Week Ahead: Unrest in China, Inflation data, Powell, and NFP upcoming

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Last week was a little slower than usual due to the US Thanksgiving holiday, but the RBNZ was still able to sneak in a hawkish 75bps rate hike! Unrest in China’s iPhone factory and ongoing lockdowns due to Covid sent worries through the markets of a continued slowdown. Will it continue this week? But this week should be about the data. In terms of inflation, the EU releases its CPI flash for November and the US releases Core PCE. In addition, the United States will release Non-Farm Payments. Powell is also speaking on the economy and the labor market at the Brookings Institute on Wednesday. Watch for more clues on whether the Fed’s next interest rate will be 50bps or 75bps!

RBNZ

The RBNZ raised the OCR rate by 75bps last week to bring the key rate to 4.25%, the highest since January 2009! The committee discussed migration rates up to 100bps, but in the end, only went with 75bps. In addition, the Committee raised its final rate from 4.1% to 5.5%, which it expects to see in September 2023! This is not only higher than the expected final rate of the US Fed, but also further. The RBNZ also noted that the New Zealand economy could see a recession in the middle of next year, mainly due to labor shortages and wage pressures. It also indicated that house prices will fall 20% from their peak last year. The RBNZ also now sees CPI at 7.5% in 2023 (vs 5.3% previously) and 3.8% in 2024 (3.01% previously).

Covid is returning to China with a vengeance

What started as a Covid lockdown at Foxconn Technology Group, which assembles iPhones, turned into a full-scale riot when workers walked out after the company offered to pay employees more to stay, but did not pay them. Apple has already indicated that iPhone deliveries would be delayed. Eight districts in Zhengzhou, including “iPhone city” have been ordered to stay at home for five days. The lockdowns have only added fuel to the fire, as 6.6 million people are confined to their homes. In Beijing, infections are reaching near-record levels and lockdowns and restrictions are returning to numbers not seen since the start of the pandemic. To help ease markets a bit, the PBOC cut the Reserve Requirement by 25bps, allowing banks to free up capital by $70 billion. Will the riots and protests continue this week? How will the blockade affect production? Will supply chain problems rise again? These will all be questions marketers will be asking over the coming weeks.

Fed Chairman Powell to speak at Brookings

Fed Chairman Jerome Powell will speak about the economy and labor markets at the Brookings Institute this week. After the last FOMC meeting on November 2ndn.d, Powell changed the narrative of the meeting from dovish to hawkish. The statement read that “to determine the pace of rates, we will take into account cumulative tension, political delays and economic and financial developments.” Markets read this as dovish. However, during the press conference that followed, Powell said that “incoming data suggests that the final level of rates will be higher than previously anticipated.” Markets latched onto these comments as hawkish. Since then, the October CPI was 7.7% YoY against a previous reading of 8.2% YoY. Although the October reading was much lower than September’s, it is still elevated and not close to the Fed’s target rate of 2%. The October NFP data was strong, with 261,000 new jobs added to the economy. With the latest inflation readings high and the jobs data still strong, what Powell will the markets see: The dovish Powell who wants to consider policy delays, or the hawkish Powell who talks about higher final rates to fight inflation?

Revenues

Earnings season is almost over, but there are a few names markets will be keeping an eye on this week. Some of the more important names to appear this week are as follows:

HPE, FIVE, CRM, INTU, BIG, DG, KR, MVL

Economic Data

Economic data this week will matter! Powell is speaking on Wednesday, which also happens to be the last day of November (see monthly trends). On Thursday, the US will release the Fed’s favorite measure of inflation, Core PCE. Expectations are that the print will fall to 5% YoY against 5.1% YoY in September. Then on Friday, the US will release jobs. The Nonfarm Payrolls Print for November is expected to be +200,000 versus +216,000 in October. Although lower, it is still expected to be strong. A higher print could give the Fed confidence to raise rates by 75bps at its December meeting. Also, on Wednesday, the EU will release its first look at November CPI data. Expectations are that the headline print will fall to 10.4% YoY versus 10.6% YoY expected. A higher print could have the ECB hiking 75bps at its December meeting as well. Other important economic data released this week are as follows:

