Week Ahead – All About the Fed and NFP

US

Will the fourth 75 basis-point rate hike be the last major rise before the Fed downshifts in December?  Next week’s FOMC decision is widely expected to be a unanimous vote for one last major rate increase. With the Fed’s preferred price measure still showing inflation is running hot, that might make it harder for them to set up a possible downshift in its rate-hike pace for the December meeting. Despite an acceleration with inflation, strong consumer spending data, and a robust labor market, much of Wall Street is growing confidence that the Fed will pause tightening once they take the funds rate to 4.50-4.75% next quarter.

In addition to the FOMC decision, traders will also closely monitor the nonfarm payroll report.  The strong labor market is still expected to show job growth with 200,000 jobs created in October, down from the 263,000 created in the prior month. The unemployment rate is expected to tick higher and wage gains are expected to slow.

It will be another busy week filled with earnings that will likely confirm the slowdown being seen across the economy.  Healthcare, consumer discretionary, energy, and car manufacturer stocks will report next week.

EU

Inflation has hit double-digits and remains the ECB’s number one priority. The Eurozone releases its inflation report on Monday.

Inflation rose to 10.0% in September, and it is expected to surge to 10.3% in October. Some analysts are expecting a possible surge to 11.0%.  Core inflation is projected to tick higher to 4.9%.

The Eurozone will release the October Final PMIs, which are projected to indicate contraction, with readings below the 50.0 level. Manufacturing will be released on Wednesday and Services on Friday. Manufacturing is expected at 46.6 and Services at 48.2, confirming the initial estimates.

UK

The UK releases Final PMIs for October, with Manufacturing on Tuesday, Services on Thursday and Construction on Friday. The 50.0 line separates contraction from expansion.

The initial readings were 45.8 for manufacturing and 47.5 for services, indicative of weak economic activity in the UK. Construction may provide a silver lining, with an initial reading of 52.3, pointing to slight expansion.

The highlight of the week will be the Bank of England’s rate decision on Thursday. The BoE raised rates by 0.50% in September and is expected to go all in with a jumbo 0.75% hike, which would bring the cash rate to 3.0%. The vote could have two dissenters, which is why markets are expecting a downshift to a half-point pace in December.  The UK may already be in a recession and higher rates will hurt households and businesses, but the BoE has little choice but to continue tightening if it hopes to curb red-hot inflation, which is at 10.1%.

Russia

The war in Ukraine and the severe Western sanctions have taken a steep toll on consumer spending. In August, real retail sales plunged by 8.8% and September, which will be released on Wednesday, is supposed to be just as bad with an 8.6% decline.

South Africa

South Africa’s recovery from Covid-19 has been slow and a weak global economy is not helping matters.

The October PMI will be released on Thursday. The PMI is expected to rise slightly to 49.7, following a 49.2 read in September. A reading below 50.0 indicates contraction.

Turkey

Turkey will release the October inflation report on Wednesday. The Turkish central bank continues to slash interest rates, with a 150 basis point cut earlier in October. This policy has seen inflation soar to staggering levels that are more than 17 times the CBRT’s target rate.  CPI rose to a 24-year high of 83.4% in September, and the consensus for October stands at 85.6%.

Switzerland

Switzerland releases the October inflation report on Thursday. Inflation has been rising in Switzerland, which forced the central bank to raise interest rates by a massive 0.75% in September. Still, inflation is much lower than in the Eurozone or the UK. Headline CPI is expected to tick lower to 3.2%, down from 3.3% in September.

China

Strict anti-COVID measures are about to send China’s factory activity back  into contraction territory. The global growth outlook will struggle as China’s economy shows their recovery is struggling. Both services and manufacturing data are expected to weaken in October.

Currency traders will pay close attention to the PBOC as they have set the yuan reference rate at the weakest levels since 2008. Authorities want a strong yuan, but defending it could prove costly.  They might need to consider narrowing the band.

