Global Economic DataUS
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 an 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 confident 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 also release the October Final PMIs, which are projected to indicate contraction, with readings below the 50.0 level that separates contraction from expansion. 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 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 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 is 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.
See this week's Economic Calendar.