A major thread running through the markets is how far will the CBs go to bring down price pressures. And currently is appears there is willingness to go a long way, with concomitant concerns central bankers will overdo it, exacerbating the glum tone over the economic outlook. The FOMC, the SNB, Riksbank and Norges Bank are all seen boosting rates by 75 bp next week. The BoE is also on tap and could stick with 50 bp, but is also likely to discuss the option of a larger move. Along with the angst over aggressive rate hikes, two events this week are adding to the threats for the central banks and the markets. FedEx withdrew its outlook for the year, sharply lowered its profit/revenue forecasts from June, and indicated fiscal 2023 will be worse. It noted macro weakness in Asia and challenges in Europe, adding it will cut costs “aggressively.” Additionally, a tentative agreement was reached by the railroad union to avert a crippling strike, and included increasing wages by 24% over five years.
Is this the harbinger of a wage-price spiral that will add to central bank tightening paths?
Tuesday – 20 September 2022
RBA Minutes (AUD, GMT 01:30) – The RBA minutes should provide further guidance. In its latest meeting, RBA’s increased official rate to 2.35% amid inflation fears.
Building Permits & Housing Starts (USD, GMT 12:30) – Housing starts are expected to bounce 1.0% to a 1.460 mln pace in August from a 17-month low of 1.446 mln in July. Permits are expected to ease to an 11-month low of 1.670 mln from 1.674 mln prior low in July.
Consumer Price Index and Core (CAD, GMT 12:30) – July’s CPI edged up 0.1% in July, the smallest monthly increase since the -0.1% slip in December. Meanwhile, the 12-month pace slowed to 7.6% y/y versus the prior 8.1% y/y clip which was the hottest going back to the 8.2% rate from January 1983. The August CPI is expected unchanged at 0.1% m/m. These will keep the BoC in hawkish mode, but it’s not clear another 100 bp hike is in the cards given some indications of erosion in the labor market.
Wednesday – 21 September 2022
Event of the Week – Interest Rate Decision & Statement & Press Conference (USD, GMT 18:00) – The Fed remains on course for a 75 bp hike, with markets speculation of a 100 bp move lingering.The plethora of real sector data released today was mixed but solid enough not to dissuade the Fed. A 75 bp boost is a done deal on Wednesday, with better risk for a 100 bp hike than 25. And the Fed is seen continuing the increase rates over the rest of the year to hit a 4% upper bound in December. Though trade prices have continued to decline, the strength in CPI and PPI, and the broadening of pressures will keep the FOMC committed to bringing inflation down to the 2% goal. All eyes will be on the Fed’s new projections and especially the dot plot for indications of what policymakers are thinking. Slowing in inflation and tepid economic growth in the first half of next year should leave the FOMC sidelined. Treasury curves are also reflecting the hawkish outlooks, with the 2s-10s, the 2s-30s, and 5s-30s spreads all the most inverted the most since 2000.
Thursday – 22 September 2022
Interest Rate Decision, Statement and Conference (JPY, GMT 03:00 & 06:00) –The BoJ’s Kuroda cautioned about the weakening in JPY, catching the markets off guard a bit. He noted the rapid drop will increase the uncertainties for businesses. He also spoke with PM Kishida about the economy and foreign exchange. The comments suggested policymakers may be reconsidering ongoing YCC, however they will stick with a very accommodative policy.
Interest Rate Decision, Statement and Conference (CHF, GMT 07:30) –The SNB also is on course for further rate hikes at the September 22 policy review, especially after the ECB delivered a jumbo 75 bp hike. SNB President Jordan already warned recently that price pressures have become broader based, and that higher inflation may persist for years to come.
Interest Rate Decision, Statement and Conference (GBP, GMT 11:00) –The BoE faces jump in inflation expectations. This week’s inflation report may have been softer than expected in the headline numbers, but core inflation accelerated, and latest BoE/Ipsos inflation expectations survey also flashed red. Expectations for price increases over the next 12 months reached 4.9% in August – up from 4.6% in the previous survey back in May. That is less than the rise in the actual inflation number, but still reflects a worrying development, with 44% now expecting prices to rise by 5% or more over the next 12 months. Another 50 bp rate hike from the BoE in this environment seems a done deal, and there will likely be a debate over a 75 bp move, although with the government moving to cap energy bills CPI is likely to peak lower than previously thought. A 50 bp hike still seems the most likely scenario, although after the ECB moved to 75 bp steps nothing can be ruled out for next week’s BoE decision.
Friday – 23 September 2022
Markit PMIs (EUR, GMT 08:00) – The preliminary Eurozone Composite September PMI is expected to have declined, given a fall in both the Services and Manufacturing sectors, leaving the composite in contraction at 48.2 from 48.9.
Markit PMIs (GBP, GMT 08:30) – The preliminary September Services PMIs and Manufacturing PMIs in the UK are expected unchanged.
Retail Sales (CAD, GMT 12:30) – Core July Retail Sales are expected to grow by 0.9% m/m from 0.8% m/m.
Manufacturing PMI (USD, GMT 13:45) – The preliminary Manufacturing PMI for September is expected to decline to 51.2 from 51.5 while Services PMI is expected to improved by 45 but still in contraction.
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