India

India’s economy is losing momentum and the latest PMI readings might confirm that trend.  The growth outlook continues to get slashed and the current rate hiking cycle is starting to weigh much more on the economy.

The RBI will have an an out-of-cycle meeting next week as the government urges them to get inflation back under 6%.  Traders should not be surprised if some RBI action occurs before the December 5-7th policy decision.

Australia & New Zealand

The focus is on the RBA policy decision. This meeting could have some added volatility as the general consensus leans towards a 25bp rate rise, but a half-point increase should not be ruled out.  Inflation remains hot and with the cash rate nowhere near inflation, the bank might feel more pressure to act aggressively.

New Zealand’s third quarter Employment Change and Unemployment Rate data, due out next Wednesday (2 November), as an increase in employment and a decrease in unemployment will be beneficial to New Zealand’s economic growth. As the overall inflation level in New Zealand remains high, the money markets are pricing in either a half-point rise or 75- basis point rate hike at the RBNZ’s next interest rate meeting on November 23rd.

Japan

The Bank of Japan did not deliver any surprises. Both rates and the 10-year yield target did not have any changes. The yen remains a volatile trade and now the ball is in the Ministry of Finance hands. With momentum growing for the Fed to shift to a slower pace of tightening in December, Japan may try to be aggressive in defending the dollar-yen 150 level. Traders will also pay close attention to the minutes of the last BOJ decision.

Singapore

Singapore’s economy is weakening and the October PMI reading should show that the weakening trend continues. Traders will also pay close attention to the retail sales report for the month of September.

Markets

Energy

Oil markets remain volatile as China ramps up COVID restrictions, some US oil giants signal modest commitments to boost production, and the global economic outlook continues to dim.  Next week, energy traders will get a better sense of how China’s economy is performing despite the COVID lockdowns that happened in October. OPEC will also announce their World Oil Outlook on Monday.

Commodities broadly will also have a reaction to the FOMC policy decision and nonfarm payroll report. A dovish rate rise could allow for dollar weakness which could keep oil prices supported here.  If risk appetite remains healthy, WTI crude could continue to consolidate above the mid-$80s.

Gold

The bullish case for gold is improving as financial markets begin to grow optimistic that the Fed will begin the deliberation of a slower pace of tightening.  Gold could be on the verge of a major breakout if the FOMC decision is supported by the nonfarm payroll report at the end of the week.  Gold has initial support at $1640, with the line in the sand being $1,620.  The $1680 provides major resistance for gold, followed by the $1700 level.

Cryptos

Bitcoin is forming a trading around the $20,000 level as many investors await to see what happens with next week’s market reaction to the FOMC decision. What will also draw extra attention is the Hong Kong Fintech Week, that includes appearances from FTX’s Sam Bankman-Fried, but could contain more insight on how Hong Kong will provide guidelines on how retail crypto trading could be allowed. Binance CEO Zhao and Ark’s Cathy Wood will speak at the Web Summit in Lisbon.

Economic Calendar

Sunday, Oct. 30

Economic Data/Events:

• Brazilians vote in a presidential runoff election between Luiz Inacio Lula da Silva and incumbent Jair Bolsonaro.
• Daylight savings time ends in the UK
• EU trade ministers informal meeting in Prague

Monday, Oct. 31

Economic Data/Events:

• Eurozone CPI, GDP
• Poland CPI
• Mexico GDP
• Australia retail sales
• China manufacturing and non-manufacturing PMI
• Japan industrial production, retail sales, housing starts
• South Africa trade balance
• Thailand trade
• UK mortgage approvals
• Danmarks Nationalbank conference, speakers include ECB Chief Economist Lane, Riksbank Governor Ingves, and Norges Bank Governor Wolden Bache
• Bank of Italy Governor Visco and Italian Finance Minister Giorgetti speak at a World Savings Day event.
• Nordic prime ministers meet in Helsinki for a Nordic Council meeting.
• Hong Kong Fintech Week: Speakers include FTX’s Sam Bankman-Fried, China Banking and Insurance Regulatory Commission’s Yuanqi and the Securities and Futures Commission’s Leung as speakers.
• OPEC launches its 2022 World Oil Outlook at the Abu Dhabi International Petroleum Exhibition and Conference.
• Russian President Putin meets the leaders of Armenia and Azerbaijan in the southern Russian city of Sochi.

