Last week, the RBA and the BoC both raised rates as they try and get a handle on inflation. This week is sure to be one of the busiest weeks of the year as no less than six major central banks have Interest Rate Decision meetings, including the FOMC, ECB, and the BOE. Ahead of their respective central bank meetings, both the US and the UK will release their CPI reports. Will this data affect their rate hike decisions? In addition, this will be a big week for other economic data as well with the release of a host of data from the UK and China. The week will culminate with the first look at global PMIs for December. Watch for a volatile week! Next week, volume and liquidity should begin to decline as we head into the last 2 weeks of the year.
RBA and BoC
The RBA hiked rates by 25bps last week to bring its cash rate to 3.10%. The Reserve Bank of Australia said that it sees inflation peaking around 8% this year before falling in 2023 and reaching near 3% in 2024. As such, the RBA said that it sees more interest rate hikes ahead as inflation is still too high in Australia. However, markets aren’t pricing in another rate hike until April 2023.
The market was split on whether the BoC would hike rates by 25bps or 50bps at its Interest Rate Decision meeting last week. Ultimately, the Bank of Canada hiked rates by 50bps to bring its overnight rate to 4.25%, although it hinted that this may be the last rate hike for a while. As a result, while noting that the labor market is tight and inflation expectations are still too high, markets read this as a dovish hike. A change in the statement now reads that the central bank “will be considering” whether the policy rate needs to rise further to bring supply and demand back into balance and return inflation to target. Previously it read “will need to” rise further. BoC Governor Macklem speaks on Monday this week. Watch for clarification to the change in the statement.
FOMC
The FOMC meets on Wednesday this week and according the CME Fedwatch Tool, markets are pricing in a 75% chance of a 50bps rate hike at the meeting. At his Brookings Institute speech on November 30th, Fed Chairman Powell made several comments that suggested the Fed may only hike 50bps at this week’s meeting, including:
- The Fed could slow the pace of rate rises as soon as the December FOMC meeting.
- Slowing down at this point is a good way to balance risks.
- We don’t want to overtighten, which is why we are slowing down.
- Relying less on forecasts means doing more risk management and slowing down rate rises at this point is a good way to balance the risks of overdoing hikes.
Since then, markets have seen a strong November labor market report and a hotter than expected PPI reading for November (however it was still lower than October’s print). The only piece left to the puzzle is the US CPI report due out on Tuesday. Expectations are for the headline CPI to fall from 7.7% YoY to 7.3% YoY. The Core CPI is expected to fall from 6.3% YoY to 6.1% YoY. If the actual readings are in-line with estimates, expect a 50bps hike. However, the Fed will also release its “dot plots”, which shows forecasts for inflation, growth, and interest rates. Markets will be looking at how much higher the Fed expects interest rates to go before reaching the terminal rate.
BoE
The Bank of England meets on Thursday this week at its Interest Rate Decision meeting. At its last meeting, the BoE hiked rates by 75bps to bring interest rates to 3.00%. The Committee said that rates will have to increase to return inflation to target, however it also said that the terminal rate will be lower than the market was anticipating. Members also indicated that the UK is at the beginning or a 2-year long recession. The BOE hasn’t been helped by inflation, which jumped from 10.1% YoY in September to 11.1% YoY in October. On Wednesday, the day before the BOE meeting, markets will get a look at November’s CPI readings. Expectations are for headline CPI to fall to 10.9% YoY and the Core CPI to remain unchanged at 6.5% YoY. The BoE will also get a look at other data points this week before it makes its decision, including October GDP and the Claimant Count for November. Will the BOE be hiking into falling growth, worse jobs, and higher inflation?
ECB
The European Central Bank also meets on Thursday this week at its Interest Rate Decision meeting. At its last meeting, the ECB hiked rates by 75bps to bring its borrowing cost rate to 2.00%. The ECB noted that it will continue to increase interest rates, as inflation is too high and continually exceeding projections. The initial reading of November’s CPI fell to 10% YoY from October’s print of 10.6% YoY. Market expectations were for a drop to only 10.4% YoY. However, ECB member after ECB member took to the wires since the last meeting discussing how interest rates need to continue to rise so that inflation does not become entrenched. This is despite fears that the Euro Zone is about to enter a recession. Expectations are that the ECB will raise rates by 50bps.
