Take Five: No Stop by Reuters

(Reuters) – The volatile activity that has marked September so far may not end anytime soon as investors brace for several key macro events that could shape the tone of trading in the coming weeks.

Here’s your look at the markets next week from Kevin Buckland in Tokyo, Ira Iosebashvili in New York, Yoruk Bahceli in Amsterdam and Naomi Rovnick and Amanda Cooper in London.

1/ IS THE PRICE RIGHT?

Investors’ attention may have turned to US employment and economic growth, but upcoming consumer price data – due on September 11 – could still cause jitters.

Markets are still weighing how much the Federal Reserve will need to cut rates at its September 17-18 meeting, adding to the importance of each data report.

Evidence that inflation remains relatively robust could argue against a 50 basis point rate cut – currently seen as a less likely scenario than the Fed cutting rates by just 25 basis points. A sharp drop in consumer prices, on the other hand, could be interpreted as a sign that economic growth has started to slow more than expected, tipping the balance towards a jumbo cut.

Economists polled by Reuters expect inflation to have risen 0.2 percent in August, matching the previous month’s increase.

2/THE NEXT MOVE OF THE ECB

The European Central Bank is almost certain to deliver its second rate cut this cycle, so what matters more is any indication of what’s to come.

Traders are now pricing in a further dip after September and a near 50% chance of a further move this year.

In mid-July, they saw less than a full chance of a post-September cut.

With a move in December seen as likely, investors are keen to see if a cut in October is also a possibility.

Once bitten twice shy, ECB policymakers are wary of making promises. Some hawks still refuse to commit in September.

They disagree with the doves on whether a weak growth outlook is enough to allay inflation worries.

Inflation fell just above the ECB’s target of 2.2% in August, but unsettled services and core measures mean some policymakers want more evidence that 2% is within reach before giving it all up.

3/BLACK GOLD

Investors struggle to decide whether bonds or the stock market are right about the economy. Bonds point to a looming recession, while stocks – despite this latest sell-off – still hit multiple record highs, reflecting a sense of confidence in a benign landing.

The problem is, only one can be right.

Enter the gold/oil ratio. This measure, which reflects how many barrels of crude oil it takes to buy an ounce of gold, is the highest since 2020. The ratio falls when confidence in the economy rises as energy demand is expected to improve and rises when concern against growth and recession – and therefore the prospect of gold-friendly interest rate cuts – is setting in.

Gold is trading near record highs of around $2,500 an ounce, while oil is struggling to stay above $70 a barrel. Once again, only one can be right.

4/STERLING THINGS

The Bank of England raised interest rates faster than its peers in 2021 and is expected to cut them more slowly unless key data, such as the September 10 monthly wages report, prove reassuring.

When the BoE implemented its first rate cut of this cycle on August 1, in a move traders do not expect to happen again until November, it said it would closely monitor wage growth, a major driver of inflation.

UK wages rose at their slowest pace in almost two years in the quarter to June 30, but unemployment fell unexpectedly and the working population grew by much more than forecast.

A weak jobs report could benefit borrowers but weaken the pound, which has risen on bets that the BoE will keep rates relatively high.

Bullish positions in sterling are mostly held by debt-financed speculators who are motivated to sell on signs of trouble rather than margin calls.

5/ELECTION OF A PRIME MINISTER

Japan’s next prime minister will take over the push for better corporate governance that has propelled stocks to record highs this year, support for the Bank of Japan’s tightening campaign after decades of deflation and responsibility for an ever-expanding debt pile that is by far the biggest. in the industrialized world.

Official Fumio Kishida resigns amid slush fund scandal. The field of hopefuls to replace him could reach around 10 by the time campaigning begins on September 12, ahead of the party’s vote on September 27.

Shinjiro Koizumi, the son of a former prime minister, is a fan of deregulation, while perennial runner-up Shigeru Ishiba pushed for policy normalization before the BOJ’s controversial rate hike last month, and front-runner Sanae Takaichi female candidates, she is a reflationist.

The BOJ is independent, but the government can exert pressure. With the next central bank meeting a week before the ruling party’s vote, the timing is difficult.