Many on Wall Street are watching the Fed’s rate hiking cycle and are getting nervous they will tip the economy into a recession. With scorching inflation, the FOMC may consider a full-point rate hike but will likely settle on delivering its third consecutive 75 basis-point increase. At Wednesday’s policy meeting, Fed Chair Jerome Powell will likely acknowledge downside risks to growth are here and unrelenting inflation is forcing them to maintain an aggressive pace of tightening. Inflation risks are still tilted to the upside and will likely keep the Fed from providing any hints that a “Fed put” is coming.
The ECB appears to be one of the few major central banks not holding a monetary policy meeting next week but that won’t keep them out of the headlines. Policymakers are scheduled to make regular appearances including Philip Lane on Saturday which may present some weekend risk.
On Friday, the flash PMIs could give an idea of how the economy is coping and whether it is heading for a recession in the fourth quarter, as some fear.
Monday is a bank holiday in the UK as the country pays its respects to Queen Elizabeth II on the day of her funeral.
After being pushed back a week due to the 10-day period of national mourning, the BoE will meet on Thursday and it has a big decision to make. Inflation is running extremely hot – although it did drop back below 10% last month – and while it has likely not yet peaked, the high should be much lower now that the new government has announced a cap on energy bills.
That may come as a relief to many but it could mean higher core inflation and interest rates further down the road. How the BoE responds to all of this without the aid of new economic projections is what will interest investors.
The week draws to a close with PMIs on Friday.
Markets continue to monitor the situation in Ukraine amid a strong counteroffensive that saw Russia concede a lot of ground while raising the prospect of defeat and waning support for Vladimir Putin.
The only economic release next week is PPI inflation on Wednesday.
The SARB is expected to hike rates by another 75 basis points to 6.25% on Thursday as inflation continues to rise. The CPI is currently well above the 3-6% target range at 7.8% and the central bank will get an update on this the day before their decision, which could play a role in just how aggressive they’ll be this month.
One central bank that almost certainly won’t be raising interest rates next week is the CBRT. Last month, it unexpectedly cut rates by another 100 basis points to 13% despite inflation running at almost 80%. That has risen further since but the central bank will not be deterred. No change is expected from the CBRT next week but clearly, another rate cut should not be ruled out.
Inflation continues to run hot which makes a large rate hike on Thursday from the SNB highly likely. Markets are pricing in at least 75 basis points, maybe even 100, taking the policy rate out of negative territory for the first time since early 2015. The central bank loves to spring a surprise though, the biggest recently perhaps being that it’s waited until a scheduled meeting to act. We’ll see how bold it’s prepared to be on Thursday.
China is expected to keep rates unchanged at 3.65%, as the 1-year LPR (Loan Prime Rate) was just recently adjusted down from 3.7%. If the Chinese central bank unexpectedly adjusts rates to a lower level again, it may be detrimental to the yuan.
The PBOC’s fixings are must-watch events now that the yuan has weakened beyond the key 7 against the dollar.
Traders will pay close attention to the second quarter current account data. Expectations are for the current account deficit to widen from $13.4 billion to $30.36 billion. India has been weakening as trade balances balloon and foreign investment takes a big hit.
Traders are awaiting the release of the minutes of the RBA meeting next Tuesday and upcoming speeches by RBA’s Kearns and Bullock. The RBA seems poised to move forward with smaller rate hike moves, but traders will look to see if the latest round of RBA speak confirms the downward shift discussed by central bank chief Lowe.
It will be a busy week in New Zealand as a steady flow of economic data is accompanied by a couple of RBNZ speeches by Governor Orr and Deputy Governor Hawkesby. The big economic releases of the week are Wednesday’s credit card spending data and Thursday’s trade data.
The FX world is closely watching everything out of Japan. Traders are waiting to see if policymakers will intervene to provide some relief for the Japanese yen. What could complicate their decision is that Japan has a holiday on Monday.
The divergence between the Fed’s tightening cycle and the Bank of Japan’s steady approach continues to support the dollar against the yen. The BOJ is widely expected to keep rates on hold even as core inflation extends above the BOJ’s 2% target.
The focus for Singapore will be the August inflation report that should show pricing pressures remain intense. The year-over-year reading is expected to rise from 7.0% to 7.2%.
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