Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Week Ahead: Will The Fed Surprise At Its Unfashionably Late Hiking Party?

By MarketPulse (Craig Erlam)Market OverviewMay 01, 2022 12:56AM ET
www.investing.com/analysis/week-ahead-will-the-fed-surprise-at-its-unfashionably-late-hiking-party-200623234
Week Ahead: Will The Fed Surprise At Its Unfashionably Late Hiking Party?
By MarketPulse (Craig Erlam)   |  May 01, 2022 12:56AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Time for the Fed to step up

A blockbuster week in store in financial markets and one that begins with bank holiday’s across various countries. Throw in Chinese PMI data over the weekend and it could be a lively start to trading on Monday.

The standout event next week will naturally be the Federal Reserve monetary policy decision on Wednesday when we’re likely to see the first 50 basis point rate hike in more than 20 years.

But does the central bank have a surprise up its sleeve after being unfashionably late to the party?

European energy markets will be another key focus next week with the EU reportedly close to agreeing on a Russian oil embargo. At the same time, the Kremlin is taking aim at “unfriendly countries” that refuse to pay for their gas in rubles. Which country will be next to be cut off?

US

The Fed is widely expected to follow through on delivering a faster pace or rate increases and announce the start of the reduction of their $9 trillion asset portfolio. This should not be a difficult meeting for Fed officials as the Fed has committed itself into delivering a string of rate hikes to finally fight inflation.

The Fed knows its credibility is at stake and they will need to commit to a couple—maybe a few half-point rate increases—before scaling down tightening to 25 basis point increases.

This will be a busy week filled with many major economic data releases, quarterly earnings reports, and Ohio holds a key US senate race to replace Senator Rob Portman who is set to retire.

On Monday, the ISM Manufacturing report is expected to show factory activity posted a small rebound in April and Friday’s nonfarm payroll report to show slower job growth. The April non-farm payroll headline number is expected to decrease from 431,000 in March to 390,000 and the unemployment rate is expected to remain steady at 3.6%.

EU

There’s a huge focus on the EU energy market at the moment as a result of the standoff between Brussels and Moscow over natural gas. Poland and Bulgaria have already been cut off due to their refusal to abide by ruble demands.

Other countries are less keen which is damaging the unity with which the bloc has punished Russia until now. That said, they are apparently close to agreeing on an oil embargo which will cut off a key source of funding for the Kremlin.

How that’s implemented will be key. But all of this means higher energy prices, weaker economies and more pressure on the ECB to hike rates.

Next week offers a lot of economic data, the vast majority of which is tier two and three including final PMIs, unemployment and retail sales.

ECB President Christine Lagarde will speak on Tuesday which will be closely followed for interest rate hints. Markets are pricing in multiple hikes this year now, a far cry from what the ECB signaled at the last meeting. June is now huge.

UK

The Bank of England is expected to continue the trend of a rate hike at every meeting with another 25 basis point increase next week. It appeared to be cooling its hawkish rhetoric last time around but given the inflation indicators since, I expect it to retain a hawkish stance on Thursday.

Markets are pricing in six rate hikes this year, starting next week. The monetary policy report will accompany the decision with new projections and a press conference.

Russia

The CBR cut interest rates to 14% on Friday (17% previously) and hinted at a more modest easing in future (Key Rate in 12.5-14% range). This came as it forecast growth to decline by 8-10% this year and inflation to hit 18-23% in 2022.

Next week offers the services and manufacturing PMIs which could provide further insight into the impact of the sanctions on the domestic economy.

With an oil embargo potentially on the horizon and the Kremlin blocking exports of gas to countries unwilling to pay in rubles, further pain likely lies ahead.

South Africa

Inflationary pressures are continuing to build, as evidenced in the PPI data last week. That will keep the pressure on the SARB to keep raising rates. Next week looks quiet, with the whole economy PMI the only notable release.

Turkey

Analyzing Turkish inflation data has become a purely academic exercise in light of the CBRT’s decision to ignore it when making its policy decisions. It’s expected to hit 68% when the April data is released (CBRT expects it to peak at 70%) on Thursday and the PPI data may be even worse, having leapt nearly 115% in March.

CBRT Governor claimed developments show the rate cuts were the right decision. I’m not sure those impacted by them will agree.

China

Markets are heavily distorted in Asia this week due to a plethora of holidays. China is closed from Monday until Wednesday meaning any negative developments surrounding COVID zero or other geopolitics will be reflected via the offshore USD/CNH and other regional stock markets such as Australia.

We have significant risk this weekend as China released official manufacturing and non-manufacturing PMIs and the Caixin manufacturing PMI.

All had downside risks and with most of Asia, including China and Hong Kong closed on Monday, USD/CNH has significant upside risk, following on from the demolition of the onshore and offshore yuans versus the US dollar this week.

China releases the Caixin non-manufacturing PMI on Thursday, the only other significant data release during the week. If there has been a lot of event risk passing through markets in the first few days of the week, China stock markets could gap quite a long way, up or down when they reopen Thursday, especially if the FOMC surprises in some way in the hours before.

India

The INR and Sensex have been resilient in the past week; perhaps benefitting from investor inflows leaving China. India is on holiday on Tuesday.

India releases manufacturing PMI and balance of trade on Monday, with non-manufacturing PMI on Thursday. Markets will be looking for a negative impact from India’s nationwide power shortages which could put short-term downward pressure on the Sensex and the INR.

Australia

Australia could be a correlation trade for the tier-1 PMI releases from China over the weekend. The poor China data could see the AUD and local equities pressured with most of Asia, ex-Japan closed. Similarly, a decent showing by the China PMIs could have had a positive impact.

