The biggest news this week will be about trade. On Saturday, the Wall Street Journal reported that the Trump administration was ready to implement fresh tariffs on Chinese goods worth $200 billion. The news dashed the hopes of a compromise deal between the US and China that rose last week. In response to the threat, Chinese officials said that they will respond to the tariffs by imposing more of their own. The worry among traders is that China might prefer a route of non-tariff methods such as currency devaluation and halting of US treasuries purchases.
Traders will continue to watch the weather and environmental conditions in China and the United States. Over the weekend, Hurricane Florence made landfall in North and South Carolina. While the hurricane was downgraded to category one, the floods led to major destruction in the two states. Historically, hurricanes affect the local economies negatively as people stay out of work. Afterwards, the reconstruction helps boost the economies as people increase their spending. In Asia, the Mangkhut typhoon led to major damages and death to a number of Chinese cities like Hong Kong and Macau. This week, traders will focus on the two environmental catastrophes and assess their impacts to the market.
On Wednesday, the Bank of Japan (BOJ) will release its interest rates decision. Traders expect the bank to leave interest rates unchanged. While other BOJ meetings tend to have no major news around them, traders expect the BOJ to provide a guidance on monetary policy. This is because the Japanese economy is booming, with low unemployment rate. Data released two weeks ago showed that the economy expanded by 3.0% in the second quarter. However, the economy continues to suffer from low rate of inflation, which could force the bank to continue holding negative interest rates for a longer time. The fear is that the low interest rates will cause the economy to overheat and leave the bank with no way of managing a potential meltdown. Two days after the decision, the country will release its CPI numbers.
On Thursday, the Swiss National Bank will release its interest rates decision. As the bank has done in the past, traders don’t expect any monetary policy changes. This is because the officials feel that the Swiss franc is currently overvalued against other currencies.
This week, traders will also focus on inflation data from key countries. Today. The EU will release its inflation data. Traders expect the headline numbers to remain at an annualized rate of 2.0%. The core CPI is expected to remain at 1.0%. A higher-than-expected CPI will mean a higher euro because it will make the case for tightening by the ECB.
On Wednesday, we will receive the CPI numbers from the UK. Traders expect the headline number will reduce to 2.4% from last month’s 2.5%. The core CPI is expected to slow to 1.8%, from July’s 1.9%. Still, these numbers will show that the CPI is comfortably near the 2.0% target. On Friday, we will receive the CPI data from Japan.
Other key data expected this week will be the GDP numbers from New Zealand, Germany manufacturing PMI, Canada CPI, US building permits, and UK retail sales.