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By: John Kicklighter, Head of Market Research
Talking Points:
The global macro docket is going to seriously level up with scheduled event risk over the coming week. Taking stock of how sensitive the markets are to stoked fundamental themes is difficult to gauge with the anticipation of the US election (and FOMC rate decision) a few weeks ahead as well as the lower density of key event risk this past week. While we had events like the ECB’s rate cut and Chinese 2Q GDP release, both were largely in line with expectations and thereby restricted in their global macro potential. Can we expect the same from what is ahead?
Chart of Average S&P 500 Performance and VIX Volatility Level Over Past 20 Years
Source: StoneX, John Kicklighter
Looking to the scheduled docket, there is a lot on tap; but it is worth sorting for full potential to move the global market. At the start of the week, we are due an update on China’s benchmark lending rate from the People’s Bank of China (PBOC). Unlike the Federal Reserve, the PBOC’s monetary policy is not a good proxy for where global monetary policy is heading. Though the second largest economy in the world, China has significant boundaries to its interconnection with its largest open-economy peers.
Chart of FXI China Large Cap ETF and China GDP (Daily)
Source: TradingView, StoneX
That said, there is a keen international interest in this Asian behemoth’s general economic and financial health. With a run of major stimulus programs announced a couple weeks ago and the 2Q GDP reading last week coming in below the target 5.0 percent pace, the efforts to keep the economy charged – and contributing to the global tempo – is a top concern. The PBOC isn’t the only major central bank due to update its policy mix this week.
The Bank of Canada (BOC) rate decision reflects on a smaller global participant, but its policies are considered a closer proxy to what the developed world is likely to do going forward. In the spectrum of relative policy standing, I would put the Canadian group on the more dovish end of the spectrum with a 75 basis points (bp) of aggregate cuts that began back in June.
To make things more interesting, the consensus among economists is for a bigger 50 bp cut at its Wednesday policy update. That would be a notable escalation that would put greater focus on the accompanying monetary policy report to see if it is to address deeper concerns or perhaps a strategic increase to allow for gaps moving forward.
Chart of Relative Monetary Policy Stance of Major Central Banks
Source: John Kicklighter, StoneX
The third priority on my global macro list for the coming week is more of a theme than a specific event: growth. We had the Chinese GDP release last week; and looking ahead another week, we will have the US and Eurozone reporting their own 2Q figures. Meanwhile, this week we have Singapore’s 2Q government report as well as the forward looking and consistent IMF WEO biannual update. That said, neither has a strong history of rousing the broader markets.
The monthly PMIs from the major developed economies on the other hand are timely (for the current month) and reflect on a greater swath of the developed world. That said, the Thursday run of data doesn’t carry a strong history of discrete market movement unless there are meaningful surprises. Sans a significant deviation from expectations that contributes to a rising interest in economic activity, this data will be more productive as insight to go into the subsequent weeks’ official data and election activities.
Table of Major Global Macro Events Scheduled for Week
Source: John Kicklighter, StoneX
-- Written by John Kicklighter, Global Head of Content
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