Economy

It’s rate-hike center By Stocksak


© Stocksak. FILE PHOTO – An eagle flies above the facade of the U.S. Federal Reserve Building in Washington, July 31, 2013. REUTERS/Jonathan Ernst/File photo

LONDON (Stocksak – In the week ahead, it’s rate-hike time with monetary policy meetings in the United States and Britain, Australia, Norway, and Canada.

Any signs that the pace at which big developed economies tighten their belts could slow down are crucial. This puts the spotlight on the U.S. jobs data for October and the euro area inflation data for November. In emerging markets, all eyes will be on Brazil’s second round.

Here’s a look ahead at the week in markets from Kevin Buckland, Lewis Krauskopf & Rodrigo Campos, New York, William Schomberg & Dhara Ranasinghe, London. Graphics by Sumanta Sen and Vincent Flasseur

1/ FOUR IN A ROW

Widely expected to be a fourth consecutive jumbo75-basis point (bps), interest rate hike when the Federal Reserve meets Nov. 1-2.

Instead, investors are more concerned about whether future hikes will be slowened as the Fed weighs the economic risks against its progress in curbing rising inflation.

    Wall Street’s latest rally is underpinned by some hopes the Fed will react to softer economic data by easing up on their aggressive rate hikes. Jerome Powell, Fed chair, has been under pressure from politicians to not put American jobs at risk by tightening their policy too much.

    A consequential week for markets also includes Friday’s October U.S. payrolls report, with economists polled by Stocksak forecasting the economy created 200,000 new jobs.

Graphic: Terminal velocity https://graphics.reuters.com/GLOBAL-MARKETS/zjpqjqyxnvx/chart.png

2/ MORE OF THE SAME

The Bank of England will raise rates by the largest amount since 1989 on Thursday. Market expectations include a 75-bps increase.

This is a decrease from the near-100% bets on a full percentage point leap in Bank Rate. These were doused last Week by new finance minister Jeremy Hunt, who reversed nearly all of Liz Truss’s tax cuts.

The BoE will have a harder time preparing its economic forecasts due to the delay in the release of Hunt’s first budget plan and Rishi Sunak’s new Prime Minister until Nov. 17.

After delays caused in part by Britain’s recent market chaos, the BoE will sell bonds from its stimulus stockpile starting Tuesday.

Graphic: BoE implied interest rate BoE implied interest rate https://graphics.reuters.com/GLOBAL-MARKETS/znpnbdxwgpl/chart.png

3/ PEAK, WHEREART THOU?

The euro area’s attention is on Monday’s October flash inflation estimate.

The bloc’s inflation rate is almost 10%. The European Central Bank just increased its 75 bps rate to manage price pressures.

Like other big central banks the ECB hopes for signs of peak inflation. However, this doesn’t mean that the danger is over. Policymakers and markets will continue to monitor price pressures to determine if they are increasing.

Core inflation, which excludes volatile foods and energy prices, was 6% in September – well over the ECB’s 2% target. Some ECB officials are eager to increase monetary tightening by reducing the number of bonds that it has on its balance sheet.

Graphic: Euro zone’s persisting inflation concerns https://graphics.reuters.com/GLOBAL-MARKET/byprlomoope/chart.png

4/ DOVISH TOO SOON!

The Reserve Bank of Australia faces pressure ahead of Tuesday’s policy meeting.

    Its decision to slow hikes to a quarter point clip earlier this month reverberated through global markets as investors began to consider peak rates might be near.

    But data on Wednesday showing a shock jump in inflation to a 32-year peak suggests the RBA has thrown itself behind the curve, and beckons Governor Philip Lowe to perform an embarrassing about-face.

    The Aussie dollar’s reaction has been fairly subdued so far, but a sudden shift back to a hawkish policy outlook should provide some welcome support to a currency that has been battered by global equity market angst and China growth worries.

Graphic: Australian inflation hits 32-year high https://graphics.reuters.com/AUSTRALIA-ECONOMY/INFLATION/byprlokmepe/chart.png

5/ BRAZIL TAKETWO

Brazil’s presidential race will be held on Sunday. Leftist former President LuizInacio Lula da Silva is currently leading at over 50% in some polls.

The recent incident in which Roberto Jefferson, an old lawmaker and ally of Jair Bolsonaro, opened fire on police officers as he tried to resist arrest, may have hurt the right-wing President. This was not the right kinda harbinger to a Wall Street worried about a contested result. Brazil’s currency fell more than 4% between Monday-Wednesday.

Still, the real is the free-floating emerging market currency that has performed the best compared to the U.S. Dollar so far this fiscal year.

Graphic: Real performance in 2022 https://graphics.reuters.com/GLOBAL-THEMES/BRAZIL/mopakmqlgpa/chart.png

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Stocksak Editorial

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