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Central Banks Remain Hawkish

Published 11/20/2022, 12:32 AM

Wall Street’s shortened trading week will be jam-packed with the FOMC minutes, more Fed speak, the flash PMIs and the final look at the University of Michigan’s inflation expectations.

One of the key events of the trading week will be the Fed’s minutes from the November policy meeting. Financial markets will want to know if the Fed still believes that the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action. The Fed is expected to downshift to a half-point rate-hiking pace in December, but that rate-hiking cycle could last longer if pricing pressures become more entrenched.

US stock and bond markets will be closed Thursday for Thanksgiving Day and will close early on Friday. Traders will pay close attention to Black Friday shopping data, which will give the latest pulse on the health of the US consumer.


The highlight this week may well be the monetary policy accounts, although, with a steady stream of central bank commentary since the last meeting and a raft of economic data, it’s hard to say just how impactful they’ll ultimately be.

The flash PMIs may tell a more interesting story of an economy heading for recession, while appearances from various policymakers – including President Christine Lagarde on Sunday – could fill in any gaps that haven’t already been filled.


It’s hard to get too excited about this week’s PMI data and central bank speak following the assessment from the OBR on the economic outlook, taking into consideration the latest fiscal squeeze. The UK is heading for its largest squeeze on living standards in six decades – a 7.1% decline – as interest rates continue to increase, taxes rise and the cost-of-living crisis intensifies.

The only question that remains is how soon the BoE can pause its tightening among all of these other pressures. It alluded to the fact that markets are pricing in too much at the last meeting but at this moment, another 150 basis points are still priced in.


Another quiet week on the economic data side, with PPI numbers the only notable releases. The focus remains on its invasion of Ukraine and how it handles recent losses in Kherson.

South Africa

This week is action-packed, with inflation data being released on Wednesday ahead of the latest SARB rate decision a day later. While the headline CPI is expected to ease slightly to 7.4%, from 7.5%, core is seen rising from 4.7% to 4.9%, meaning both remain far too high. The SARB inflation target is 3-6%.

That is expected to push the SARB to hike interest rates again next week by 75 basis points, taking the repo rate to 7%.


The CBRT is expected to cut interest rates by another 150 basis points next week despite soaring inflation and a desperately weak currency. The latter has been managed with capital controls over the last couple of years and the new reserve-management system appears to be stabilizing it at record lows despite continued easing. The hope for President Erdogan is this can be carefully managed into next year’s election to at least give the impression of stability amid a potential deceleration in official inflation.


The focus stays on China’s Covid situation. China’s Covid cases are near record highs and that is threatening to delay any looser rules. Expectations are now for China to reopen sometime after March.

Investors widely expect Chinese commercial banks to keep both the 1-year and 5-year Loan Prime Rate (LPR) unchanged at 3.65% and 4.30% respectively. The PBOC might be delaying rate cuts until next quarter as they are concerned about yuan weakness.

Australia And New Zealand

This week is mostly about New Zealand as the RBNZ is expected to deliver its sixth straight half-point rate hike. Hot inflation and wage data are expected to prevent the central bank from downshifting to a slower pace of tightening. Investors hoping for the bank to pause tightening in February might be surprised if the policymakers are worried that inflation isn’t falling quickly enough.

The lone release for Australia will be the preliminary PMI readings. Last month the service sector fell into contraction territory while manufacturing activity continues to soften.


A busy week filled with Japanese data, including preliminary PMI data for the services and manufacturing sectors in November and core CPI data for the Tokyo region in November. Inflation in Japan has hit a four-decade high and that is complicating what the BOJ wants to do. Some economists are expecting Tokyo’s core inflation to slow for the first time since January but that is hardly the overall consensus.


The October inflation report is expected to show pricing pressures eased from 7.5% to 7.0%. The final Q3 Q/Q GDP reading is expected to be revised a tick lower to 1.4%.

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