Tuesday, Nov. 1

Economic Data/Events:

• US construction spending, ISM manufacturing index, light vehicle sales
• RBA rate decision: Expected to raise rates by 15bp to 2.85%
• China Caixin Manufacturing PMI
• Canada Manufacturing PMI
• Czech Republic Manufacturing PMI
• India Manufacturing PMI
• Japan Manufacturing PMI, Vehicle Sales
• Mexico Manufacturing PMI
• Norway Manufacturing PMI
• Russia Manufacturing PMI
• South Africa Manufacturing PMI
• UK Manufacturing PMI
• Czech Republic GDP
• Macau casino revenue
• Mexico international reserves
• New Zealand building permits
• Denmark’s general election
• Riksbank Governor Ingves gives a speech on the economy and monetary policy, in Helsingborg.
• Web Summit conference; Speakers include Binance CEO Zhao and ARK Investment Management’s Wood

Wednesday, Nov. 2

Economic Data/Events:

• FOMC Decision: Expected to raise rates by 75bps
• US MBA mortgage applications, ADP employment
• European Manufacturing PMI: Eurozone, France, Germany, Italy, Poland, Spain
• Australia building approvals
• Germany unemployment
• Japan BOJ minutes of Sept. meeting
• New Zealand unemployment, central bank Financial Stability Report
• Russia unemployment, retail sales
• EIA Crude Oil Inventory Report
• Bank of Ireland’s Financial System Conference: Speakers include Irish Central Bank Governor Makhlouf, Finance Minister Donohoe and Bank of France Governor Villeroy In Dublin.

Thursday, Nov. 3

Economic Data/Events:

• US factory orders, durable goods, trade, initial jobless claims, ISM services index
• Bank of England Rate Decision: Expected to raise rates by 75bps to 3.00%
• UK services PMI
• Australia trade balance
• China Caixin services PMI
• Eurozone unemployment
• India S&P Global services PMI
• Italy unemployment
• Norway rate decision: Expected to raise rates by 25bps to 2.50%
• Russia services PMI
• Spain unemployment
• G-7 foreign ministers to meet in Munster, Germany
• German Chancellor Olaf Scholz visits China
• RBA’s Kearns speaks at the ASIC Annual Forum in Sydney.
• ECB’s President Lagarde and Elderson speak at Latvijas Banka Economic Conference 2022.
• ECB’s Panetta gives a keynote speech at ECB money market conference.
• BOE’s Mann speaks on a panel about inflation at an American Enterprise Institute web event.

Friday, Nov. 4

Economic Data/Events:

• US October Change in nonfarm payrolls: 200Ke v 263K prior, unemployment Rate to tick higher to 3.6%, Average Hourly Wages
• European Services PMI: Eurozone, France, Germany, Italy, Spain
• Japan Services PMI
• Canada unemployment
• Eurozone PPI
• France industrial production
• Germany factory orders
• Singapore retail sales
• Spain industrial production
• Thailand CPI
• The UN’s Food and Agricultural Organization releases its monthly index of world food prices.
• ECB’s VP de Guindos gives a keynote speech at the Energy Prospectives session
• ECB President Lagarde gives a lecture on monetary policy in the euro area organized by Estonia’s central bank.
• Fed’s Collins speaks on macroeconomic conditions at a Brookings Institution virtual event.

Sovereign Rating Updates:

• France (Fitch)
• Ireland (Moody’s)
• Norway (Moody’s)

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