Rise and shine everyone and Happy Monday!

This week is Central Bank Bonanza Week. We have the Fed and Brazil on Wednesday, the Bank of England on Thursday, and the Bank of Japan & PBoC on Friday (late Thursday in the US).

We expect a cut from the Fed, although there’s some question as to whether it will be 25 bps or 50 bps. On Friday, we talked about a few sources that seemed to be floating trial balloons about a 50-bp cut - the WSJ’s Nick Timiraos and former Fed member Bill Dudley.

As for Brazil and the BoE, we expect no moves. However, consensus expectations are for a hike of 25 bps for Brazil!

The BoJ will likely maintain their hawkish view but it’s doubtful that they explicitly signal another cut until the end of the year. We also don’t expect them to make any changes to their bond buying, having just announced the taper at the end of July.

It’s quite likely that the best trade for this week would be long JPY short USD. However, Central Bank decisions have historically yielded “weird” moves in the market - the first BoJ hike brought us weakness in the JPY because the easy monetary stance on bond purchases was maintained.

It’s an otherwise quiet Monday with markets likely antsy ahead of the big central bank meetings. We also get Retail Sales numbers this week in the US, alongside earnings from FedEx, and Lennar both on Thursday.

US Equity Futures are mixed this morning with the Nasdaq pulling back as Nvidia and Apple dip in the pre-market. Russell 2000 small caps are higher, continuing their bullish trend from last week.

Yields continue to fall with the curve bull steepening as more cuts are being priced into the 2Y. The spread between the 2Y yield and the Fed Funds Rate is one of the highest in history, particularly where the 2Y yield is lower. The bond market is certainly trying to tell the Fed that they are behind the curve.

Chart of the Day - The World Container Index

Disinflation has largely been led by good deflation which is coming to a standstill now. Part of the reason could be that spike in freight rates continue to make their way through the system. While we are well below the recent spike, the freight routes from Shanghai continue to be significantly higher when compared to mid-2023. Freight rates often take 12-15 months to translate into higher goods prices.

Calendars

(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)