Markets continue on the same beat we saw over the past few weeks. Stock indices are trying to bounce, and tech sectors continue to see rotation out. Metals and the general commodity complex are also seeing no bounce and trade lower, while bonds are still seeing demand at these levels. The position washout continues into month-end, and I would expect some position squaring going into the heavy second half of the week with BoJ, FOMC, and BoE deliberating on monetary policy decisions while we have payrolls to close another volatile week.
As for the BoJ, the Yen extended its rally towards 153 on prospects of a potential 15bp rate hike on Wednesday, where we have a pricing of roughly 8.5bps. On Tuesday afternoon, Nikkei published a piece stating that the BOJ weighs a rate hike to 0.25% at Wednesday's policy meeting. If the past is a guide, those publications are planted to set expectations. As I have opined before, the BoJ has a clear plan at hand. They intervened when they wanted to, and there was enough justification for them to hike based on inflation dynamics.
As for the Fed, I think that the statement will state further progress towards their goals, but I’d be surprised if they would use language to pre-commit to September, given already heightened pricing. There is simply no need. There is still time until the meeting on September 18, and there is Jackson Hole and other occasions where they could guide markets. Jay is usually dovish, but given the trajectory and data, I would not think he needs to send any strong signals.
As for the BoE, I would expect a cut, which is currently priced at 50% probability. It’s going to be a close call, probably a 5-4 vote with the governor having to cast the final decision. Yes, services inflation gives reason for caution, but a reduction in volatility around UK inflation should give the MPC space to lean on a broader range of data such as headline inflation and current expectations.
See further below a detailed table for current expecations for the major central banks as well as updated charts we all should be considering as we go into the coming days.