Markets Sep 13

This week: Fed, BoJ meetings, TikTok deadline

Decisions due on TikTok, the new prime minister in Japan, plus a Federal Open Market Committee meeting on Sept. 15-16

This week: Fed, BoJ meetings, TikTok deadline
Japan's Chief Cabinet Secretary Yoshihide Suga, who is set to become prime minister this week, said on Sunday there was no limit to the amount of bonds the government can issue to support an economy hit by the coronavirus pandemic. He also indicated he could look to a third extra budget to fight the downturn caused by the  pandemic if needed, adding the government had enough resources to tap at present. Photo: Reuters.

(ATF) Economic events

Financial markets this week could start on a watchful note on elevated political tensions as United States and China criticised each other’s policies. Officials in Beijing said they were opposed to a forced sale of TikTok’s US operations ahead of its September 15 deadline to sell its US operations or have it shut down by the Trump administration.

Meanwhile, US Secretary of State Mike Pompeo  has expressed deep concerns about the arrest of 12 Hong Kong democracy activists and questioned Chief Executive Carrie Lam’s commitment to protecting the rights of Hong Kong residents.

There are no positive triggers from the trading floor either, despite Wall Street’s flat finish on Friday, for the week, the Dow fell 1.66%, the S&P lost 2.51% and the Nasdaq dropped 4.06%.

In the week ahead central banks in Japan, Taiwan and Indonesia meet, and all appear likely to keep interest rates unchanged.

China’s industrial production, retail sales, fixed asset investment, and home sales will also be in focus.

Barclays analysts expect the trend to show an upward momentum.

“We forecast IP growth to increase to 5.3% year-on-year in August from 4.8% previously on stronger-than-expected exports and a low base. We expect retail sales growth to recover to ~0% y/y in August from -1.1% in July on improving auto sales and catering services,” Barclays economists Rahul Bajoria, Jian Chang, Angela Hsieh, and Brian Tan said in a note.

“We expect the FAI growth to continue its upward trend, edging up to -0.4% y/y in the year-to-date in August from -1.6% in July as infrastructure investment catches up and property investment stays strong.”

But the main event next week will be the US Federal Open Market Committee meeting on Sept. 15-16, when the US central bank is likely to unveil new forward guidance from officials. While a majority expect no change in interest rates before 2023, the language of the central bank is seen anchoring the short-end of the curve even more sturdily.

Fund flows

Investors continued to put money to work, withdrawing money from money market funds and piling into bonds and equities in the week to September 9, according to funds tracker EPFR Global. Bond Funds saw inflows of $12.7 billion and Equity Funds absorbed $3.4 billion while Money Market funds saw outflows of $23.6 billion.

“The countdown to the US presidential election in November, a significant selloff among technology stocks, Japan’s leadership change and fears of a ‘second wave’ of Covid-19 infections in Europe requiring new lockdowns kept the lid on flows to most developed markets fund groups in early September,” EPFR’s research director Cameron Brandt said.

US equities saw outflows for the 13th straight week, and there were sustained inflows into emerging markets with bonds pulling in $1.8 billion and equities taking in $3.4 billion. 

BofA Securities said in a report that fixed income assets continue to be in fashion, with investors favouring positive yielding assets. Jefferies data showed that in the year to date bond funds attracted $231.2 billion of inflows, while equities reported $38.8 billion outflows globally.

“So far this year the real outperformer has been the HY (High Yield) space, with inflows - in terms of Assets Under Management – surpassing Investment Grade and government bond funds. On the flip side the lack of inflation and rising new daily Covid-19 cases in Europe are deterring investors from adding risk in reflationary plays. Loans and equity funds have both been the clear under-performers so far this year,” they said in a note.

Economic data calendar

Last week's rating changes