State visit will give Xi and Obama chance to discuss global fragility
Central bankers may well dominate yet another week of financial news, a sign, if it was needed, that the global economy is nowhere close to recovery.
Last week it was Janet Yellan at the Fed. Closer to home, Mario Draghi will put in an important appearance before the European Parliament's Economic and Monetary Affairs Committee on Thursday.
Amid the fragility of the global economy this week's other big event, a state visit to the US by Chinese President Xi Jinping, will provide the heads of the world's two biggest economies a rare chance to discuss the situation face to face. US president Barack Obama will host a private dinner for President Xi on Thursday. Before that, the Chinese leader is due to visit a number of US companies, including the headquarters of Boeing and Microsoft, which are both based in Seattle.
On this side of the pond, European government bonds jumped after the Fed cited global uncertainty and financial turmoil to keep its benchmark interest rate at a record low on Thursday, fuelling speculation that the European Central Bank could step up its stimulus measures. Analysts will be looking for signals of intent from Draghi on Thursday.
Benchmark German 10-year bunds soared with their Italian and Spanish peers on Friday. The US central bank kept its key rate at the record low where it's been since December 2008, saying in a statement that "recent global economic and financial developments may restrain economic activity somewhat."
While the median projection from Fed officials signals a rate increase by year-end, Fed fund futures show traders anticipate the central bank may wait until 2016.
The Fed held off raising rates even as its economy is expanding at a much faster pace than Europe.
ECB executive board member Benoit Coeure said on Friday that the outlook for global growth has "clearly weakened" and reiterated that officials are ready to expand the asset-purchase programme if needed.
"If the developments over summer held the Fed back from moving when they're at the beginning of a tightening cycle, what does that mean for the ECB, who are still in the midst of easing?" Laurence Mutkin, global head of Group-of-10 rates strategy at BNP Paribas in London, said in an interview on Bloomberg TV. "It implies that there ought to be more easing to come. We think during the fourth quarter they're going to announce an extension of QE."
Friday's decision also shifts attention to the Bank of England. Governor Mark Carney has been adamant that movement to raise interest rates in the UK would come around the early part of next year.
In other news, Apple's latest iPhones become available in stores in the US and nine other countries this week. Consumer confidence data is also due in the US.
Investors believe that confidence levels probably fell less than initially estimated, to 87, in the University of Michigan's final September index.
The gauge's first estimate on September 11 showed a decline to 85.7 from August's 91.9 for the largest one-month decline since the end of 2012.