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All About Inflation

Published 09/11/2022, 12:16 AM

As the world mourns the death of Queen Elizabeth II, the longest-serving British monarch, a series of royal protocols will now unfold. Her majesty was a reassuring constant throughout a world that was always changing. The world will now reflect on memories of her Majesty.

The financial world will see some scheduling changes but will mostly roll on. The Bank of England has postponed the committee’s rate decision until September 22, while the Office of National Statistics will still release key GDP, inflation, unemployment and retail sales data.

The main economic data release for the trading week is the US nflation report. If US inflation decelerates even further in August, Wall Street might grow confident that the Fed may be done with its interest rate hiking cycle by the end of the year. It might be premature for calls that the Fed is getting close to slowing their pace of rate hikes, but a couple more cooler-than-expected inflation reports might do the trick.


It is all about inflation and Wall Street is looking for further signs that pricing pressures are easing. The August inflation report is expected to show an 8.1% price increase on the year, which would be an improvement from the 8.5% pace seen last month. Core inflation however might not be decelerating and that could keep the Fed committed to aggressive tightening. This is the last major economic release before the September 21 FOMC meeting that has most economists expecting another 75 basis-point rate increase. Other key data includes a couple Fed regional surveys and the preliminary consumer sentiment report for September.


With so long to go until the next ECB meeting, it can be easy to be a little dismissive of the economic data but that won’t be possible next week. The central bank hiked interest rates by 75 basis points in September and could do so again next month. Which is what makes next week so interesting. Not only do we get the revised inflation data, we also hear from a number of policymakers including Christine Lagarde over the weekend.

What’s more, European Commission President Ursula von der Leyen will deliver her state of the European Union address to the European Parliament on Wednesday which investors will no doubt pay close attention to.


The country is in mourning after the passing of Queen Elizabeth II and over the next week, little else will matter.

That said, the economy is in a precarious position and facing a recession, one new Prime Minister Liz Truss will hope her energy plan will significantly ease. But with inflation still at eye-watering levels, the Bank of England has a big job on its hands. The rate decision has been postponed by a week in light of the Queen’s passing. We will get the latest interest rate decision along with the latest inflation, labour market, retail sales and GDP data.


The CBR is expected to cut rates again next week, taking the key rate from 8% to 7.5%. Inflation falling and a strong rouble have allowed for that and further cuts may follow.

South Africa

Another quiet week with retail sales on Wednesday the only notable release.


A selection of economic data next week with the highlight being the unemployment rate. In reality, it doesn’t matter when the central bank keeps cutting rates regardless of soaring inflation.


Light on the data next week with PPI inflation the only release. The SNB looks likely to hike again in a couple of weeks, with 75 basis points heavily backed. Given its history of policy surprises, we can’t discount the possibility of a move before then.


The annual rate of foreign direct investment in China (from the beginning of the year to August) and the annual rate of retail sales in China in August will be a focus for the yuan in the short term. The release of important US data will also have a significant impact on the CNY, so it is also important to focus on the upcoming US CPI data for August. If the data has fallen significantly, it may support the yuan in the short term. Equally, a lot is now priced in for the dollar which could soon favour non-US currencies if we see a case of “buy the rumour, sell the fact”.

It’s also worth noting that a lot of effort is being made to support the economy at a time of severe growth headwinds including Covid lockdowns. Further policy surprises may be on the horizon.

Chinese President Xi is expected to meet with Russian President Putin at the Shanghai Cooperation Organisation summit in Uzbekistan.


A selection of economic data next week with the most notable being inflation and industrial output. The former in particular may soon allow the RBI to slow the pace of tightening.

Australia & New Zealand

Australia’s unemployment rate for August is due on Thursday. Global risk aversion has risen over the past few weeks which has been detrimental to the risk-sensitive Australian dollar. This, coupled with recent PMI releases from a number of countries falling below the 50 level has also been unfavourable to commodity currencies.

The recent NZ ANZ Commodity Price Index came in at -3.3% MoM, missing expectations of -1.3% and the previous reading of -2.2%, following the pullback in commodity prices. New Zealand’s second-quarter GDP will be released next Thursday, while the manufacturing PMI for August will be released on Friday. Even if the data is positive, it may only be a short-term positive for the New Zealand dollar.


The divergence between the Fed’s tightening cycle and the Bank of Japan’s steady approach continues to support the dollar against the yen. The pair has soared above 140 this week which has prompted an onslaught of commentary from Japanese officials warning of a possible response. At the moment, it appears to be all talk which is why markets are shrugging it off. If next week’s release of Japanese economic data is positive, it could provide short-term support for the yen.


A light data week with unemployment the only notable number on Monday.



Oil prices rebounded late in the week after collapsing more than 5% on Wednesday on renewed global growth concerns. With policymakers around the world still hawkish on interest rates, most notably in the US, and China locking down major cities in its zero-tolerance fight against Covid, the demand outlook is weakening.

After such a long period of supply driving the crude price, it’s demand that appears to be dominating now with traders anticipating a slowdown, maybe even a recession next year. I can only imagine how OPEC+ is taking the recent price moves, with its warnings and token cut seemingly falling on deaf ears. An emergency meeting may well be on the cards ahead of its scheduled October gathering.


Gold enjoyed a little reprieve on Wednesday, as yields pared recent gains and the dollar pulled off its highs. I’m not sure we should get too excited about gold’s resurgence just yet. The rebound means crucial $1,680 support continues to hold for now but given the backdrop of hawkish central banks and immense uncertainty in the markets, I’m not sure traders are ready to abandon the dollar just yet.

That said, it will be interesting if gold can manage to catapult itself back above $1,730 as that would suggest – in the short term at least – it has found some favour in the markets. With a double bottom perhaps forming in gold, a break of $1,730 could indicate a much more significant corrective move, even if the longer-term trend is still very much against it.


It will be a busy week in the cryptoverse as the long awaited Ethereum Merge is expected to be completed and as many crypto influencers will speak at the Cryptocurrency Seminar in New York.

Bitcoin’s correlation with equities is still holding up despite increasing retail pessimism. After breaking below the $20,000 level, many investors are waiting to see if Bitcoin will retest the summer lows.

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