ET      USD Fed releases Beige Book
  • 9:30pm ET      AUD Trade Balance

Thursday, September 5th

  • 1:45am ET      CHF Q2 GDP q/q
  • 2:00am ET      EUR Germany Factory Orders m/m
  • 3:30am ET     SEK Riksbank Interest Rate Decision
  • 7:00am ET      MXN Consumer Confidence Index
  • 8:15am ET      USD ADP Employment Change
  • 9:45am ET      USD Markit Services PMI data
  • 10:00am ET    USD ISM Non-Manufacturing Index

Friday, September 6th

  • 2:00am ET      EUR Germany Industrial Production m/m
  • 2:00am ET      NOK Norway Industrial Production data
  • 3:30am ET      GBP Halifax House Prices m/m
  • 5:00am ET      EUR Q2 Final GDP q/q
  • 6:30am ET     RUB Russian Central Bank (CBR) Interest Rate Decision
  • 8:30am ET      USD Non-Farm Payroll Report, Unemployment Rate and Wage Data
  • 8:30am ET      CAD Employment Change and Unemployment Rate
  • 10:00am ET    CAD IVEY PMI

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