RBA, BOE, OPEC, and NFP to rock markets this week

Central bank mania continues this week, with both the RBA and the BOE expected to hike rates by 50bps. Watch for wording in the statements for hints of further rate hikes (or pauses).

The FOMC continued to make things a bit tougher for the markets as it hiked interest rates by 75bps and acknowledged that rate decisions moving forward will be on a meeting-by-meeting basis. This week, the RBA and the BOE get their turns to hike rates. Both central banks are expected to hike rates by 50 bps. In addition, earnings season continues to move forward this week. Last week, AMZN and AAPL gave the markets a boost, while INTL and META missed. WMT also guided lower. Will see continue to see mixed results this week? It’s also Non-Farm Payroll week! With the Fed hanging its hat on a strong labor market as a main reason for hiking rates, will a weaker jobs reading cause the Fed to slow the pace of hikes? And don’t forget about OPEC+!


FOMC


Last week, the FOMC hiked rates by 75bps bringing the Fed Funds rate from 1.75% to 2.50%. The statement acknowledged that spending and production were softer, though job gains remain robust. The Fed brushed aside the softer data and said that it anticipates ongoing increases in the Fed Funds rate. However, at the press conference, Fed Chairman Powell noted that rate decisions will be made on a meeting-by-meeting basis, depending on the incoming data. On one hand Powell noted that another “unusually” large rate hike could be appropriate, while at the same time noting that it may be appropriate to slow the pace of hikes as rates get more restrictive. Powell also said that he doesn’t think the US economy is in a recession (despite its textbook definition as “two consecutive quarters of negative growth”). So, for now, the Fed is data dependent. If the labor markets continue to be strong, the Fed will continue hiking. However, if there are cracks in the labor market, the Fed may pull back the pace of rate hikes.


Here is a table of key data expected before the Fed's Sept. 20-21 meeting:


How to trade the NFP


RBA


The RBA is expected to hike rates by 50bps to bring the cash rate to 1.85%. At the last meeting, the Committee said that it is committed to doing what it takes to bring down inflation. Members also noted that employment was the strongest in 50 years. Therefore, more rate hikes were to come. On July 26th, Australia released its CPI data for Q2. Headline inflation “only” increased 6.1% YoY vs 6.2% YoY expected and 5.1% YoY in Q1. In addition, Australia’s preliminary composite PMI fell to 50.6 from 52.6 a month earlier. These data prints dampened previous expectations of the possibility of a 75bps rate hike.


BOE


The Bank of England is also expected to hike rates by 50bps when it meets on Thursday to bring rates to 1.75%. The latest headline CPI, released on July 20th, showed that June inflation rose by 9.4% YoY vs 9.1% YoY in May. At the last central bank meeting, the Committee hiked by only 25bps, but noted that it would “act forcefully” if necessary, to lower inflation. At the same time, the BOE said that it expects inflation to rise to over 11% in October and expects growth to slow over the first half of the forecast period. The preliminary Manufacturing PMI for July fell to 52.2 from 52.8 in June, its lowest level since May 2020. Watch for wording in the statement to see if the Committee is concerned about tipping the economy into a recession.


OPEC+


OPEC+ meets this week to discuss whether it should raise output for September. According to sources, member nations may agree to keep oil output steady or increase it slightly in September. The result may disappoint US President Joe Biden who just a few weeks ago flew to Saudi Arabia to lobby for increased output. However, with recession fears on the horizon and an inability to keep up with current quotas, don’t expect OPEC+ to increase output by much.


Earnings


Last week’s big tech earnings were somewhat mixed, with AMZN, GOOGL, AAPL providing better outlooks while META disappointed. WMT also downgraded its outlook primarily due to pricing actions aimed at improving inventory levels. Meanwhile, UK banks were impressive. This week brings on another slew of releases, such as PayPal, Airbnb, and Rolls Royce. Other companies reporting earning this week are as follows:


HSBC, AMD, PINS, PYPL, ABNB, SBUX, CAT, BP, NVO, TM, CVS, MRNA, COKE, AMGN, TWLO, LLY, BABA, COP, LYFT, UBER, RYCEY


Economic Data


Last week’s economic data was highlighted by the negative US GDP print, which put the US into a technical recession. The data continues as the beginning of August rolls out. China will release PMI data over the weekend, the US will release ISM data, and New Zealand, Canada, and the US will all release jobs reports. The current estimate for NFP is +250,000. Will it disappoint? Other major economic data releases are as follows: