Trade uncertainties continue to dominate financial markets.
Trade figures released over the weekend will do little to alleviate tensions after China’s trade surplus with the United States widened to a record $31.05 billion in August, up from $28.09 billion in July.
US President Donald Trump has threatened duties on another $267 billion of Chinese goods, atop the $200 billion expected to face tariffs in the coming days.
Early results from Sweden suggest the two main centrist coalitions failed to win a majority in a general election on Sunday September 9, while the far-right Sweden Democrats made significant gains.
Monetary policy will be a major focus this week.
Both the Bank of England (BoE) and the European Central Bank (ECB) will hold rate-setting meetings on Thursday.
While the BoE raised interest rates in August, the biggest obstacle for Governor Mark Carney remains Brexit and the United Kingdom’s future trade relationship with Europe. No change in rates is expected this week.
The ECB is winding down its bond-buying program but President Mario Draghi has signaled that rates are unlikely to rise in the near term. The ECB will publish its latest forecasts this week, with markets sensitive to revisions, particularly if policymakers signal trade tensions are increasing downside risks for the region.
Several US Federal Reserve members are due to speak this week. Markets have fully priced in a further rate increase at the September 26 Federal Open Market Committee (FOMC) meeting, while data released last Friday signaled a pick-up in wage growth as the labor market continues to tighten. But markets will be sensitive to dovish rhetoric from Federal Reserve members resulting from rising trade barriers.
In terms of data, figures overnight showed consumer inflation in China rose by 2.3% year on year in August, up from 2.1% in July, a sign recent fiscal and monetary stimulus is starting to feed through. The producer price index (PPI) rose by 4.1% in August, down from 4.6% in July, reflecting a fall in commodity prices.
Japan's economy expanded by 3% in the second quarter in upwardly revised data, due to improving capital expenditure; figures from the Bank of Japan showed bank lending increasing 2.2% year on year in August.
The latest read of Eurozone investor confidence is due from Sentix later on Monday. This comes ahead of construction, manufacturing and gross domestic product (GDP) figures from the UK.
On Tuesday, the National Australia Bank business confidence index is due from Australia as is Japan’s read of tertiary industry activity reading.
The latest Chinese borrowing and money supply figures for August are also expected this week. Net loans are forecast to moderate to 1.37 trillion yuan ($200 billion) from the 1.45 trillion yuan in July, but to remain significantly above year-earlier levels due to recent monetary easing. Given that most new loans are used to buy property, these remain an important gauge for construction activity in China.
Employment figures are due from the UK on Tuesday. Wage growth will also be of particularly interest ahead of Thursday’s Monetary Policy Committee meeting – average earnings are expected to rise slightly to 2.5% from 2.4% previously.
Economic sentiment readings from the German-based ZEW think-tank are also scheduled on Tuesday ahead of the Jolts job openings for July, forecast to show the US economy added 6.68 million jobs after 6.66 million in June.
Markets will also pause on Tuesday to mark the 17th anniversary of the 9-11 attacks.
Consumer sentiment data is scheduled from Australia at the start of Wednesday, ahead of Eurozone industrial production.
Figures from the US are expected to show producer prices rose 0.2% in August. Core PPI is seen unchanged at 0.2%.
The Federal Reserve will publish its latest Beige Book on Wednesday.
On Thursday, employment figures from Australia are due at the start of the day ahead of final inflation readings from France and Germany.
After the BoE and ECB meetings, attention turns to the US where headline CPI is seen rising by an annualized 2.8% in August from 2.9% in July. Core inflation is expected to remain unchanged at 2.4%.
The latest round of Chinese data will be under scrutiny Friday as markets will to see whether recent fiscal and monetary stimulus is overcoming the headwinds created by China’s deepening trade rift with the US.
Industrial production is seen rising 6.2% year on year in August and retail sales by 8.8%. Growth in fixed-asset investment is seen improving to 5.7% in January-August from the 5.5% pace in the first seven months.
Retail sales figures from the US will also be important to gauge consumer sentiment; a rise of 0.4% is forecast for August, from 0.5% previously.
Data from the US is expected to show industrial production improved in August, rising by 0.3%. Preliminary consumer sentiment and inflation estimates from the University of Michigan are also scheduled.
This article was first published by FastMarkets as the weekly Economic Outlook.
James Moore
FastMarkets