FOMC, BoJ and the EBA this week - Rabobank

Research Team at Rabobank, suggests that the market’s attention this week seems set to be focused on three events.

Key Quotes

i) FOMC meeting (Wednesday)

Our Fed watcher Philip Marey noted that the minutes of the June meeting gave support to his view that the FOMC is now taking a wait-and-see approach to its assessment of the employment growth slowdown, the impact of Brexit and the sustained decline in business investment. If the economy continues to grow despite the stronger headwinds, slack in the labour market will continue to fall and the FOMC may want to squeeze in a rate hike before the end of the year. Rabo’s call remains for a hike in December but a few more setbacks could even force the FOMC to instigate a pause in its ‘hiking cycle’

ii) BoJ policy meeting (Friday)

The expectation is that the BoJ will take easing action this week, with this coming in conjunction with the government increasing spending.

iii) European Banking Authority (EBA) releases EU-wide back stress test results (Friday).

Attention here is likely to focus on the Italian banks and any potential ramifications for capital raising/ restructuring.

On the sidelines of the G20 meeting that took place over the weekend, the ECB Governing Council member Visco (Bank of Italy) was asked whether a departure from the capital key could be an option for the ECB’s PSPP if bond shortages become a major problem. In response he said that ‘it depends, we will have to see’. We are of the view that political considerations mean that this will be quite far down the list of potential options for expanding the universe of eligible bonds.”