LONDON (Reuters) - The yen is hogging the market spotlight after the Bank of Japan intervened to buy yen for the first time since 1998, while markets remain on watch for any signs of a ratcheting up in tensions between Russia and the West.
Election results from Italy, euro area inflation numbers and U.S. and Chinese data also give investors plenty to chew over.
Here's a look at the week ahead in markets from Kevin Buckland in Tokyo, Tom Westbrook in Sydney, Lewis Krauskopf in New York, Danilo Masoni in Milan, and Dhara Ranasinghe and Karin Strohecker in London. Graphics by Vincent Flasseur, Vineet Sachdev and Pasit Kongkunakornkul.
1/ DOLLAR WHEN?
Japan's authorities finally had enough of a weak yen and intervened to stem a sharp decline against the dollar.
But will it work? The runaway greenback is up more than 20% on the yen this year, and some doubt it's got much left in the tank. But as U.S. rates rise, Japan's are stuck just below 0% and unlikely to budge.
So the case for a strong dollar remains. Japan, alongside neighbours China and Korea also pushing back on the dollar, may find itself fighting fundamentals, the market and the Fed.
Dealers in Seoul suspect authorities have already been selling dollars, but the won keeps sliding. Likewise, China's yuan has forged new lows although the central bank has pushed back via the trading band. Friday's China PMI readings, if disappointing, could add to the bear case.
Japan's history of supporting yen https://graphics.reuters.com/JAPAN-MARKETS/YEN-INTERVENTION/zgpomoolbpd/chart.png
2/ "NOT A BLUFF"
Russian President Vladimir Putin's military mobilisation order, threats to use nuclear weapons and a push to annex swaths of Ukrainian territory mark a new stage in the seven-month old conflict.
The announcements - coinciding with the diplomatic highlight of the year that is the UN General Assembly meeting - were condemned globally and triggered fresh protests in Russia, where raft-age Russians headed abroad to escape Moscow's biggest conscription drive since World War Two.
The latest escalation has reverberated across markets: oil prices are sharply higher, raising the spectre of more pain on the energy front for Europe. Meanwhile, European Union foreign ministers are readying another package of sanctions - their eighth one - which could be formalised in mid-October.
Maps: Ukraine’s swift counteroffensive https://graphics.reuters.com/UKRAINE-CRISIS/lbvgnkwerpq/ukrainianCounteroffensive.jpg
3/ RED HOT
The "flash" estimate of September euro area consumer price data is out on Friday and should show inflation at a fresh record high above 9%.
Investors have already ramped up expectations for another 75 bps, ECB rate hike in October, so the data shouldn't change the near-term rate outlook.
Yet any signs that underlying price pressures are broadening out, could further push up expectations for where rates in the bloc end up. The ECB is increasingly hawkish in its rhetoric and some ECB watchers say a mega 100 bps rate hike cannot be ruled out in coming months. Indeed, that's what Sweden's Riksbank just did, as did the Bank of Canada in July.
ECB ramps up fight against inflation https://graphics.reuters.com/GLOBAL-MARKETS/klpykaarbpg/chart.png
4/ TESTING TIMES
Can the U.S. consumer defy sizzling inflation and rising borrowing costs? Tuesday's consumer confidence measure will indicate how this key pillar of the economy is holding up.
Last month, the Conference Board's overall consumer confidence index rebounded to 103.2, ending three straight monthly declines. This month's index is expected to come in at 104, a Reuters poll suggests.
In one positive sign, data earlier this month showed U.S. retail sales unexpectedly rebounded in August as Americans ramped up purchases of motor vehicles and dined out more thanks to lower gasoline prices.
But with stock markets faltering and bond yields climbing, whether consumers remain upbeat is yet to be seen -- especially given a Fed intent on bringing inflation down even at the expense of a sharp slowdown in growth.
Testing times for U.S. consumers https://graphics.reuters.com/GLOBAL-MARKETS/byprjggwkpe/chart.png
5/ NO DRAMA HERE?
When Italy last went to the polls in 2018, markets were rattled by anti-euro rhetoric from populist parties. Fast forward and there's little visible stress in markets as Giorgia Meloni's right-wing bloc looks set for a majority in both houses of parliament in Sunday's vote.
Her Brothers of Italy party traces its roots to a post-fascist movement. But Meloni, favourite to succeed Mario Draghi and become Italy's first female PM, has embraced an EU-friendly face -- reassuring investors.
Italy's 10-year bond yield gap over Germany has widened from the post-pandemic lows but is far from levels seen in 2018. Still, the size of Meloni's grip on parliament will be watched closely. Investors may welcome a solid majority that falls short of the two thirds needed to change the constitution, which could cause instability. How a new government navigates an energy crunch that is pushing highly-indebted Italy into recession will also be under scrutiny.
Mind the gap https://graphics.reuters.com/ITALY-POLITICS/zdpxommemvx/chart.png
(Compiled by Dhara Ranasinghe; Editing by Ana Nicolaci da Costa)