Week Ahead: RBA, FOMC, BOE and Nonfarm Payrolls

Last week, volatility was high as markets digested news that China may enter more lockdowns, worried that inflation will continue to rise, and saw negative US Q1 GDP and earnings surprises.  This week the volatility is likely to continue as central banks and jobs reports from around the globe will make headlines. The RBA, FOMC, and BOE all meet this week to discuss interest rate policy. Will the recent volatility cause them to pull back on the reins or will inflation worries cause them to raise rates, possibly by even more than markets anticipate?  In addition, the US will release Non-Farm Payrolls.  The Fed will be paying extra attention to the Average Hourly Earnings component of the report, as the Q1 Employment Cost Index came in hot. Stay alert for continued volatility this week!

RBA

The RBA is expected to remain on hold this week even though the Q1 inflation report was higher than expected.  The RBA’s preferred measure of inflation is the RBA Trimmed Mean CPI, which came in at 3.7% YoY vs 3.4% YoY expected and only 2.6% YoY in Q4 2021.  Note that the RBA targets 2% to 3% inflation.  The higher inflation data suggests there a chance of a 15bps hike, which would take rates from a record low 0.1% to 0.25%.  At the last meeting, the RBA board said it wanted to wait until inflation was “sustainably” within the 2% to 3% target range.  Will the RBA consider the 3.7% inflation print to be sustainable, or will it wait for more data?

FOMC

The FOMC is expected to raise rates by 50bps when it meets this week, thereby increasing the Fed Funds rate from 0.5% to 1.0%.  Many Fed speakers, including Fed Chairman Powell, have already indicated as such. However, St Louis Fed President has left the door open for a possible 75bps hike!  While that is not the consensus, markets are pricing in 50bps rate hikes for the next several meetings.  Note that Q1 GDP released last week was -1.4%.  This means that the Fed will be raising rates during (or just after) negative growth, high inflation, and the Russian/Ukraine War. Could this give the FOMC pause to only hike 25bps?

BOE

The Bank of England meets on Thursday this week and is expected to hike rates by 25bps, taking rates from 0.75% to 1.00%.  However, whereas the Fed has yet to mention any worries about inflation hitting household incomes, the BOE is definitely worried about it.  This is the main reason expectations are only for a 25bps hike, and not 50bps.  BOE Governor Bailey recently said that the BOE is walking a very tight line between tackling inflation and the output effects of the real income shock.  Is there a chance that the BOE may do nothing at Thursday’s meeting?

Earnings

Last week, markets saw negative earnings surprises from AMZN and GOOGL.  In addition, there were downward revision to forecasts from AMZN and AAPL due to the lockdowns in China.  Will the negative surprises continue this week?  Some of the more important companies to report earning this week are as follows:

ON, ABNB, GBP, AMD, SBUX, PFE, BP, LYFT, TWLO, UBER, MRNA, VWAGY, AML, DASH, SHOP, LCID, RCL, SHEL, LAH, BOO, DKNG, IAG

Economic Data

As mentioned, Non-Farm Payrolls are to be released on Friday.  Expectations are that 395,000 jobs will be added to the US economy for April. However, the US isn’t the only country releasing jobs data this week.  Markets will also see employment data from New Zealand, Germany, and Canada.  In addition, global PMI data for April will be released this week, including China. Traders will be watching to see how much of an effect the lockdowns had on manufacturing during April.  Other important economic data to be released this week is as follows:

Saturday

• China: NBS Manufacturing PMI (APR)
• China: NBS Non-Manufacturing PMI (APR)
• China: Caixin Manufacturing PMI (APR)

Monday

• Global Manufacturing PMI Finals (APR)
• Germany: Retail Sales (MAR)
• US: ISM Manufacturing PMI (APR)

Tuesday

• New Zealand: Building Permits (MAR)
• Australia: RBA Interest Rate Decision
• Germany: Unemployment Change (APR)
• EU: Unemployment Rate (MAR)
• EU: PPI (MAR)
• US: Factory Orders (MAR)

Wednesday

• Global Services PMI Finals (APR)
• New Zealand: RBNZ Financial Stability Report
• New Zealand: Employment Change (Q1)
• Australia: RBA Chart Pack
• Australia: Home Loans (MAR)
• Australia: Retail Sales Prel (MAR)
• Germany: Trade Balance (MAR)
• UK: Mortgage Approvals (MAR)
• UK: Consumer Credit (MAR)
• EU: Retail Sales (MAR)
• US: ADP Employment Change (APR)
• Canada: Trade Balance (MAR)
• US: Trade Balance (MAR)
• US: ISM Non-Manufacturing PMI (APR)
• US: Fed Interest Rate Decision
• Crude Inventories

Thursday

• OPEC+ Meeting
• Australia: Trade Balance (MAR)
• China: Caixin Services PMI (APR)
• Germany: Factory Orders (MAR)
• UK: BOE Interest Rate Decision
• US: Unit Labor Costs Prel (Q1)
• US: Nonfarm Productivity Prel (Q1)

Friday

• Japan: Tokyo CPI (APR)
• Australia: RBA Statement on Monetary Policy
• Germany: Industrial Production (APR)
• UK: Halifax House Price Index (APR)
• Canada: Employment Change (APR)
• US: Non-Farm Payrolls (APR)
• Canada: Ivey PMI s.a. (APR)

Chart of the Week: Monthly NASDAQ 100 (NDQ)

Source: Tradingview, Stone X

Of all the great monthly charts to choose from at the end of April, the selloff in the NASDAQ 100 is one of the most impressive.  NDQ began a strong ascent from 6779.9 in March 2020 as the coronavirus hit and monetary stimulus kicked into high gear.  The tech heavy index made a high during the month of November 2021 at 16764.86.  Since then, price has pulled back and is currently testing the 38.2% Fibonacci retracement from the lows of March 2002 to the highs of November 2021, near 12947.55.  The pullback has been swift.  In January the index lost 8.5% and in April the index lost over 11.5%!  The April candlestick is a monthly bearish engulfing candlestick, indicating there could be more downside to come.  How much further can NDQ pullback?  On the monthly timeframe, horizonal support sits below at 12208.39, just ahead of the 50% retracement from the same timeframe at 11768.   The 61.8% Fibonacci retracement is at 10589.  First resistance on the monthly timeframe isn’t until the opening print of March’s candlestick at 14197.  Above there, resistance is at April’s high of 15161, then the highs from March at 15265.

The volatility during the month of April should continue at least through the first week of May.  With central bank meetings from the RBA, FOMC, and BOE, there are sure to be some surprises.  In addition, throw in some important beginning of month economic data, and there is potential for even more volatility.  Monday is also a holiday for much of the world, and China is out most of next week.  Therefore, markets could be in for some big moves if someone (like a central bank) wants to move the markets during a period of low liquidity.

If you are celebrating a holiday this week, enjoy the time off.

Have a great weekend!