Last week markets were focused on the upcoming MPC meetings where on September 21, the BoJ and Fed will deliver their policy decisions. Economic data print out of the US remained mixed with the Bloomberg consumer comfort and University of Michigan confidence readings falling in September. Retail sales also fell more than expected, although July’s reading was revised marginally higher. The Control Group reading, a component of GDP calculations, also disappointed. August US CPI data however surprised on the upside, but the futures market did not react, keeping odds for a Fed hike next week at 20%. The Treasury market did however sell-off on the better-than-expected data, the yield on the 10-year rose a couple of basis points on the week to 1.69%, while the dollar bounced 0.81%, measured by the DXY Index. The Chinese offshore renminbi was up 0.63% on the week and China’s financial, economic and credit data for August were released above expectations.
The IEA last week warned that it expects the global oil glut to last into at least the first half of 2017, as “global oil demand growth is slowing at a faster pace than initially predicted”. Brent crude ended the week 4.7% lower, at $45.77pb. Focus will shift to the upcoming OPEC meeting in Algiers in September 27 where various reports suggest members will attempt to reach an agreement with producers outside the group to stabilise the market by capping output; we will not be holding our breath.
Looking at the week ahead, if both the BoJ and Fed maintain the status quo, we expect a risk-on rally. The most likely scenario would be where the BoJ moves to steepen the JGB curve and Fed remains on hold. We remain comfortable with our highly rated single A portfolios with a bias at the long-end and ~3-3.5 credit notches of cushion.