The interest rate decision from the Federal Reserve is likely to take most of the attention on Wednesday, with many expecting a rate cut from the central bank.
The Fed lowered interest rates in July for the first time since the financial crisis, taking its benchmark interest 25 basis points (bps) to a range of 2.25% to 2.50%.
President Donald Trump has been badgering the Fed to slash rates further, arguing that it would bolster economic growth, lift stubbornly low inflation and enable the US to refinance its debt. In a recent tweet, he said the “boneheads” at the central bank should reduce rates to zero.
The consensus forecast is, however, for a lesser cut of 25 bps to a range of 2.0% and 1.75%.
“The main (dubious) justification for rate cuts remains the risk of spillover to the US economy from the weakening global backdrop,” RBC said.
“Our base case is that yields remain low/under pressure, as global growth is unlikely to perk up over the next few quarters and negative global yields continue to drive incremental flow into the United States.”
RBC sees the Fed axing rates at the September meeting and once more before the end of the year amid fears about global weakness and the inverted yield curve panic.
“That said, our base case is that a China trade deal gets done before next year’s US election, which then leads to a decent backup in rates as we get deeper into 2020,” it said.
UK inflation set to ease
Closer to home, the latest UK inflation figures will be closely eyed ahead of the Bank of England’s interest rate decision on Thursday.
Consumer price inflation surprised to the upside in July, rising to an annual rate of 2.1% from 2.0% previously, on the back of price rises in hotel rooms, video games and consoles, as well as less discounting of clothes in summer sales.
RBC analysts expect CPI to fall back to 1.9% in August, below the Bank of England’s 2% target, due to a “small negative contribution” from transport and an easing of price rises in creation and culture sectors.
That forecast comes despite a further drop in the value of the pound due to heightened concerns about a no-deal Brexit.
Kingfisher’s troubles in France unlikely to abate
Laury will be replaced by Thierry Garnier a week after the first-half results are published following a torrid period for the DIY retailer. Investors are keeping a keen eye on the new chief executive’s plans to turn around the business.
The company, which owns B&Q and Screwfix, revealed lacklustre sales growth in the first quarter due to continued troubles at its French business Castorama. But the group said it remained on track to meet its full-year targets.
“For some time the DIY retail group has seen a marked contrast in the performance of its different businesses, with Screwfix in the UK doing well while the French operations have struggled,” The Share Centre said.
The stockbroker thinks it is unlikely things will have changed in the interim results, adding: “The company is in need of some good news for investors, as can be seen in the struggling share price.”
Bloody nose expected for Warpaint London in interims
Having issued a profit warning early August due to slower UK sales, investors will have little to look forward to when the cosmetics firm Warpaint London plc (LON:W7L) reports its interims on Wednesday.
The company has blamed its woes on adverse exchange rate movements, so investors will be hoping the situation has not worsened amid the pound’s Brexit-induced slump.
However, there could be one silver lining in the form of the group’s investments in its US market, with investors likely to be looking for any signs or forecasts of returns from across the Atlantic.
Significant announcements expected for Wednesday September 18:
Federal Reserve rate decision
Interims: Accesso Technology Group PLC (LON:ASCO), Attraqt Group PLC (LON:ATQT), Bonhill Group plc (LON:BONH), Cello Health PLC (LON:CLL), Clearstar Inc (LON:CLSU), Jarvis Securities Plc (LON:JIM), Keywords Studio PLC (LON:KWS), Maxcyte Inc (LON:MXCT), Pendragon PLC (LON:PDG), Strix Group PLC (LON:KETL), Surgical Innovations PLC (LON:SUN), Walcom PLC (LON:WALG), Warpaint London plc (LON:W7L), Yu Group PLC (LON:YU)
Economic data: UK CPI and RPI inflation, UK house price index, US housing starts, Eurozone CPI