The uproar of Central Banks!
The week ahead will be the central banks’ weeks as central banks in the UK, US, China, Swiss, Japan, Brazil, Turkey, and some other developing economies will have monetary policy meetings. Inflation is still high in most developed countries, and in some other economies like China and Japan also started to grow. At the same time, we have more signs of slower economic growth in 2023, especially in the privet sector’s outlook.
1- US Housing data – Tuesday & Wednesday
Housing starts, and new home sales data on Tuesday and Wednesday will be out. Both indexes have been easing in recent months, and now, while the mortgage rate increased above 6.2%, and both mortgage applications for purchase and pending home sales dipped in July, we can expect weaker numbers in August as well. At the same time, fewer permits over the past five months point to another move lower in total Housing start in August. Ahead of Wednesday’s FED meeting, market participants can ignore these data and wait for Wednesday’s FOMC announcement.
2- FOMC Rate Decision – Wednesday
Last week’s inflation numbers increased the expectations for a 75-basis points rate hike and USD demands. At the same time, US economic data, especially labor market data, represent acceptable economic conditions, at least in the current situation. Along with interest rate decisions and monetary policies, FED will update its Economic Projections and future rates and inflation estimates. For 2022, the federal funds rate is expected to be 3.875%, up from 3.375%, which is predicted to be 4.125% by next year. We can also wait for weaker GDP and employment data estimates in This week’s FOMC economic outlook. It is impossible to comment on the market reactions before Pavel’s press conference and hear his answers to reporters.
3- Bank of Japan – Thursday
While Yen is significantly underperforming and many are waiting for the central bank’s intervention, I must mention that a weaker currency can play a positive role in increasing Japan’s export and also can cause higher inflation, which is one of the main goals of Japanese officials. It seems that, for now, policymakers will prioritize the economic growth and inflation dynamics as opposed to a more stable currency. Therefore, we expect no changes in BoJ’s policies and interest rates, which can lead the Yen to weaker levels, probably around 150.
4- Bank of England – Thursday
While last week’s published inflation numbers were somehow softer than expectations, they were just in headline numbers, and core inflation accelerated. Also, as we already saw in the US, inflation started to increase again after one or two months of softening, so we cannot count on solving the inflation problems with one report. Therefore, we are still waiting for at least a 50-basis points rate hike by BoE’s MPC. I say at least because, with hawkish decisions in Europe, the US, and some other economies, surprises also can happen. Bigger than 50-basis points expected rate hike could help the Sterling against its crosses; otherwise, bears can continue the trend.
5- Other Central Banks
While most eyes will be on the FED meeting and then central banks’ meetings in the UK and Japan, we have other investors and traders who will also be worried about other economies. Thursday will be a crazy day, as in line with BoJ and BoE, we also have Turkish and Swiss central banks’ meetings. Estimates are for no change in policy in Turkey and a 25-basis point rate hike by the Swiss National Bank. On Friday, the Brazilian central bank will meet, and we expect policymakers in Brazil to stay on hold after last month’s 50-basis point rate hike.
6- Eurozone PMIs – Friday
The energy crisis led the European economy into recession and is expected to have more signals that the Eurozone economy is likely to fall, with weaker estimated PMI numbers in the service and Manufacturing sectors. While inflation in Eurozone is still increasing, and we are waiting for a more hawkish stance from ECB, these data are supposed to increase the pressure on the European currency and stock markets.