Week Ahead: RBA, BOE, OPEC and NFP Rock Markets This Week
The central bank madness continues this week, with the RBA and BOE set to hike rates by 50 basis points. Watch the wording of statements for hints of further rate hikes (or breaks).
The FOMC continued to make things a bit more difficult for markets by raising interest rates by 75 basis points and acknowledging that rate decisions going forward would be meeting by meeting. This week, the RBA and the BOE have their turn to raise rates. Both central banks are expected to raise rates by 50 basis points. In addition, the earnings season continues to move forward this week. Last week, AMZN and AAPL boosted the markets, while INTL and META lagged. WMT also guided lower. Will continue to see mixed results this week? It’s also non-farm payroll week! With the Fed hanging its hat on a strong labor market as the main reason for the rate hike, will a weaker jobs reading prompt the Fed to slow the pace of the hikes? And don’t forget OPEC+!
Last week, the FOMC raised rates by 75 basis points, taking the federal funds rate from 1.75% to 2.50%. The statement acknowledged that spending and production were weaker, although job gains remained robust. The Fed dismissed the weaker data and said it anticipates continued increases in the Fed Funds rate. However, at the press conference, Fed Chairman Powell noted that rate decisions will be made on a meeting-by-meeting basis, depending on incoming data. On the one hand, Powell noted that another “abnormally” large rate hike might be appropriate, while noting that it might be appropriate to slow the pace of hikes as rates become more restrictive. Powell also said he doesn’t think the US economy is in recession (despite its classic definition as “two consecutive quarters of negative growth”). So, for now, the Fed is data driven. If labor markets continue to be strong, the Fed will continue to rise. However, in the event of cracks in the labor market, the Fed could slow the pace of rate hikes.
The RBA is expected to raise rates by 50 basis points to bring the cash rate down to 1.85%. At the last meeting, the Committee expressed its determination to do what is necessary to reduce inflation. Members also noted that employment was the strongest in 50 years. Therefore, more rate hikes were to come. July 26e, Australia released its CPI data for the second quarter. Headline inflation “only” rose 6.1% YoY vs. 6.2% YoY expected and 5.1% YoY in the first quarter. Additionally, Australia’s preliminary composite PMI fell to 50.6 from 52.6 a month earlier. These data impressions dampened previous expectations of the possibility of a 75 basis point rate hike.
The Bank of England is also expected to raise rates by 50 basis points when it meets on Thursday to cut rates to 1.75%. The latest IPC headline, released on July 20e, showed that inflation in June rose to 9.4% yoy from 9.1% yoy in May. At the central bank’s last meeting, the Committee only hiked 25 basis points, but noted that it would “act forcefully” if necessary, to bring inflation down. Meanwhile, the BOE said it expects inflation to rise to over 11% in October and slower growth in the first half of the forecast period. The preliminary manufacturing PMI for July fell to 52.2 from 52.8 in June, its lowest level since May 2020. Watch the wording of the statement to see if the Committee is worried about tipping the economy into a recession .
OPEC+ is meeting this week to discuss whether to increase production for September. According to sources, member countries could agree to keep oil production stable or increase it slightly in September. The result could disappoint US President Joe Biden, who just weeks ago visited Saudi Arabia to push for increased production. However, with recession fears on the horizon and an inability to meet current quotas, don’t expect OPEC+ to increase production much.
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Last week’s big tech earnings were somewhat mixed with AMZN, GOOGL, AAPL offering better prospects while META disappointed. WMT also lowered its outlook mainly due to pricing actions aimed at improving inventory levels. Meanwhile, UK banks were impressive. This week brings another round of releases, such as PayPal, Airbnb and Rolls Royce. Other companies reporting gains this week include:
HSBC, AMD, PINS, PYPL, ABNB, SBUX, CAT, BP, NVO, TM, CVS, MRNA, COKE, AMGN, TWLO, LLY, BABA, COP, LYFT, UBER, RYCEY
Last week’s economic data was highlighted by the negative US GDP release, which pushed the US into a technical recession. Data continues into early August. China will release PMI data over the weekend, the US will release ISM data and New Zealand, Canada and the US will all release employment reports. The current estimate for the NFP is +250,000. Will it disappoint? Other major economic data releases include:
- China: NBS Manufacturing PMI (JUL)
- China: NBS Non-Manufacturing PMI (JUL)
- China: NBS General PMI (JUL)
- Global: Final Manufacturing PMIs (July)
- New Zealand: Building permit (JUN)
- China: Caixin Manufacturing PMI (JUL)
- Germany: Retail sales (JUN)
- EU: Unemployment rate (JUN)
- United States: ISM Manufacturing PMI (JUL)
- United States: Construction spending (JUN)
- Australia: Building permit (JUN)
- Australia: home loans (JUN)
- Australia: RBA decision on interest rates
- UK: National House Prices (JUL)
- Canada: S&P Global Manufacturing PMI (JUL)
- OPEC+ meeting
- Global: Final PMI Services (JUL)
- New Zealand: change in employment (Q2)
- Australia: Retail Sales Final (JUN)
- Australia: RBA Map Pack
- China: Caixin Services PMI (JUL)
- Germany: trade balance (JUN)
- EU: Retail Sales (JUN)
- EU: PPI (JUN)
- United States: ISM PMI non-manufacturing (JUL)
- United States: Factory orders (June)
- Crude inventories
- Australia: Trade Balance (JUN)
- Germany: Factory orders (JUN)
- United Kingdom: BOE decision on interest rates
- Canada: Trade Balance (JUN)
- United States: Balance of Trade (JUN)
- Australia: RBA statement on monetary policy
- Germany: industrial production (JUN)
- China: Current Account Prel (T2)
- Canada: job change (JUL)
- United States: Nonfarm Payrolls (JUL)
- Canada: Ivey PMI sa (July)
Chart of the week: NASDAQ 100 (monthly)
Source: Tradingview, Pierre X
The end of July brings with it the month-end charts! There were a lot of choices this month, but the NASDAQ 100 seems to be one of the standout charts. In late June, traders had delisted the NASDAQ 100 as it closed at its lowest level since October 2020. However, in July, the big tech index formed a bullish engulfing candle, in which the real body of the candle of July engulfed the true body of the June candle. It’s bullish. First resistance sits slightly above current levels at the 38.2% Fibonacci retracement level from November 2021 highs to June lows at 13225.17. Above there, the price can reach the May highs at 13556.67 and then the 50% retracement from the previously mentioned period near 13901. However, if the price reverses in August, the first support is not until the July lows at 11366.07 and then the June low at 11037.21. Below this, the price may move to the 61.8% Fibonacci retracement level from the March 2020 lows to the November 2021 highs at 10589.22.
The central bank madness continues this week, with the RBA and BOE set to hike rates by 50 basis points. Watch the wording of statements for hints of further rate hikes (or pauses). Additionally, OPEC+ meets on Wednesday. Will they increase production? Finally, non-farm payrolls are due out of the United States on Friday. With the Fed confident in its rate hikes due to strong labor markets, could a worse number cause members to panic?
Have a good week-end!