Coming event risks and what to watch - Nomura

Analysts at Nomura highlighted the key events coming up over the next few weeks from around the world.

Key Quotes:

24 August .Jackson Hole: Relative to Janet Yellen and Ben Bernanke, we do not expect any material developments from Jerome Powell’s speech at Jackson Hole. However, certain topics including the desired degree of monetary policy tightening (as we approach neutral), balance sheet reduction, FOMC communications and policymakers’ views on external developments will be of interest.

25 August. Another NAFTA deadline: After starting the renegotiation process in August 2017, several rounds of negotiations and an intense series of top-level meetings in Washington DC, NAFTA negotiations are having a new push aimed at closing a deal by the end of August. However, as the marked date inches closer there are growing doubts about the possibility of reaching an agreement in the short term considering the lack of announcements on the most contentious parts of the negotiations (i.e., the sunset clause and the dispute resolution mechanism). The total amount of imports affected could be up to $614bn. Developments in the negotiations over the coming few days will be key for determining the likelihood of an agreement before year-end.

In coming weeks? A political drama down under: Prime Minister Malcolm Turnbull surprised everyone by declaring at a Liberal party meeting that the leadership position was open. He won the vote, but the political consensus is that the result will not silence Mr. Turnbull’s critics, and further instability within the Liberal National coalition (LNP) government may be likely.

4 September. Parliament returns from recess. This is when political scrutiny over the government’s handling will pick up once again. The House of Lords will likely amend the Customs and Trade bills on 4 September and 11 September, respectively.

5 September. Bank of Canada meeting: The BoC remains highly data dependent, but also committed to a gradual approach to normalisation. The recent inflation surprise (headline +0.5% m-o-m vs +0.1% expected) has got the market excited about the possibility of a September hike (25% priced). However, we still expect the BoC to take a more moderated approach, hiking at the October meeting alongside the forecast updates. July’s inflation surprise was triggered by volatile components, while the core measures remained unchanged As such, we do not feel the BoC will want to send an implicit message to the market that the pace of hikes will increase based on one data release.

6 September. USTR closes review process on next round of China tariffs: At the moment, the review and comment process for the additional $200bn is under way at USTR and will likely last through 6 September, marking a key date in the dispute. Once the review process is complete, the Trump administration will likely release a final list of targeted goods and could move to enact the tariffs relatively quickly. The China trade balance figures are also released on the same day. While not a material event risk on its own, it serves as a reminder of the deterioration in the US trade balance with China since President Trump’s election win.

9 September. Sweden elections: In addition to calling for a referendum on European Union membership, the Sweden Democrats have demanded a freeze on migration and a crackdown on crime. They are currently polling in second place, but far from a majority, while polling on EU membership shows that Sweden wants to remain a part of the EU. The current coalition is an alliance between the centre-left Social Democrats and the Green Party, which came to power after the elections in 2014.  The risk here is the Sweden Democrats end up kingmaker to a new government. 

13 September. TCMB to hike? Following the most recent bout of TRY depreciation, inflation is on course to reach 20% levels in coming months, which we think it warrants lifting the policy rate from its current 17.75% level. However, the authorities seem to think that the non-interest measures undertaken by the banking regulator have fended off the “attack” on the currency. This suggests the TCMB might not hike unless the currency comes under renewed pressure in the run-up to the MPC meeting.

15 September. The EU/Russia sanctions review: This is not usually an event risk to bear in mind as the consensus view is that the EU will just automatically extend sanctions, with Italy likely to prioritise other matters. However, because it requires a consensus, and Italy’s political parties are more pro-Russian and are explicitly calling for the removal of Russia-related sanctions for Italy, their extension could be less of a given than usual. The UK meanwhile recently pushed the EU to follow the lead from the US on sanctions.

20 September. We expect Norges Bank to hike at September’s meeting. The Riksbank and Norges Bank have both signalled that they will raise interest rates this year. Ultimately, we remain sceptical that the Riksbank will follow through on its normalisation plans this year, and expect substantially less tightening in 2019 than currently forecast and priced by the market. On the flip side, we believe the market is underestimating Norges Bank tightening in 2019."