Earnings
Earnings continue to drip out as we head into the end of 4th Quarter. However, there are a few notable companies to watch, such as ORCL, ADBE, ACN.
Economic Data
With all the central bank meetings this week (we didn’t even mention the SNB, Norges Bank, or Bank of Mexico), the onslaught of economic data this week will take a back seat. As previously mentioned, the UK will be releasing its Claimant Count, GDP, and inflation data ahead of the BOE meeting. It will also report Retail Sales on Friday. The US will also release CPI, Philly Fed Manufacturing PMI, and Retail Sales this week. China will have a data dump on Thursday. On Friday, the global preliminary PMI reports will be released for December. Other economic data due out this week is as follow:
Monday
- Japan: BSI Large Manufacturing (Q4)
- Japan: PPI (NOV)
- Japan: Machine Tool Orders (NOV)
- UK: GDP (OCT)
- UK: Manufacturing Production (OCT)
- UK: Trade Balance (OCT)
- UK: Industrial Production (OCT)
- Canada: BoC Governor Macklem Speech
Tuesday
- New Zealand: Food Inflation (NOV)
- Australia: Westpac Consumer Confidence Index (DEC)
- Germany: CPI Final (NOV)
- UK: Claimant Count Change (NOV)
- Germany: ZEW Economic Sentiment Index (DEC)
- US: CPI (NOV)
- US: IBD/TIPP Economic Optimism (DEC)
Wednesday
- New Zealand: Current Account (Q3)
- Japan: Tankan Large Manufacturers Index (Q4)
- Japan: Machinery Orders (OCT)
- UK: Inflation data (NOV)
- EU: Industrial Production (OCT)
- US: FOMC interest Rate Decision
- Crude Inventories
Thursday
- New Zealand: Westpac Consumer Confidence (Q4)
- New Zealand: GDP Growth Rate (Q3)
- Japan: Trade Balance (NOV)
- Australia: Consumer Inflation Expectations (DEC)
- Australia: Employment Change (NOV)
- China: House Price Index (NOV)
- China: Industrial Production (NOV)
- China: Retail Sales (NOV)
- China: Unemployment Rate (NOV)
- China: PBOC 1-Year MLF Announcement
- Switzerland: SNB Interest Rate Decision
- UK: BoE Interest Rate Decision
- Canada: Housing Starts (NOV)
- EU: ECB Interest Rate Decision
- US: Retail Sales (NOV)
- US: Philadelphia Fed Manufacturing Index (DEC)
- US: NY Empire State Manufacturing Index (DEC)
- US: Industrial Production (NOV)
- US: Manufacturing Production (NOV)
- Mexico: Interest Rate Decision
Friday
- Global: Manufacturing Flash PMI Flash (DEC)
- UK: Retail Sales (NOV)
- EU: CPI Final (NOV)
- Canada: New Housing Price Index (NOV)
Chart of the Week: Daily WTI Crude Oil (USOIL)
Source: Tradingview, Stone X
WTI Crude Oil was down over 11% last week and closed lower the last 6 consecutive days. This brought price to a new Year-to-Date low on Friday at 70.10! How many people thought price would turn negative on the year after posting a high print on March 8th at 129.42? Fears of recession and lack of demand have caused oil to push lower during the second half of 2022. Will it continue to move lower? First support isn’t until the spike low on December 20th, 2021 at 66.15, over 5 dollars lower. Below there, price can fall to the lows of December 2nd, 2021 at 62.46, then the low from August 23rd, 2021 at 61.76! However, notice that the RSI is sitting on the edge of the oversold area near 30.00. Perhaps WTI may get a bounce? First resistance is at the lows of November 28th at 73.62. Above there, the next resistance level is the highs form November 30th at 83.32 then the highs from October 10th at 93.62!
With central bank meetings from the FOMC, BOE, and ECB, along with CPI data from the US and UK, this is sure to be one of the busiest weeks of the year. Manage positions accordingly. Also, if central banks lean more dovish, watch for the possibility of a Santa Claus rally in stocks into yearend. After this week, markets may begin to slow down as traders reduce positions into the holidays.
Have a great weekend!
Read More:Week Ahead: FOMC, BOE, ECB and CPI Highlight a Busy Week
2022-12-10 04:07:34
