Week ahead: it’s all about the FOMC and the BOE

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This week, markets will focus on Wednesday’s FOMC meeting and Thursday’s BOE meeting. Both central banks are expecting high rates.

Monday will be the funeral of Queen Elizabeth II. As a result, the UK will be on a public holiday and UK markets will be closed. On Wednesday, the FOMC will meet to decide whether the Committee should raise US rates by 75 basis points or 100 basis points. Although 75 basis points are expected, the past few weeks of stronger than expected US CPI data have raised some eyebrows among Fed watchers. Also, the BOE will meet on Thursday to decide how much it should raise rates? Initial expectations were for a 75 basis point hike, but over the past month expectations have dropped to a 50 basis point increase. Also note that the FTSE reshuffle will take place this week. It was supposed to take place on Monday, but due to the public holiday, it was moved to Tuesday.

bank of england

The Bank of England’s interest rate decision meeting was due to take place last week. However, due to the death of Queen Elizabeth, the meeting has been postponed until Thursday. The BOE raised rates by 50 basis points at its August meeting to lower the key rate to 1.75%. At the time, the BOE predicted that inflation could rise to 13.3% in October and remain elevated for much of 2023. Additionally, the central bank expected to enter recession in the fourth quarter of 2022. Markets immediately turned to prices. in a 75 ps rate hike at the September meeting. However, last week the UK released CPI data which showed inflation rose from 10.1% yoy in July to 9.9% yoy in August. In addition, due to the recent peak in energy prices, many economists now expect inflation to be lower than the 13.3% estimated in October. The BOE will provide an update this week. As for the economy, retail sales slowed significantly in August. The title fell from +0.4% in July to -1.6% in August. The expectation was -0.5%. Ex-Fuel printing fell by the same amount. Markets are now leaning towards a 50bp rise for the BOE this week.

Federal Reserve

The FOMC is due to meet on Wednesday this week for its September interest rate decision meeting. The FOMC is expected to hike rates by 75 basis points. Last week’s August CPI reading came in at 8.3% YoY versus the expected 8.1% YoY and a previous reading of 8.5% YoY. Although the figures were better than expected, it was the underlying inflation rate that caught the markets’ attention. Core CPI for August was 6.3% YoY versus an expectation of 6.1% YoY and a previous reading of 5.9% YoY. Not only did the print exceed expectations, but it was well above the July reading. This set in motion expectations of a 100 basis point rate hike for this week. At some point after the CPI was released, expectations for a 100 basis point increase soared to almost 50%. However, a cool head appears to be prevailing as markets are now pricing in only a 16% chance of a 100 basis point rate hike (meaning markets are also pricing in an 82% chance of a 75 basis point hike). basis points). Employment numbers continue to impress, with August NFP at 315,000 and US Initial Jobless Claims down for the 5e consecutive week at 213,000 for the week ending September 10e.

FTSE redesign

It’s quarter time: time for the FTSE reshuffle. The reshuffle will take place on Tuesday due to the Monday public holiday, but will be effective as of Monday. The FTSE reshuffle takes place when the FTSE Russell calculates the valuations of UK companies to decide which stocks should be placed in which index. Abrdbn, Hikma and Howden will all leave the FTSE 100.

Earnings

FedEx surprised markets after Thursday’s close by scrapping its forecast for fiscal year 2023, sending stock markets lower on fears of a recession. There are a few companies to watch this week. Will they also drop the tips? Here are some important revenue reports to watch this week:

COST, ACN, HLN, CINE, KGF, GIS, LEN, DRI

Economic data and other central banks

Last week, the markets got a big surprise with higher than expected CPI data from the US. This week, could we see more surprises? The obvious focus for the week will be Wednesday’s FOMC meeting and Thursday’s BOE meeting. However, there are other central banks to watch this week as well. These include the Riksbank, BOJ, SNB, Norges Bank 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 PMIs for manufacturing and services will be released. Other major economic releases this week include:

Monday

  • New Zealand: NZ PSI Services (AUG)
  • Canada: IPP (August)
  • United States: NAHB Housing Market Index (SEP)

Tuesday

  • Japan: CPI (AUG)
  • Australia: RBA meeting minutes
  • Germany: PPI (AUG)
  • Sweden: Riksbank rate decision
  • Canada: CPI (August)
  • United States: Building permit (AUG)
  • United States: Housing starts (AUG)

Wednesday

  • United Kingdom: CBI Industrial Trends Orders (SEP)
  • United States: Existing Home Sales (AUG)
  • United States: FOMC decision on interest rates
  • Crude inventories

Thursday

  • New Zealand: trade balance (AUG)
  • Japan: BOJ decision on interest rates
  • Switzerland: SNB decision on interest rates
  • Norway: Norges Bank interest rate decision
  • Mexico: Mid-Month Inflation Rate (SEP)
  • United Kingdom: BOE decision on interest rates
  • United States: current account (T2)
  • South Africa: SARB decision on interest rates
  • EU: Flash on consumer confidence (SEP)
  • United States: Kansas Fed Manufacturing Index (SEP)

Friday

  • Global: Global Manufacturing and Services (SEP) Flash PMI
  • New Zealand: Westpac Consumer Confidence (Q3)
  • UK: GfK Consumer Confidence (SEP)
  • United Kingdom: CBI Distributive Trades (SEP)
  • Canada: Retail Sales (July)

Chart of the week: weekly gold (XAU/USD)

Source: Tradingview, Pierre X

Gold (XAU/USD) had hit a local low during the week of August 13e, 2018 at 1160.25. Over the next 2 years the precious metal rose aggressively and in August 2020 gold hit a new all-time high at 2075.11! The price then pulled back and tested earlier lows near 1670. However, the price started to move higher and during the week of March 7e, 2022, it tested previous all-time highs and failed, forming an evening star formation on the weekly timeframe. 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 at 1654.25! By breaking the 1670 level (the cleavage), it set up a double top pattern on a weekly timeframe. The target for a double top is the height of the double top at the neckline, added to the breaking point of the neckline. In this case, the target is near 1275, just above the April 2019 support. However, if the price is to reach its target, gold must first break through the 50% retracement level of the August 2013 low to August 2020 highs at 1617.68. Below, the price may drop to support the lower trendline of the descending channel near 1565 and then the 61.8% Fibonacci retracement from the previously mentioned time frame. However, if the breakout of the 1670 level turns out to be a false breakout, the first resistance is at the week’s highs at 1735.21, then the week’s highs of August 8.e at 1807.91. Above, gold can reach highs starting the week of June 13e at 1879.16.

This week, markets will focus on Wednesday’s FOMC meeting and Thursday’s BOE meeting. Both central banks are expecting high rates. However, both could surprise the markets and climb more than expected. Also, watch for potential volatility surrounding earnings releases this week, as well as economic data around the world. Also keep an eye on spot gold to see if it can trade below 1670 and stay there. If so, gold could see a big drop!

Have a good week-end!

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