Bank of Japan meeting concluding on Thursday

Market movers today

• Today we have a very light data calendar with the final euro area inflat ion prints for August due out , although we do not estimate any significant changes.

• Later in the week the focus will be on the FOMC meet ing on Wednesday, where we expect the Fed to announce that it will begin shrinking its balance sheet in October, the Bank of Japan meeting concluding on Thursday as well as PM T heresa May’s speech on Brexit in Florence on Friday.

• In Scandinavia, the week peaks on Thursday with the Norges Bank monetary policy meeting and minutes from the Riksbank's September monetary policy meeting. We share the consensus view that Norges Bank will not touch interest rates.

Selected market news

Risk appetite improved in the US session on Friday as concerns about the worst-case scenarios for North Korea and hurricanes in the US eased. The large US equity indices ended the day higher after the negat ive close in Europe on Friday and in Asia this morning, regional indices trade higher while the yen has weakened versus all other G10 currencies. Japanese markets are closed for a holiday.

The series of US data released on Friday was a relatively mixed bag: while both US indust rial product ion and US retail sales for August came out weaker than expected, the empire manufacturing index surprised on the upside. It was widely expected that the August print s were distorted due to Hurricane Harvey, and in isolat ion this is not be a concern as such. ISM and regional surveys for manufacturing are quite robust , so manufacturing is likely to be doing fine. However, the down-revision to both June and July retail sales were a surprise indicat ing that momentum in US consumpt ion might have been over a longer period of t ime. We should expect more data for August and September to be distorted as Hurricane Irma is also affect ing numbers.

In Japan, speculat ion that Prime Minister Shinzo Abe is considering calling for a snap general elect ion is growing as Abe’s support has increased following the cabinet reshuffle in August and not least due to his handling of the North Korea crisis. According to the broadcaster NHK, Abe is likely to dissolve the Lower House in late September and call for a general election in late October. The political calendar in Japan is packed with important events in the coming years. Besides the possibility of an early elect ion, focus in coming months will also be on who will be appointed to lead the BoJ once Haruhiko Kuroda’s five-year term ends in April 2018. Increased polit ics in Japan may lead to more volatility on Japanese markets and induce some JPY appreciat ion.

On Friday, we published our new FX Forecast Update: A tale of three central-bank camps and Yield Outlook - Central banks gradually turning more hawkish. The most significant change in our new forecast is that we now expect the Bank of England to hike the Bank Rate by 25bp in November.

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