Dovish or Hawkish? That’s the question.
As we all tuck into our bacon sandwiches this morning, Bank of England Deputy Governor Nemat Shafik prepares to speak in Edinburgh this evening. The markets will focus on clues regarding the timing of any interest rate hike and dovish comments from Shafik are likely after the Fed held firm citing fears of a sharp slowdown in China over the past month. There was also talk of open ended ECB QE yesterday with ECB Chief Economist Peter Praet reiterating the bank’s readiness to modify its trillion-euro bond-buying programme should economic turbulence merit action, therefore there is very little scope for Shafik to turn hawkish or risk sending GBP higher across the board.
Asian shares rose in the early hours of today and the Dollar held steady as U.S. markets bounced back. However, Richard Grace of the Commonwealth Bank of Australia remarked “It won’t take much to derail some of the optimism if the September Chinese PMI due tomorrow, is on the bearish side, and this may in turn take some pricing of a tightening out of the U.S. rates market”. Investors will be seeking more clarity on the Fed’s decision with Lockhart and Chair Janet Yellen all to speak this week.
Mario Draghi will speak on Wednesday and possibly intends to extend or frontload the current stimulus programme. The single currency bloc is still struggling to boost growth and inflation in particular, is still precariously low. A move to extend the Quantitative Easing programme should illustrate the ECB’s intent to further weaken the currency to combat waning inflation.
No data of significance is out today.