Key events to watch in the week ahead: 18 – 22 September 2023

This week’s overview

Risk sentiments have been largely unscathed by the recent pull-ahead in US headline pricing pressures, as continued moderation in both the core producer and consumer prices still warrants room for the Federal Reserve (Fed) to head towards its final phase of tightening. As a reflection of the still risk-on environment, the VIX is back at its year-to-date low while major US indices registered its one-week high.

Next week will bring a series of central bank meetings into focus, notably from the US Fed, Bank of England (BoE) and Bank of Japan (BoJ). We will also have the meeting minutes out of the Reserve Bank of Australia (RBA) in focus.

Here are four things to note next week.

19 September 2023 (Tuesday, 9.30am SGT): Australia’s RBA meeting minutes

At its September meeting, the RBA kept its cash rate on hold at 4.10% for a third consecutive month, justifying its decision that further time may be needed to assess the impact of a cumulative 400 basis-point (bp) of rate hikes and evidence that a sustainable rebalancing between supply and demand is underway.

Reflecting more comfort around the inflation outlook and signs of cooling in the economy, the RBA retained its tightening bias but softened noticeably from earlier in the year. It was mentioned that "some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe."

The Board Meeting Minutes would be expected to reiterate the sentiments outlined above. They will be closely scrutinised around what factors would prompt the RBA to act on its tightening bias and what factors might see the RBA extend its pause for a fourth consecutive month.

21 September 2023 (Thursday, 2am SGT): US Fed interest rate decision

The Federal Open Market Committee (FOMC) is widely expected to maintain their target rate for the Fed Fund at 5.25%-5.50%. The Fed Chair is expected to provide a balanced tone, similar to Jackson Hole, providing optionality with a mix of dovish and hawkish comments, in line with the Fed's data-dependant stance.

Fresh economic projections and the updated dot plot among policymakers will be of interest, with the 2023 median likely to reflect one more 25 bp rate hike for a terminal rate of 5.50%-5.75%. This would be considered fine-tuning as the Fed approaches the end of its rate hiking cycle and is in line with our expectations. Further out, the 2024 median is likely to reflect 75 bp of Fed rate cuts next year.

21 September 2023 (Thursday, 7pm SGT): BoE interest rate decision

Broad expectations are for the BoE to hike by 25 bp at the upcoming meeting, to bring its bank rate to 5.5% from current 5.25%. Bets also remain in place (approximately 30% probability priced as of 14 Sep 23) that the central bank may have to push on after September to bring its terminal rate to 5.75%.

Despite inflation moderating to 6.8% in July from its October 2022 peak of 11.1%, it remains more than three-fold above the central bank’s 2% target, which should keep the BoE on its hawkish tone. But given that this has to be juggled with weaker underlying growth momentum as well (July’s gross domestic product contracted more than forecast), the central bank may have to tread cautiously to avoid a recession, with all eyes on whether they may indicate an end to tightening in the likes of the European Central Bank (ECB) at the upcoming meeting.

22 September 2023 (Friday, 11am SGT): BoJ interest rate decision

Recent remarks from BoJ Governor Kazuo Ueda have driven Japan’s 10-year government bond yields to a fresh nine-year high, as investors speculated that his comments could be laying the groundwork for a quicker-than-expected normalisation in its ultra-accommodative policies. The Governor has raised the possible option of putting an end to its negative interest rates, although he was also quick to downplay some speculations by still indicating patience for now.

Such hawkish bets will be put to the test next week. Given that policymakers still want to see more conviction that prices and wages will keep going up sustainably, the scenario of a policy no-change remains likely at the upcoming meeting. This follows after a slight tweak in its bond yield control policy in the previous meeting, which may also support some wait-and-see for now.