Chinese reserves; Chinese trade; Fed leaks?

China returns from its WWII commemoration today - SHCOMP's performance is likely to set the tone for risk appetite. Two key bits of Chinese data are out this week: (1) reserves and (2) trade data, both for August. 

A few weeks ago the FT reported China had spent USD200bn defending its currency since mid-August - if true it would be huge intervention. In July reserves dropped by just over USD40bn. As we go to press the data are due shortly. Over the weekend the G20 restated their commitment to refrain from competitive devaluations. 

The other big story is Fed expectations with 9 days to go until the FOMC meeting. After Friday's payrolls data, expectations for a September hike are now at ~35-40%, according to RBC notes. RBC's rates strategists argue it would be uncomfortable for the Fed to tighten for the first time in 9 years with the market just 1/3 priced for it, so the leak watch will begin. If a hike is coming and less than 50% priced, they may guide expectations. The only scheduled appearance is Kocherlakota (Tuesday) but he's not going to be the one to signal a hike. The two to watch for are Fischer and Dudley. It's also worth noting that though September hike expectations have rebuilt since the August turmoil, the December 2016 FF futures contract has not kept up - i.e. the forward curve has flattened. 

While the Fed is certainly not going to tighten quickly or even at a 'normal' pace, the market may be over-estimating just how slowly it will go. Much will depend on the outlook in the rest of the world, which brings us back to China and its reserves/trade data.