sunday

  • China: Industrial Profits (YTD) (OCT)monday
  • Australia: Retail Sales Prel (OCT)
  • UK: CBI Distributive Trades (NOV)
  • United States: Dallas Fed Manufacturing Index (NOV)

tuesday

  • Japan: Unemployment Rate (OCT)
  • Japan: Retail Sales (OCT)
  • UK: BOE Consumer Credit (OCT)
  • EU: Economic Sentiment (NOV)
  • Germany: CPI Prel (NOV)
  • Canada: GDP Growth Rate (Q3)
  • US: S&P/Case-Shiller Home Price (SEP)
  • US: CB Consumer Confidence (NOV)

wednesday

  • New Zealand: Building Permits (OCT)
  • Japan: Industrial Production Prel (OCT)
  • New Zealand: ANZ Business Trust (NOV)
  • Australia: Monthly CPI Indicator (OCT)
  • Australia: Building Permits Prel (OCT)
  • China: NBS Manufacturing PMI (NOV)
  • China: NBS Non-Manufacturing PMI (NOV)
  • Japan: Housing Starts (OCT)
  • Switzerland: KOF Main Indicators (NOV)
  • Germany: Unemployment Change (NOV)
  • EU: CPI Flash (NOV)
  • US: ADP Employment Change (NOV)
  • United States: GDP Growth Rate 2n.d is (Q3)
  • USA: Fed Chairman Powell Speech
  • US: Chicago PMI (NOV)
  • US: Pending Home Sales (OCT)
  • USA: Fed Beige Book
  • Raw Stocks

Thursday

  • Global: Manufacturing PMI Final (NOV)
  • China: Caixin Manufacturing PMI (NOV)
  • Japan: Consumer Confidence (NOV)
  • Germany: Retail Sales (OCT)
  • UK: Nationwide House Prices (NOV)
  • EU: Unemployment Rate (OCT)
  • United States: Personal Expenditure (OCT)
  • United States: Personal Income (OCT)
  • United States: PCE Price Index (OCT)
  • US: ISM Manufacturing PMI (NOV)
  • United States: Construction Expenditure (OCT)

friday

  • New Zealand: Export Prices (Q3)
  • New Zealand: Import Prices (Q3)
  • Australia: RBA Gov Lowe Speech
  • Australia: Retail Sales Final (OCT)
  • Australia: Home Loans (OCT)
  • Germany: Balance of Trade (OCT)
  • Canada: Employment Change (NOV)
  • United States: Nonfarm Payrolls (NOV)

Chart of the Week: 240 Minutes GBP/USD

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Source: Tradingview, Stone X

GBP/USD has moved well from its September 26 lowsth, when it reached 1.0357. More recently, the pair moved higher from 1.1366 and formed a pennant near the 1.1700/1.2000 area. As price approached the apex of the pennant, GBP/USD broke higher. The target for a pennant is the height of the pennant “pole” added to the breakout point. In this case it is near 1.2540. Of course, price rarely moves in a straight line, and on the way to a goal, the pair consolidated in a flag pattern near 1.2100. If price breaks out to the top, the target for the pattern is near 1.2325. Short-term resistance sits at the high of the shorter-term flag near 1.2155. Above there, horizontal resistance sits at the August 10 highsth at 1.2277. If GBP/USD trades above the target for the pennant, the next resistance is at 1.2670, which is the May 27 highs.th. However, if the correction continues lower, the first support is at November 15th peaks at 1.2029. Down there, support is at the pennant lows of 1.1709, then the October 26 highsth at 1.1645.

Will the Chinese unrest and blockade continue this week? If so, it could affect the markets. However, the main focus of the week will be economic data, namely the European CPI, US Core PCE and US non-farm payrolls. Throw in a speech from Fed Chairman Powell, and this week could be volatile!

Have a great weekend!

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