EUROZONE, Finance minister Olaf Scholz is on course to lead Europe’s largest economy. after his center-left SPD came on top in Germany’s federal elections. He will have to collaborate with kingmakers FDP and the Greens, which differ on several critical issues. Outgoing Chancellor Angela Merkel’s CDU party may still lead to remain in power but would also need to collaborate with the kingmarkers. Talks to form a new government are set to last for long months. The probable participation of the business-friendly FDP soothes markets fearing substantial regulation. Moreover, the ex-communist Die Linke party has barely entered parliament and a strictly left-leaning coalition is not feasible.
EUR/USD is rising above 1.17. Apart from reactions to the German elections, European Central Bank President Christine Lagarde is set to speak. The ECB is set to phase out one bond-buying scheme, the PEPP, but ramp up another, the APP.
GBP/USD is trading closer to 1.37 after the Bank of England hinted it could raise rates in response to rising inflation – and could do that before concluding its bond-buying scheme. Two members voted for an early end to debt purchases. BPE Governor Andrew Bailey speaks late in the day.
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Britain is facing a potential drying-up of fuel at gas stations due to a Brexit-related shortage of truck drivers.
ASIAN MARKETS, Chinese PMIs and South Korean activity data dominate the Asia calendar this week. A key to gage the economic activity in particular the manufacturing performance out of China. Recent numbers have showed a slight slowdown in economic activity with Evergrande woes compounding matters. However, China did pump upto $17 billion dollars in liquidity this past week to ensure that fear around Evergrande does not bleed in to the rest of the market.
Evergrande: China’s highly indebted property developer continues struggling to pay its dues but the company’s efforts and Beijing’s massive liquidity injections seem to have convinced investors that the crisis will remain local rather than systemic. Last week’s recovery in global stocks was substantially tied to calm on that front. S&P 500 futures are up.
US MARKETS, There are a few bits and pieces of interest from the US next week with personal income, spending and the Federal Reserve’s favoured measure of inflation – the core personal consumer expenditure deflator – the highlights. Despite unemployment benefits being scaled back and the ending of stimulus cheques we still expect incomes to grow. This is because the strengthening economy is leading to employment gains and rising wages. This is a really important story that should lift consumer spending after the Covid resurgence speedbump that the economy appears to have hit in 3Q 2022. Inflation will remain elevated with upside risks to our forecast more likely than downside.
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Fed speeches: John Williams, Lael Brainard, and Charles Evans of the Federal Reserve are slated to speak on Monday, several days after the bank’s taper announcement. Fed Chair Powell indicated a reduction in bond-buying is coming in November and would end by mid-2022.He will testify on Tuesday.
The move was well-received by markets and supported the dollar. Gold is recovering, changing hands above $1,750.
Debt ceiling: American lawmakers have yet to make progress on raising the preventing default by raising the debt ceiling. A showdown is due in Congress on this sensitive issue which markets are currently dismissing. The fate of the $3.5 trillion infrastructure bill is also set to be sealed, potentially on Thursday.
US Durable Goods Orders figures for August stand out on the economic calendar. An increase in both headline and core figures is on the cards.
Cryptocurrencies have been rising, with Bitcoin trading around $44,000, Ethereum above $3,100 and ADA at around $2.25. Enthusiasts are dismissing China’s announcement that all digital assets would be considered illicit financial activity. This isnt the first time such an announcement around Crypto has been made by China, however the positivity seen in price stabilization can only bode well for the Crypto space moving forward.
SOURCES: ING
