Synopsis:

TD Securities highlights an eventful week in the market calendar with a focus on crucial data releases and key central bank meetings. They anticipate significant shifts from both the Bank of Japan (BoJ) and the Federal Reserve (Fed), emphasizing the BoJ's possible hawkish turn against the market's expectations.

Highlights:

1. Bank of Japan (BoJ):

   • The BoJ's meeting is anticipated to be of particular interest.
   • TD Securities expects the BoJ to introduce more hawkish policy changes compared to market expectations.
   • There is a possibility that the BoJ might abandon its Yield Curve Control (YCC) strategy, potentially leading to further policy normalization in the following year.

2. Federal Reserve (Fed):

   • TD expects the Fed to adopt a hawkish stance during its meeting.
   • However, TD believes that for the Fed to significantly influence the market, the threshold is relatively high.
   • Markets have already factored in US exceptionalism, and TD points out the divergence between US macroeconomic trends and the US 10-year yield.
   • Recent statements from the Fed have been more dovish, especially as Financial Conditions Index (FCI) has tightened. This contrasts with the recent dynamics of the rates.

Conclusion:

While the upcoming week promises a wealth of data and pivotal central bank meetings, TD Securities highlights potential shifts in the policy directions of both the BoJ and the Fed. The BoJ may surprise with a hawkish shift and possibly discard its YCC, hinting at more aggressive policy changes in 2024. On the other hand, the Fed might lean hawkish, but its influence on the market might be limited given the existing market conditions and recent trends.