Markets started September on a strong note, with major global indices closing the first week in the green. An additional push in positive market sentiment has been the most recent development in Eastern Europe: in fact, this weekend served as a reminder of the ongoing and changing nature of the Russia-Ukraine war.
Nonetheless, whether the strong start to the month was just a market positioning adjustment or the sign of anything more sustained will be on watch this week, especially as a new set of inflation reports comes out. In fact, a bevvy of consumer price index (CPI) reports for August come out this week: Germany, Spain, and the U.S. all release on Tuesday, the U.K. releases its report on Wednesday, France releases its report on Thursday, and Italy and the Eurozone as a whole release theirs on Friday.
GBP
The Bank of England, whose meeting was due this week, postponed its interest rate decision last Friday in the wake of Queen Elizabeth II’s passing. It’s the first delay to a monetary policy meeting since the central bank became operationally independent 25 years ago. Moreover, the central bank faces a more fluctuating environment with new Prime Minister Liz Truss in charge and already having issued a major energy plan. Its effect on the market is among the things the BOE will have to weigh. Nonetheless, postponing their interest rate decision would allow policy setters to gather more economic data. In fact, having witnessed a contraction of 0.6% in economic activities during June 2022, market players will be interested in July’s monthly GDP figures to confirm the recently hawkish hopes from the Bank of England. Forecasts suggest that the UK GDP will reverse the previous drop with 0.5% MoM in July. Meanwhile, Manufacturing Production, which makes up around 80% of total industrial production, is expected to improve to 0.6% MoM in July.
EUR
European stock markets are expected to open with modest gains today, continuing the positive trend seen at the end of last week, helped by the substantial territorial gains made by Ukrainian troops over the weekend. Ukraine has retaken more than 3,000 sq. km this month, with most of this ground being taken thanks to a rapid weekend offensive that forced Russia to abandon its main logistics hub in the Kharkiv region. After months of stalemate, these swift manoeuvres will give the markets room to reconsider the range of outcomes. Prolonged attrition remains one option, but an earlier-than-expected end to the conflict has entered the equation. Ultimately, European markets closed last week with healthy gains as September started on a positive note, and this tone is expected to continue.
USD
The main point of focus this week is U.S. consumer price inflation data due on Tuesday, which is largely expected to dictate the path of the dollar in the near term. Markets are expecting inflation to retreat further from highs hit earlier this year, helped largely by easing fuel prices. Nonetheless, the reading is still expected to be well above the Federal Reserve’s annual target of 2%. Ultimately, this could give the Federal Reserve food for thought ahead of next week’s policy-setting meeting, with the U.S. central bank expected to deliver its third consecutive rate increase of 75 basis points in an attempt to curb this high inflation.
Queen Elizabeth II, the longest reigning monarch in British history who had recently celebrated her platinum Jubilee this year, marking 70 years on the throne, has peacefully died aged 96, Buckingham Palace announced on Thursday. Following her death, the Queen’s eldest son Charles, the former Prince of Wales, will become King in a formal ceremony in London and lead mourning services across the United Kingdom.
‘Her legacy will loom large in the pages of British history, and in the story of our world’ – Joe Biden