It’s Central Bank Week

In focus today

There are no major market movers today. The main event to watch this week will be Wednesday’s US policy rate decision, where we expect a 25bp cut from the FOMC (see more in Fed Preview – Dovish 25bp, 13 September). We also look out for the final euro area inflation data on Wednesday.

Later in the week, we expect Norges Bank and the Bank of England to keep policy rates unchanged on Thursday, and ditto for the Bank of Japan on Friday.

Economic and market news

What happened over the weekend

Data from China showed industrial output growth and retail sales growth slowed more than expected in August, which strengthens the case for new stimulus – something which has been increasingly discussed by commentators. With exchanges across Asia closed for holiday, however, the market impact has so far been muted.

In geopolitics, the FBI said they prevented an apparent assassination attempt on former President Trump at his golf resort in Florida, apprehending a gunman before he could attack. So far, no impact on prediction markets, which still see a slight lead to Vice-President Harris.
What happened on Friday

Market reassessment of the size of the expected rate cut from the Fed due on Wednesday sent the dollar slightly lower (especially against the yen), equities up, and treasury yields down with the 1Y dropping 9bp on the day. Markets have now priced a 50/50 chance that the Fed will deliver a 50bp cut rather than 25bp on Wednesday, up from a 17% probability priced early Thursday.

Equities: Global equities were higher on Friday, marking five consecutive days of increases. With equities up 3% last week, we are now only inches away from an all-time high in the MSCI world indices. Last week was dominated by cyclical outperformance, though it was not as growth- and tech-driven as earlier in 2024 and in 2023. Friday also marked a comeback for small caps, which had been struggling throughout the week. The VIX was down all five days last week and is now at 16.5, indicating that we should not expect more meaningful tailwinds to equities from further reductions in volatility.

In the US on Friday, the Dow was up by 0.7%, the S&P 500 by 0.5%, the Nasdaq by 0.7%, and the Russell 2000 by 2.5%. Asian equity markets are very mixed this morning, while US and European futures are mostly higher.

FI: We have an interesting week ahead of us with central bank meetings in the US (Wednesday), UK (Thursday), Norway (Thursday) and Japan (Friday). US, UK and Norway are all priced for a string of rate cuts in 2024 and especially in the first part of 2025. We expect the Federal Reserve to cut by 25bp this week, while BoE, Norges Bank and BoJ is expected to be on hold. Hence, there should be no major surprises from the various central banks, but markets will be looking for comments on the rate path etc. Norges Bank is especially interesting given the relatively hawkish statement regarding no rate cuts in 2024 compared to the current pricing – see more in our Norges Bank preview, in which we also look at different trades as well as the outlook for the NGB issuance and the upcoming syndication from Norges Bank, which could take place in Q3. See Reading the Markets Norway, 13 September.

FX: Scandies benefited from improved risk appetite, with EUR/NOK hovering around 11.80 and EUR/SEK just above 11.30. We see scope for a further move lower in EUR/NOK on a tactical horizon. The low-yielding JPY and CHF also outperformed in the G10 space on Friday, with USD/JPY nearing 140. EUR/USD is trading just below 1.11, as expectations of a jumbo rate cut from the Fed on Wednesday increased following several news articles. Focus this week shifts to central banks, with Wednesday’s FOMC meeting being the most pivotal.