US: The centrepiece is clearly Wednesday’s FOMC meeting. The market is on alert for when the Fed will signal and start tapering asset purchases, with Chair Powell’s press conference likely to contain some discussion. NAB expects tapering to start around the turn of the year. There’s also the potential for disagreement among FOMC members –some calling for tapering now such as Kaplan and Bullard. The first estimate of Q2 GDP is out on Thursday, the quarterly annualised rate is expected to accelerate from 6.4% to 8.5%. Also out on Tuesday is June’s durable goods orders and July’s Consumer Confidence. US earnings season continues, with Apple, Microsoft and Amazon this week.
Eurozone: EZ consumer, economic, industrial and services confidence is due on Thursday. Preliminary July inflation data is released on Friday. While headline HICP is expected to rise to 2.0%y/y, core inflation is seen easing to 0.7% y/y from 0.9%. The first reading of Q2 GDP is on Friday and is expected to rise by 1.5% q/q for 13.2% y/y.
UK: The world continues to watch and learn from the UK’s vaccination experiment as the virus ‘pingdemic’ which is inflicting increasing havoc on businesses as staff are forced into self-isolation, but so far the government shows no sign of allowing fully vaccinated citizens to avoid repeated self-isolation if ‘pinged’ by the NHS app unless they are critical workers. Markets will also continue to monitor the escalating row over the N. Ireland protocol with the EU. It is not NAB’s base case but were the UK to act unilaterally and suspend the protocol via activating Article 16, the risk of retaliation and broader-based trade tariffs would be a concern to growth for both the UK and the EU. Eyes on the UK to see Delta impact.
It's not been a quiet start to the week, as one might expect. China and Hong Kong equities are in the spotlight after new regulations were announced on the educational tech sector. HSI leading losses falling -3% with CSI close behind down -2.90. Asia FX are marginally lower with sentiment more subdued as USDCNH trades at 6.49 although we think resistance levels around 6.50 are likely to hold. There’s little evidence of spillover, as market participants patiently wait for Wednesday’s FOMC meeting.
Here CitiFX Strategy expect the Fed to strike a balanced tone, acknowledging Covid concerns while noting the risks of high inflation being more persistent than expected. We expect detailed taper discussions from the Fed and some decisions but without deciding timing and pointing to future meetings. We still see risk sentiment supported over time by i) the global recovery as Delta risks are overcome and ii) central bank stimulus remains ample. For today, we stay tuned for Germany IFO data and US/China geopolitical headlines.