Markets Overview

HIGHLIGHTS AHEAD

    Today’s European data flow includes industrial production and house sales data in Spain, as well as the Bank of France’s business survey.Closer home, in Japan, the BoJ’s monthly economic report is due. The emphasis will be on whether the BoJ senses the economy is recovering from the VAT tax and can withstand another hike in 2015.

    Tonight in the US, minutes from the September 16-17 FOMC meeting are due at 0200am (Singapore time). The key points of interest will be the discussion surrounding the Fed’s exit plans, which were concretely laid out for the first time last month, as well as the broader discussion about appropriate timing and communication surrounding potential rate increases.

    Meanwhile, Chicago Fed President Charles Evans will be speaking earlier in the morning at 2030 (Singapore time) tonight on the economic outlook. Finally, Alcoa will present its Q3 earnings after the NY market close, thus unofficially kicking off the earnings season.

    China markets to reopen after Golden Week holiday (1-7 Oct), and at 945am, China’s Sep HSBC services PMI will be released with previous month’s reading at 54.1. Attention will be focused on later this evening’s US Fed Sep FOMC minutes as well as IMF’s release of Global Financial Stability Report.

    CENTRAL BANK OUTLOOK

    There was no policy change at the Bank of Japan meeting which concluded on Tuesday. The BoJ acknowledged that there has been some weakness more evident on the “production side” of the economy due to the effects of the April VAT hike. That has already been evident to market participants in some of the economic data, but we would assume that the BoJ assessment increases the risk of additional policy easing measures any time soon. On the contrary, BoJ Gov. Kuroda dismissed the need to ease policy further providing the central bank meets its target of achieving 2% inflation in fiscal-year 2015 (which starts in April).

    In Australia, there was little surprise to see the RBA announcing that the cash rate would remain at 2.5% with the Bank’s statement again concluding with the observation that “monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates”.Whilst recent moves in the AUD have been acknowledged, it seems obvious that the RBA would still prefer a lower currency. We also believe a meaningful recovery of the labour market is needed before the RBA consider lifting rates. The focus now turns to Thursday’s slew of employment data, especially following last month’s extraordinary numbers.