The focus for the markets this week will be on the FOMC meeting on Wednesday and the BOE meeting on Thursday. Both central banks expect high rates.
Monday will be the funeral for Queen Elizabeth II. As a result, the UK will be on a bank holiday and the UK markets will be closed. On Wednesday, the FOMC will meet to decide whether the Committee should raise rates in the US by 75bps or 100bps. Although 75bps is expected, last weeks stronger than expected US CPI data has raised some eyebrows among Fed watchers. In addition, the BOE will meet on Thursday to decide how much it should raise rates? Initial expectations were for an increase of 75bps, however over the last month, expectations have dropped to a 50bps increase. Also, note that the FTSE reorganization will take place this week. It was expected to take place on Monday, however due to the bank holiday, it was moved to Tuesday.
Bank of England
The Bank of England interest rate decision meeting was due to take place last week. However, due to the death of Queen Elizabeth, the meeting was postponed until this Thursday. The BOE raised rates by 50 bps at its August meeting to bring the key rate to 1.75%. At the time, the BOE projected that inflation could rise by 13.3% in October and that it would remain elevated for much of 2023. In addition, the central bank expected to enter a recession in Q4 2022. The markets immediately moved to price. in a 75ps rate at the September meeting. However, last week the UK released CPI data which showed that inflation fell from 10.1% YoY in July to 9.9% YoY for August. In addition, due to the recent cap on energy prices, many economists now expect inflation to be lower than the estimated 13.3% in October. The BOE will provide an update this week. As for the economy, Retail Sales slowed considerably in August. The headline print fell from +0.4% in July to -1.6% in August. The expectation was for -0.5%. The ex-Fuelo print decreased by the same amount. Markets are now leaning towards a 50bps hike for the BOE this week.
THE FOMC will meet on Wednesday this week at its September interest rate meeting. Expectations are for the FOMC to raise rates by 75bps. Last week’s August CPI reading came in at 8.3% YoY versus 8.1% YoY expected and a previous reading of 8.5% YoY. Although the print came in better than expected, it was the Core Inflation that caught the attention of the markets. Core CPI for August was 6.3% YoY against expectation of 6.1% YoY and previous reading of 5.9% YoY. Not only did the print beat expectations, but it was much higher than the reading in July. This sent expectations of a 100bps rate hike into motion for this week. At one point after the CPI release, expectations for a 100bps increase soared to nearly 50%. However, cool heads seem to prevail as now markets are only pricing in a 16% chance of a 100bps hike (which means markets are also pricing in an 82% chance of 75bps). The jobs numbers continue to impress, with August NFP at 315,000 and US Initial Jobless Claims falling for the 5th.th consecutive week to 213,000 for the week ending September 10th.
It’s that time of the quarter: time for the FTSE reorganisation. The changeover will take place on Tuesday due to the bank holiday on Monday, however it will take effect from Monday. The FTSE reorganization is when the FTSE Russell calculates the valuations of British companies to decide which shares should be placed in which index. Abrdbn, Hikma and Howden will all leave the FTSE 100.
FedEx surprised the markets after the close on Thursday by removing its guidance for FY 2023, sending the stock markets lower on recession fears. There are a few companies to watch this week. Will they remove leadership as well? The following are some important earnings reports to watch this week:
COST, ACN, HLN, CINE, KGF, GIS, LEN, DRI
Economic Data and other Central Banks
Last week, markets got a big surprise with the higher than expected US CPI data. This week, could we see more surprises? The obvious focus for the week will be on the FOMC meeting on Wednesday and the BOE meeting on Thursday. However, there are also other central banks to worry about this week. They include the Riksbank, BOJ, SNB, Norgesbank and SARB. Any surprises from these central banks could cause volatility in their respective currencies. In addition, Australia will release the Minutes of its last meeting, Canada will release its August CPI, and Flash Manufacturing and Services PMI will be released. Other important economic releases this week are as follows:
- New Zealand: Services NZ PSI (AUG)
- Canada: PPI (AUG)
- United States: NAHB Housing Market Index (SEP)
- Japan: CPI (AUG)
- Australia: RBA Meeting Minutes
- Germany: PPI (AUG)
- Sweden: Riksbank Rate Decision
- Canada: CPI (AUG)
- United States: Building Permits (AUG)
- United States: Housing Starts (AUG)
- UK: CBI Industrial Trend Orders (SEP)
- US: Existing Home Sales (AUG)
- US: FOMC Interest Rate Decision
- Raw Stocks
- New Zealand: Trade Balance (AUG)
- Japan: BOJ Interest Rate Decision
- Switzerland: SNB Interest Rate Decision
- Norway: Norges Bank Interest Rate Decision
- Mexico: Mid-month Inflation Rate (SEP)
- UK: BOE Interest Rate Decision
- United States: Current Account (Q2)
- South Africa: SARB Interest Rate Decision
- EU: Consumer Confidence Flash (SEP)
- United States: Kansas Fed Manufacturing Index (SEP)
- Global: Global Manufacturing and Services PMI Flash (SEP)
- New Zealand: Westpac Consumer Confidence (Q3)
- UK: GfK Consumer Confidence (SEP)
- UK: CBI Distributive Trades (SEP)
- Canada: Retail Sales (JUL)
Chart of the Week: Weekly Gold (XAU/USD)
Source: Tradingview, Stone X
Gold (XAU/USD) hit a local low during the week of August 13th, 2018 at 1160.25. Over the next 2 years, the precious metal moved aggressively higher and in August 2020, Gold made a new all-time high at 2075.11! Price then pulled back and tested previous lows near 1670. However, price began to rise and during the week of March 7th.th, 2022 it tested the previous all-time highs and failed, forming an evening star formation on the weekly time frame. Since then, Gold has moved lower in a descending channel. Last week, the precious metal tested the 1670 level again, only to break it and make an intra-week low of 1654.25! Breaking the 1670 level (the neckline), it set up a double top pattern on a weekly time frame. The target for a double top is the height of the double top to the neckline, added to the breaking point of the neckline. In this case, the target is near 1275, just above support from April 2019. However, if price is to reach its target, Gold must first break through the 50% retracement level from the August 2013 lows to the August 2020 highs at 1617.68. Below there, price can fall to support at the lower trend of the descending channel near 1565 and then the 61.8% Fibonacci retracement of the previously mentioned time frame. However, if the break of the 1670 level proves to be a false break, first resistance is at the highs of the week at 1735.21, then the highs of the week of August 8.th at 1807.91. Above, Gold may move to the highs of the week of June 13thth in 1879.16.
The focus for the markets this week will be on the FOMC meeting on Wednesday and the BOE meeting on Thursday. Both central banks expect high rates. However, both could surprise the markets and expand more than expected. In addition, watch for potential volatility around earnings releases this week, as well as economic data from around the world. Also, look at spot gold to see if it can trade below 1670, and stay there. If so, Gold could be in for a big drop!
Have a great weekend!