Week Ahead: It’s All About the Data!

There is a lot of economic data being released this week that could influence decisions at upcoming interest rate meetings.

Britain, and the rest of the world, will mourn the passing of Queen Elizabeth this week. As a result, the Bank of England has postponed its next interest rate decision meeting from Thursday until September 22.^n.d. However, data release will still continue as planned. This will give the BOE one more week to digest the glut of UK data this week. After the RBA raised rates by 50bps, the BOC raised rates by 75bps, and the ECB raised rates by 75bps, the BOE is expected to increase by 75bps. “75bps is the new 25bps” was written in satires. But it’s not just the UK with data being released this week. There is plenty of economic data that could influence decisions at upcoming interest rate meetings, including CPI and Retail Sales from the US and a data dump from China on Friday!

Central Banks

Last week, the RBA, BOC and ECB all raised rates and said more rates were on the way. The RBA raised interest rates by 50bps to bring rates to 2.35% and said it expected to raise rates in the coming months to bring inflation down to its target of 2% to 3%. However, on Thursday, RBA Governor Lowe said the RBA could slow the pace of tightening. With that, expectations are that the RBA will only hike 25bps at its next meeting.

The BOC raised rates 75bps to bring its key rate to 3.25%. As with the RBA, the BOC said it would have to raise rates due to the outlook for inflation. On Thursday, the BOC’s Rogers said that getting inflation to 2% will take some time. Will the BOC raise again at its next meeting? On Friday Canada published its Employment Change for August. The print was -39,700, bringing the 3-month total to -113,500. How many more jobs will be lost before the BOC stops raising rates?

The ECB also raised interest rates by 75bps to bring the key rate from 0% to 0.75%. In addition, the statement read that additional rates will be needed to protect against higher inflation expectations. However, Christine Lagarde noted that the central bank is not on a predetermined path and decisions will be made on a meeting-by-meeting basis.

UK data

This week’s data may sway the BOE’s decision on whether it raises rates by 50bps or 75bps at its September 22 meeting.^n.d. The UK releases GDP, Manufacturing Production, Industrial Production, Demand Number Change, CPI, and Retail Sales. The most important of the data points this week will be the August CPI release. Expectations are for an increase to 10.2% YoY after July’s reading of 10.1% YoY. The BOE noted at its last meeting that inflation could rise in October to 13.3% and remain elevated through much of 2023. Could a lower than expected reading prevent the BOE from raising 75bps? It is unlikely. If inflation falls below 10%, it is unlikely by much, and inflation will still be extremely high.

US data

The US will also release a lot of data that could change the FOMC’s decision from 75bps to 50bps when it meets on September 21st.^St. This data includes CPI, Retail Sales, Philly Fed Manufacturing Index and the Michigan Consumer Sentiment Index. As in the UK, the most important of the data releases will be August CPI. Expectations are that the headline print will fall to 8.1% YoY from 8.5% YoY in August (and from 9.1% YoY in July). However, the Michigan Consumer Sentiment Index might raise some eyebrows, as it has been near record lows for the past few months. In addition, the inflation component could be important if it moves higher. However, note that members of the Federal Reserve will be in the dark period before the FOMC meeting next week. Therefore, markets will not hear any type of response to the data before the meeting.

Chinese data

China will have its own data dump on Friday when it releases Industrial Production, Retail Sales and the Unemployment Rate. Remember last month the data was terrible and the PBOC cut interest rates ahead of its release. On Wednesday, the PBOC will announce any changes to the 1-Year MLF. If the PBOC is aware that the data on Friday will be bad again, will it cut rates ahead of time?

Revenues

Earnings releases will be few and far between over the next month or so. Major earnings releases this week are as follows:

ORCL, MANU, ADBE

Economic Data

Considering all the economic data releases mentioned above, one might have considered that this is a busy week. Well, it is! Not only is there important data from the UK, US and China, but Australia will also release its Employment Change and Germany will release its ZEW Index of Economic Sentiment. Other important economic data to be released this week are as follows:

monday

• UK: GDP (JUL)
• UK: Production Production (JUL)
• UK: Trade Balance (JUL)
• UK: Industrial Production (JUL)
• US: Consumer Inflation Expectations (AUG)

tuesday

• Japan: BSI Large Manufacturing (Q3)
• Japan: PPI (AUG)
• Australia: Westpac Consumer Confidence Index (SEP)
• Australia: NAB Business Confidence (AUG)
• Germany: CPI Final (AUG)
• UK: Change in Demand Calculation (AUG)
• Germany: ZEW Economic Sentiment (SEP)
• US: CPI (AUG)

wednesday

• China: PBOC 1-year MLF Announcement
• Japan: Reuters Tankan Index (SEP)
• Japan: Machinery Orders (JUL)
• Japan: Industrial Production Final (JUL)
• UK: Inflation data (AUG)
• EU: Industrial Production (JUL)
• US: PPI (AUG)
• Raw Stocks

Thursday

• New Zealand: GDP (Q2)
• Japan: Trade Balance
• Australia: Employment Change (AUG)
• Australia: RBA Bulletin
• EU: Trade Balance (JUL)
• EU: Labor Cost Index (Q2)
• EU: Wage Growth (Q2)
• UK: BOE Interest Rate Decision **delayed 1 week**
• Canada: Housing Starts (AUG)
• US: Retail Sales (AUG)
• United States: Philadelphia Fed Manufacturing Index (SEP)
• United States: NY Empire State Manufacturing Index (SEP)
• United States: Industrial Production (AUG)
• United States: Production Production (AUG)

friday

• China: House Price Index (AUG)
• China: Industrial Production (AUG)
• China: Retail Sales (AUG)
• China: Unemployment Rate (AUG)
• UK: Retail Sales (AUG)
• EU: CPI Final (AUG)
• United States: Michigan Consumer Sentiment Prel (SEP)

Chart of the Week: Weekly UK 10 Year Yield

Source: Tradingview, Stone X

UK yields have been falling since 1982! However, focusing on the weekly time frame over the last 15 years, 10-Year Gilt Yields traded from a high of 5.576% in July 2007 to 0.07% in July 2020. As the drop in yield became smaller and smaller, a downward wedge. formed and yields exploded above the pattern in September 2017, near 1.4%. However, yields continued to ride the upper trend of the wedge lower, eventually reaching the July 2020 lows at 0.70%. Since then, UK 10-year yields have moved higher. This week, yields hit their highest level since June 2011 as expectations of BOE interest rates rose. Yields reached 3.187%. The first resistance is gap filling from June 2011 at 3.194%. Up there, returns can move to the 61.8% Fibonacci retracement level from the July 2007 highs to the July 2020 lows, near 3.473%. Up there, yields may move to 2011 highs at 3.853%. However, note that the RSI is in overbought territory, an indication that UK 10-year yields may be poised for a correction. The first level of support is the highs of June at 2.744%, followed by the lows of the first week in August at 1.711%. Down there, support is at the February low of 1.105%.

People from all over the world will offer their condolences for the death of Queen Elizabeth this week. As a result, the BOE meeting was pushed back one week to September 22^n.d. That doesn’t mean it’s going to be a slow week though! There will be plenty of economic data reports to sift through as traders await the BOE and the FOMC next week! Hold tight for what could be a volatile week!

Have a great weekend!