Markets, especially currency markets, could face liquidity issues and see sharp moves if the weekend news wire is heavy as Australia and Japan will be the only two major centers open.

Most attention will be focused on Tuesday’s RBA rate decision. A 0.15% hike is fully priced by markets and the clouds from Ukraine and China are weighing heavily on AUD/USD anyway.

If the RBA does not hike, AUD/USD could fall sharply in the short term. If the RBA hikes and adjusts its guidance to be more hawkish, AUD/USD could potentially see a big move higher.

New Zealand

NZD trading faces liquidity issues in the coming week with the majority of Asia on holiday for most of the week. It may move sharply on Monday as a China correlation trade.

Otherwise, NZD/USD continues to underperform AUD/USD badly as markets continue pricing in an economic slowdown and an RBNZ far behind the inflation curve, forcing it to hike New Zealand into a recession.

New Zealand releases employment, participation, labor costs and the RBNZ Financial Stability Report on Wednesday.

All present volatility risk. The RBNZ press conference midday will be monitored for a more hawkish outlook, especially if the labor cost index accelerates higher.

Japan

Japan begins Golden Week and will be closed Tuesday through Thursday. USD/JPY has risen by over 200 points this week and may close above 130.00 this evening.

With most of Asia on holiday Monday except Japan, that would be a perfect day for the MOF to conduct some subtle (or not) selling of USD/JPY into low liquidity conditions.

An unchanged BOJ has left the yen at the mercy of the US/Japan interest rate differential and if US yields rise next week with Japan closed, USD/JPY has significant upside risks.

Singapore

Singapore is closed Monday and Tuesday. It releases the manufacturing PMI on Wednesday and retail sales on Thursday. Both have downside risks given the China slowdown and inflation eroding consumer confidence.

That may force local equities lower, especially as all three heavyweight local banks reported 10% falls in Q1 profits this week.

Like the rest of Asia, the SGD remains under pressure due to a rampant US dollar. That may force the MAS into some buying of SGD to maintain its $NEER corridor with the central bank not due to adjust policy until October.

Economic Calendar

Sunday, May 1

Economic Data/Events

Milken Institute Global Conference begins

Monday, May 2

Economic Data/Events

  • US construction spending, ISM manufacturing
  • Eurozone Markit manufacturing PMI
  • France Markit manufacturing PMI
  • Germany Markit manufacturing PMI
  • New Zealand CoreLogic house prices
  • Australia CoreLogic house prices, inflation gauge, commodity index, PMI
  • India Manufacturing PMI
  • Australia Manufacturing PMI
  • Japan PMI, vehicle sales, consumer confidence index
  • Italy unemployment
  • Coinbase CEO Armstrong speaks at Milken conference

Tuesday, May 3

Economic Data/Events

  • Reserve Bank of Australia (RBA) rate decision: Expected to raise Cash Rate Target 15bps to 0.25%
  • Australia consumer confidence
  • Eurozone PPI, unemployment
  • Germany unemployment
  • Hong Kong GDP
  • Japan vehicle sales
  • Thailand business sentiment index, PMI
  • Mexico international reserves
  • New Zealand building permits
  • South Korea CPI
  • U.K. Markit manufacturing PMI
  • U.S. factory orders, durable goods, light vehicle sales

Wednesday, May 4

Economic Data/Events

  1. FOMC decision: Expected to raise interest rates by a half-point and announce when they will be reducing their balance sheet
  2. US trade data
  3. Australia PMI, retail sales, home loans
  4. Eurozone retail sales, Markit services PMI
  5. Germany trade
  6. RBNZ releases financial stability report
  7. New Zealand unemployment, commodity prices
  8. Singapore electronic sector index
  9. Spain unemployment
  10. EIA crude oil inventory report

Thursday, May 5

Economic Data/Events

  • US initial jobless claims
  • BOE rate decision: expected to raise bank rate 25bps to 1.00%
  • China Caixin PMI composite, services
  • France industrial production
  • Germany factory orders
  • Australia trade, building approvals
  • Thailand CPI
  • India PMI composite, services
  • Norway rate decision: Deposit rate expected to stay steady at 0.75%
  • Poland rate decision: Expected to raise rates 75 or 100bps.
  • Singapore retail sales
  • OPEC+ regular meeting

Friday, May 6

Economic Data/Events

  • US April Change in nonfarm payrolls: 390K expected v 431K prior: unemployment rate: 3.6% expected v 3.6% prior
  • Fed’s Waller and Bullard discuss monetary policy on a panel hosted by the Hoover Institution
  • Sweden’s Riksbank releases minutes from its April 27 meeting
  • BOE chief economist Pill speaks at a monetary policy report briefing
  • Canada unemployment
  • Germany industrial production
  • Japan Tokyo CPI, monetary base
  • RBA statement of monetary policy
  • Australia Foreign reserves
  • Singapore PMI
  • Thailand forward contracts
  • Spain industrial production

Sovereign Rating Updates

  • Czech Republic (Fitch)
  • Portugal (Fitch)
  • Norway (Moody’s)

Original Post

Week Ahead: Will The Fed Surprise At Its Unfashionably Late Hiking Party?
 

Related Articles

Jeffrey Halley
Knot-Tying Masterclass Continues By Jeffrey Halley - Jul 05, 2022 1

I certainly haven’t missed much in my short absence. Yes, volatility remains elevated across every asset class to be sure, although a US holiday yesterday meant a 12-hour...

TD Ameritrade
Investors Already Looking Toward Friday’s Job Report By TD Ameritrade - Jul 05, 2022

Several employment indicators leading up to Friday’s June job report will likely serve as tea leaves for analysts trying to guess those key numbers at the end of the week. With an...

Week Ahead: Will The Fed Surprise At Its Unfashionably Late Hiking Party?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email