Week Ahead Data And Policy

There seems to be a broad consensus on the trajectory of policy in the remaining weeks of the year. Barring a major shock or surprise the Federal Reserve will hike rates next month. The ECB’s course is set until at least the middle of next year when the current policy will begin to be debated in earnest.  

The BOJ’s Kuroda has made it clear that the BOJ will continue to pursue Quantitative and Qualitative Easing (QQE) and Interest Rate Targeting as the inflation target continues to be pushed out in time. The Bank of England and the Bank of Canada previously raised interest rates but left little doubt in investors’ minds that there is no urgency to do so again in the coming months.  

US interest rates (five years and beyond) bottomed on September 8. The 10-year yield is up 40 basis points since then, as is the 2-year yield. The rise in US yields completely accounts for the 37 bp increase in the two-year premium over Germany, which we find, despite the talk of new divergence, a good guide to the euro-dollar exchange rate. The US 10-year premium over Japan has widened nearly 35 bp over the same period.  

The dollar bottomed against the euro, yen, Swiss franc and Canadian dollar on September 8 as well. Sterling is a notable exception. It bottomed at the start of the year. The Australian dollar’s low for the year, like sterling, was also set at the very start of the year. The New Zealand dollar by contrast, recorded its low in May and recently retested the level as investors (over?) reacted the change in the New Zealand government and policies, including changing the central bank’s remit.

The economic data scheduled for release in the coming days are unlikely to have policy implications. Or, to the extent that the data impacts expectations, it may simply reinforce existing views.  

The US data is likely to show an economy recovering from the impact of the storms, and the stability of price pressures somewhat above the troughs seen earlier this year. Both the St. Louis and NY Fed GDP trackers are estimating growth in Q4 at a little more than 3%. While the quarter is nearly half over, and there is much data still to come, the take away is this appears another quarter of above-trend growth.