Week of September 5

Markets to move focus outside the US with a series of major central bank rate decisions, lockdowns in China, and a new PM in the UK.


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The week in review

• Markets continued their decline through the week as traders focused on a series of data further bolstering the notion that the next cycle of central bank meetings will tighten monetary policy further. SPX500 is back below the 4,000 handle.
• European CPI figures came in above expectations, but PMIs disappointed. Meanwhile more strikes broke out in Europe over pay. EUR/USD closed below parity for the first week in 20 years.
• As expected, Russia closed the Nord Stream 1 pipeline for another round of maintenance. Natural Gas prices dropped after hitting record highs and found support at $9 after Germany announced it was ahead of target in building inventories ahead of winter.
• Chinese PMIs came in better than expected, but the optimism was drained almost immediately after when authorities announced lockdowns in Sichuan to control an outbreak of covid.

The week ahead

Banks at it for another meeting

Monetary policy is expected to be the main driver for the markets next week, with the RBA, BOC, and ECB all meeting. The consensus is for at least 50bps of hikes from all of them. However, following higher-than-expected CPI figures and a widening real interest rate gap with the US, speculation has risen that the ECB might hike by as much as 75bps. EUR/USD might return above parity if that’s so, with $1.01 as a top. The BOC is another that is speculated that could raise rates by 75bps to keep the policy in line with the Fed. Canadian inflation ticked down at the last reading, just like in the US. But also just like the US, core inflation crept higher giving a reason for the central bank to remain hawkish. USD/CAD could head towards $1.35 if the bank disappoints.

Services PMI back in focus

With the return to normal after the pandemic, the focus returned to Manufacturing PMIs. But now consumers are being hit with higher prices, and small retailers are facing dramatically increasing energy bills, particularly in Europe. Chinese retailers are likely to be impacted again by lockdowns, with Caixin services PMI expected to fall, though remain in expansion. Eurozone Services PMI is expected to remain in expansion by the bare minimum. Other indicators of consumer health are expected through the week, including Eurozone retail sales which are forecast to fall again.

Commodity focus

On Wednesday, China announced its trade balance for August, and Canada does the same. The US also reports international trade. On a somewhat related note, on Friday the US reports wholesale inventories. USD/JPY hit a ’98 high above 140.00 which opens the door to 142.00 and 143.50.

Other events and earnings

On Tuesday, Australia reports its current account, and Germany reports industrial orders. Thursday has US consumer credit and Swiss unemployment rate. Friday sees NZ electronic retail sales and China CPI. Earnings during the week include NIO, Gamestop, and Kroger.