End of summer: Events that can shake the markets in September
LONDON (Reuters) – After a summer in which stocks hit seemingly endless highs, September brings a series of monetary and political events that could lift investors out of their complacency.
The debate over whether to cut stimulus in a pandemic era is aired with several G10 central banks holding meetings – Australia’s central bank confirmed on Tuesday its intention to mitigate. A showdown over the US national debt as well as crucial elections in Japan and Germany add to the risks.
Here are eight events, in chronological order, that investors will be watching in September:
CONICAL UNDER SEPT. 7
The Reserve Bank of Australia confirmed on Tuesday that it was cutting its bond buying program during the first test this month of central banks’ resolve to stick to plans to cut stimulus.
The central bank surprised some by reducing its bond purchases from A $ 1 billion ($ 745.20 million) per week to A $ 4 billion, although it also extended the program until mid – at least February, which was considered an accommodating concession.
The rapid spread of the Delta variant, door-to-door orders in major cities and the slowing economy had prompted expectations that the RBA would delay the cut altogether.
But RBA Governor Philip Lowe has predicted an economic rebound once vaccination rates rise and restrictions are relaxed.
Australian unemployment and interest rates
WHO LEAVES THE HAWKS? ECB MEETING – SEPT. 9
Thursday’s meeting of the European Central Bank could be a heated affair. The ECB’s political hawks came out in force, arguing that now is the time to start debating the end of a stimulus package.
The ECB could choose to slow down the pace of purchases, but CEO Christine Lagarde will probably point out that this is not the same as tapering.
Communicating this will not be easy. The risk is that the markets will interpret such a move as hawkish – the rise in the euro and sovereign borrowing costs.
ECB hawks put markets on alert
CANADIAN ELECTIONS – SEPT. 20
Canadian Prime Minister Justin Trudeau called for an early vote two years earlier and now faces a close race.
Trudeau is hoping his handling of the pandemic and vaccine rollout will give him a majority, but polls show his Liberals are statistically tied with Erin O’Toole’s Conservatives.
Canadian elections are rarely taped for world markets, but with the Liberals proposing tax hikes for the big banks and the two candidates proposing spending increases, this one will be closely watched.
Elections Canada: Follow-up on Polls Elections Canada: Follow-up on Polls
CALENDAR OF THE CNE FED – SEPT. 21-22
The weak August payroll in the United States did not entirely derail expectations that the Federal Reserve could announce a cutback schedule at its September meeting. But with a start to the year of the cut mostly taken into account, the focus is on when interest rates can rise.
Fed boss Jerome Powell could re-emphasize that tapering and rate hikes are separate and that he sees current inflation spikes as transient.
Federal funds futures forecast the first hike in early 2023. And we should also know by the meeting whether Powell will be pushing that hike – his term expires in February 2022. Ninety percent of economists polled by Reuters expect the mandate to be extended.
Fed balance sheet
NORWAY FOR HIKING – SEPT. 23
Norway is set to increase interest by 0%, becoming the first in the group of developed G10 economies to do so.
A rate hike will demonstrate its willingness to look beyond the rise in COVID-19 infections and focus on a rapidly recovering economy.
Investors expect a hike, but confirmation that a major central bank is in fact tightening rather than talking about it – especially after New Zealand unexpectedly hesitated to rise in August – would still mark a moment. important for markets addicted to cheap liquidity.
German Social Democrats lead the polls
VOTES IN GERMANY – SEPT. 26
Western Europe’s longest-serving outgoing leader Angela Merkel is stepping down as German Chancellor after 16 years in office and four consecutive electoral victories.
The election has a wider range of possible outcomes than usual, especially as the center-left Social Democrats lead the opinion polls, beating Merkel’s Tories for the first time in 15 years .
Two key questions for the markets: what will a new government mean for national and European fiscal policy? And what does this mean for European integration?
NEXT PRIME MINISTER OF JAPAN – SEPT. 29
Prime Minister Yoshihide Suga’s decision to step down has given Japanese politics a surprise turn.
Amid a wave of COVID-19 infections, Suga’s popularity had plummeted, but there is no leader in the race to succeed him as head of the ruling Liberal Democratic Party.
Among the possible candidates are former Foreign Minister Fumio Kishida and the popular minister responsible for the deployment of immunization in Japan, Taro Kono. Whoever triumphs is guaranteed to become prime minister given the party majority in the lower house of parliament.
The contest is scheduled for September 29 and the winner must call the general election by November 28.
The acceleration of COVID-19 cases in Japan
TO DATE X
The US Treasury technically hit its $ 28 trillion debt “ceiling” a month ago, but by dipping into its bank accounts, it postponed the day it would run out of borrowing room. Yet the day will soon come – probably in October – when he will run out of money to pay his obligations.
To avoid a government shutdown or worse, a technical defect, Congress must increase or suspend that limit this month. Republican senators, opposed to the Democrats’ $ 3.5 trillion infrastructure plan, have pledged to vote against raising the cap.
In 2011, the debt ceiling squabbles prompted S&P Global to downgrade US credit ratings from AAA to AA +. Fitch could do the same this time around, leaving the United States only an AAA rating from Moody’s.
While there is no sign that bond markets are incorporating default risk, that could change. In the words of NatWest analysts, this “establishes an unforgettable September in Washington.”
Reporting by Tommy Wilkes, Sujata Rao and Dhara Ranasinghe; Editing by Hugh Lawson and Raissa Kasolowsky