In the aftermath of the busiest week of Q2 earnings season, just as traders prepare to depart for their various vacation destinations, a whirlwind of economic and financial events - or as Bloomberg calls it, a "storm of news", is about to be unleashed on the globe, including closely watched central bank announcements from the BOJ, the Fed and BOE, the Treasury will unveil its latest bond sale details which are expected to increase, while the US jobs report on Friday in conjunction with inflation data scattered over the week for the US and Europe will keep traders on their toes. In addition, there are also 145 S&P 500 companies due to report, while earnings in Europe will also ramp up.
We start with the Bank of Japan, where unlike recent snoozers, Tuesday's announcement will warrant greater attention following recent speculation in the media about whether we'll see a tweak in the yield curve targets. Despite rumors it could soon unveil a plan to eventually adjust its stimulus by revising the 0% target fof 10Y JGBs, all 44 economists surveyed by Bloomberg predict the Bank of Japan will maintain the current setting on interest rates, while Governor Kuroda is set to unveil fresh inflation forecasts, which the press has leaked will be in a downward direction. An increase in the JGB yield target appears unlikely at a time when it is expected to revise downward its inflation forecast. According to Deutsche Bank, the BoJ will declare at the end of its statement that, based on its analysis in its quarterly Outlook Report, it will maintain its easing policy for an extended period "but will conduct financial market operations and asset purchasing operations to address the mounting cumulative side effects." One likely adjustment is that the BOJ will overhaul its ETF purchasing operations (by shifting from Nikkei 225-linked ETF to Topix-linked ETF, leading to potential weakness for the Nikkei).
The Fed will likewise not announce any change in policy given that this is not a meeting that includes a post-meeting conference or a fresh summary of economic projections. However in light of the recent escalation in trade war, it'll be interesting to see the Fed's updated views. Recent comments from President Trump about Fed policy shouldn't however have any impact on the Fed's approach to monetary policy.
Moving on to the BOE, for the third central bank next week, the consensus expects a 25bp hike on Thursday, something that the market is currently assigning a 90% chance of happening. While the market has priced around 80% odds of a rate hike, many will be looking for signs that it won’t be a one-and-done as Brexit concerns weigh on the pound. There will be close attention on the vote count too. Should the BOE hike, this would mark the first time since 2009 that the bank rate would be above 0.5%. The latest BoE economic projections will also...