Markets Diary

Posted on September 11, 2016

Lael Brainard, center, governor of the Board of Governors of the Federal Reserve System, speaks with activists Angela McCall, right, with MORE, Missourians Organizing for Reform and Empowerment, and Kendra Brooks, of Action United of Philadelphia, following a forum before the opening night reception at the annual invitation-only conference of central bankers from around the world at Jackson Lake Lodge in Grand Teton National Park, north of Jackson Hole, Wyo., Thursday, Aug. 25, 2016. (AP Photo/Brennan Linsley)©AP

Lael Brainard, centre, of the Federal Reserve Board, speaks with activists

After a punishing Friday, when remarks from a top Federal Reserve policymaker prompted a drop of more than 2 per cent in US stocks, investors turn their attention to a string of Fed speakers this week.

With Boston Fed president Eric Rosengren warning that a “reasonable case” can be made for a rate increase and warning that the US economy could overheat, investors turn their attention to Fed governor Lael Brainard’s speech on Monday as they try to determine whether the central bank will raise rates this month.

    Ms Brainard, also a member of the monetary policy setting FOMC, is scheduled to discuss the US economic outlook and monetary policy implications in Chicago. Considered a dove, she has previously stated that the next rate rise should be delayed until inflation more closely approaches the Fed’s target. However, some analysts warn that more hawkish commentary from Ms Brainard could make her speech a risk event.

    “If Federal Reserve chair Yellen wants to increase the market-implied probability of a rate hike, this speech is one of her last opportunities,” Michael Gapen, economist at Barclays, said. “Having one of the more dovish members of the FOMC deliver the message would convey unity at the board of Governors and would, in our view, increase the possibility of a September hike.”

    Atlanta Fed president Dennis Lockhart and Minneapolis Fed president Neel Kashkari are also scheduled to speak on Monday.

    Investors also turn their attention to the Bank of England, which announces its monetary policy decision on Thursday.

    Speaking at a parliamentary hearing earlier this month, BoE governor Mark Carney — who also credited the central bank with helping prevent a post-Brexit vote meltdown — left open the chance of further cuts in UK interest rates this year. But economists expect the BoE will leave its bank rate unchanged at 0.25 per cent.

    “We suspect that markets may still be looking for a slightly more hawkish tone from the BoE, but we think that this meeting is likely to be more of a reiteration of the August [information report] and a confirmation that the economy is evolving as expected, which should disappoint the hawks,” strategists at TD Securities, said.

    Following a recent batch of downbeat US economic data, markets await two key indicators this week.

    Thursday’s retail sales report and Friday’s consumer price report should provide an update on the health of the American consumer and the inflationary picture in the world’s largest developed market economy.

    So-called control retail sales, a measure that strips out volatile items such as spending on autos, petrol and building materials, are expected to have climbed 0.4 per cent in August from the previous month, when they stayed flat. Meanwhile, headline retail sales are expected to slip 0.1 per cent in August.

    Consumer prices, meanwhile, are expected to have climbed 0.1 per cent in August from the previous month. While core prices, which strip out food and energy prices, are expected to have climbed 2.2 per cent from a year ago.

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