Ahead of Thursday’s announcement from the Federal Reserve, focus has remained on Australasia and Asia with news from Australia, Japan and China all impacting world markets.
The most significant in the longer term was the leadership change in Australia, and Prime Minister Tony Abbott was kicked out of office by a leadership challenge from Malcom Turnbull. The political issues around the Abbott administration were a minor impediment to the Australian economy relative to the movements and machinations of what is taking place in China, but the win for Mr Turnbull will have assuaged short term uncertainty over the political landscape and the AUD did run higher as Turnbull was confirmed as having won the contest.
Challenges to the Turnbull administration moving forward remain the same as faced Abbott’s; unemployment above 6% that is unable to recover despite lower interest rates and a decent run of investment into the Australian economy alongside the headwinds from China and emerging market weakness.
Overnight, news from the Reserve Bank of Australia has only served to highlight these issues. Despite holding off on overtly dovish language around the Chinese economy, instead saying that “it was too early to assess the extent to which this would materially alter the forecast for GDP in Australia’s trading partner”, the impact on mining investment is thought to “stabilize at a lower level than previously expected.”
The yen has gained overnight following the Bank of Japan’s decision to hold off on adding more stimulus into the Japanese economy. Bank of Japan Governor Kuroda was expected to flesh out the reasons why in a press conference at 7.30am BST this morning, although there can be little to gain in my opnion from pre-empting the Federal Reserve on Thursday. So while I am expecting the Bank of Japan will eventually have to expand it its QE program as it misses its self-imposed inflation targets, it will wait until the Fed makes the first move.
As we touched upon yesterday, the Chinese government launched a program to reform its State Owned Enterprises over the weekend. These reforms seem to have underwhelmed market expectations, however, and Chinese equities were once again lower this morning.
cpi from the UK is due this morning and once again we must be looking for a number that is close to or below the zero bound. Weaknesses remain within the inflation basket from food and transport inputs and the impact of a stronger pound has been shown in the past week to be still having an overtly negative impact on imported goods and services prices.
Tomorrow’s labour-market report will give us the latest read on UK wage growth and any strengthening of pay packets will give further strength to the hawks of the Monetary Policy Committee.
Elsewhere today, we also have US retail sales, which are expected to advance by around 0.2% on the month once car sales are taken out of the equation.