By :Matt Simpson, Market Analyst
For the first week in a while, US data is not dominating the market focus. With a key US inflation report and FOMC meeting freshly in the rear-view mirror, markets can now shift attention to domestic data. Three top-tier central banks meet next week, including the RBA on Tuesday, followed by the Swiss National Bank (SNB) and Bank of England (BOE) on Thursday. UK inflation data on Wednesday could set the tone for what to expect at future BOE meetings. Flash PMIs across Asia, Europe, and the US then close out the week, which can shape expectations for future growth and inflationary pressures.
The week ahead: Economic calendar
The week ahead: Key themes and events
- UK inflation
- BOE interest rate decision
- SNB interest rate decision
- RBA interest rate decision
- Flash PMIs
UK inflation
Hopes that inflation would cool enough to justify the BOE cutting rates in June or August were dashed in the May inflation report. Core CPI rose 0.9% m/m, its fastest pace in 15 months, and remains nearly twice the BOE’s 2% target at 3.9% y/y. Earnings also remain elevated, which makes cutting rates difficult.
However, employment data continues to worsen, with claimant and unemployment levels rising while job growth continues to contract. Should inflation slow, I suspect bets of a rate cut for August or September will grow. But inflation may need to fall significantly to revive bets of a June cut. Either way, it could weigh heavily on GBP/USD. Whereas another uncomfortably hot inflation report likely supports the British pound, it also makes things tricky for the BOE on a monetary policy front and for Rishi Sunak on a political front ahead of the UK election.
Trader’s watchlist: GBP/USD, GBP/JPY, EUR/GBP, FTSE 100
BOE interest rate decision
Eyes will therefore be on Wednesday’s inflation report, as it will shape expectations for whether the BOE might signal a cut in the coming meetings. To illustrate the potential impact of Wednesday’s CPI report on BOE expectations, we can observe that the OIS (overnight index swap) curve surged following the hotter-than-expected May inflation report. While the OIS curve is now moving lower, indicating a repricing of BOE cut expectations, it still remains elevated compared to levels before the May CPI report.
My guess is that the BOE will not (or at least should not) hint at a cut, given their track record of over-promising and under-delivering action throughout the entire post-pandemic cycle. But that’s just my opinion.
Trader’s watchlist: GBP/USD, GBP/JPY, EUR/GBP, FTSE 100
SNB interest rate decision
GDP in Switzerland exceeded expectations, and SNB President Jordan recently stated that a weaker Swiss franc could reignite inflation. This dampened expectations of another rate cut and sparked speculation that the central bank could intervene to support the currency. Currently, this seems unlikely. The odds of a cut at the upcoming meeting have dropped from roughly 80% a few weeks ago to about 33% this week.
Market positioning for Swiss franc bears is near a historical extreme. Asset managers reached a record level of net-short exposure a few weeks ago (although this has pulled back), and large speculators reached their second-highest level of net-short exposure last week. If the SNB views a weaker Swiss franc as a threat to inflation, it seems unlikely they will cut rates or provide a dovish tone at next week’s meeting.
Trader’s watchlist: USD/CHF, EUR/CHF, GBP/CHF
RBA interest rate decision
The composite PMIs provide an overall picture of a particular region or economy and include individual reports for the manufacturing and services sectors. With many central banks concerned with services inflation, it is the services report that can cause the bigger reaction. Particularly if the headline figures are accompanied by higher prices paid, as it quashes hopes of central bank rate cuts. Key PMI reports for all major regions will be released by S&P Global on Friday, allowing traders to focus on respective forex pairs in hopes of a divergent theme between economies. For example, a strong report from the US and a weaker report from Europe could be bearish for EUR/USD.
Trader’s watchlist: AUD/USD, NZD/USD, AUD/NZD, NZD/JPY, AUD/JPY, ASX 200
Click the website link below to get our Guide to central banks and interest rates in Q2 2024.
Flash Purchase Manager Index (PMIs) for Asia, Europe and the US
The composite PMIs provide an overall picture of a particular region or economy, but also include individual reports for the manufacturing and services sectors. With many central banks concerned with services inflation, it is this report that can cause the bigger reaction. Particularly if the headline figures are accompanied with higher prices paid, as it quashes hopes of central bank cuts. With key PMI reports being released on Friday for al major regions by S&P Global on Friday, it allows traders to focus on respective forex pairs in hopes of a divergent theme between economies. For example, a hot report from the US and weaker report from Europe could be bearish for EUR/USD.
Trader’s watchlist: EURUSD, GBP/USD, USD/JPY,USD/CAD, AUD/USD, EUR/GBP, WTI Crude Oil, Gold, S&P 500, Nasdaq 100, Dow Jones, FTSE, DAX, STOXX, Nikkei, ASX 200
– Written by Matt Simpson
Follow Matt on Twitter @cLeverEdge
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