Volatility has returned to the markets thanks the continued spikes in “transitory” inflation readings from around the globe. This week, the RBNZ will be the first of the major central banks to discuss how they will deal with the continued rise in inflation. Also, Austria becomes the first country in Europe to not only return to full lockdown due to the coronavirus, but also the first to mandate that its population become vaccinated! Germany may be the next to quarantine, but will they require mandates? In addition, it’s time for US President Joe Biden to select the new Fed Chairman. Will it be Jerome Powell, or will it be Lael Brainard? Thursday is a holiday in the US and Friday is a half day, therefore markets will be slower than usual, and US data is front loaded to Wednesday.
RBNZ
The RBNZ meets on Wednesday to address rising inflation and how it should be tackled in New Zealand. Expectations are for a 25bps hike. The central bank said at the last meeting that they expect inflation to rise to around 4% in the near term, before falling to 2% in the medium term. Last week showed that Business Inflation expectations for Q4 rose to 2.96% vs expectations of only 2.4% and 2.27% for Q3. Also, earlier this month, the Q3 Employment Change for New Zealand was +2% vs +0.4% expected. The unemployment rate fell from 3.9% to 3.4%. Retail sales from New Zealand are due out this week before the RBNZ meeting. Expectations for Q3 are -0.5% vs +3.3% for Q2. There seems to be little question that they will hike, but the more important question is: Will they hike 25bps or 50bps?
Coronavirus
The coronavirus is picking up steam in Europe once again. Austria, Germany, Czech Republic, Netherlands, and Belgium are at their highest level of daily new cases. Austria became the first country in Europe to re-impose lockdowns. The country will be under lockdown until December 13th. In addition, Austrian Chancellor Schallenberg went as far as saying that all people must be vaccinated by February 1st, 2022! Germany may not be far behind. They said they will decide on measures as hospitalization rates hit certain thresholds. They also went as far as saying that a national lockdown, for both the vaccinated and unvaccinated, cannot be ruled out! However, the question remains as to whether they will mandate vaccinations.
ECB President Christine Lagarde has been pounding that table all week saying that inflation is transitory, and it will not be necessary to raise rates next year, as people are still hurting from the coronavirus. If the “new variant of the delta variant” continues to spread, this may help back her case. The Euro has fallen from just above 1.1600 to 1.1250 vs the US Dollar over the last 2 weeks as markets move up expectations for a US rate hike and push out expectations for a European rate hike. In addition, Crude Oil was down nearly 6% last week as fears of lower demand for oil crept into the markets. This was the largest weekly drop since the week of August 16th.
Powell or Brainard
US President Joe Biden is about to pick his new Federal Reserve Chairman. And based on all reports, its down to 2 finalists: current Fed Chair Jerome Powell and Federal Reserve member Lael Brainard. If Jerome Powell is selected, markets probably won’t have much reaction. Jerome Powell has already laid out a plan that the Fed will taper bond purchases by $15 billion per month, ending in June 2022. Powell hasn’t said anything that would lead one to expect that he would change this outlook. However, several members of the board have stated that due to rising inflation, its possible to increase the pace of tapering. This would possibility move forward the date for the first rate hike. Markets are currently pricing in a rate hike as soon as June 2022. The FOMC minutes are due out on Wednesday. This may provide more clarity on the Fed’s views.
On the other hand, there is Brainard, who has been branded a dove by the markets. This means that traders would expect rates to remain at low levels for a longer period. What will happen to markets if Brainard is selected? The initial reaction may be higher stocks and a lower US Dollar. However, the mantra that the markets have lived by since the pandemic began until this summer was that bad data was good, as it meant more Fed stimulus. Since the summer, higher inflation readings started changing that view as markets began to fear stagflation was setting in. The question that remains to be seen with Brainard is: How will she react in the face of rising inflation and possible slower growth? Will bad data be good again for the markets? With this uncertainty surrounding her, stocks may head lower until traders get a better acquainted with how she will respond.
Earnings
Earnings season is all but done. However, there are still a few big names to pay attention to this week. They are as follows: ZM, MDT, DELL, HPQ, GPS, DE, PDD
Economic Data
Although this will be a short week for many traders, that doesn’t mean that there won’t be economic data. On Tuesday, markets will get their first look at Manufacturing and Services PMIs for November, as well as Retail Sales data for Q3 from New Zealand. On Wednesday comes the US data dump ahead of the 2-day holiday (US markets have ½ day on Friday, but it will probably be slow). Durable goods, Personal Spending and Income, Core PCE, and the 2nd look at Q3 GDP highlight the day. In addition, FOMC minutes from the last meeting will be released at 2:00pm ET for those who haven’t left for the weekend yet! More of the important economic data to be released this week is as follows:
Monday
- UK: CBI Industrial Trends Orders (NOV)
- EU: Consumer Confidence Flash (NOV)
- US: Existing Home Sales (OCT)
- US: 2-Year Note Auction
- US: 5-Year Note Auction
Tuesday
- Global: Manufacturing PMI Flash (NOV)
- Global: Services PMI Flash (NOV)
- New Zealand: Retail Sales (Q3)
- UK: CBI Distributive Trades (NOV)
- US: 7-Year Note Auction
Wednesday
- Japan: Manufacturing PMI Flash (NOV)
- Japan : Services Flash PMI (NOV)
- New Zealand: RBNZ Interest Rate Decision
- Germany: Ifo Business Climate (NOV)
- Mexico: Mid-month Inflation Rate (NOV)
- US: Durable Goods Orders (OCT)
- US: GDP Price Index 2nd Estimate (Q3)
- US: PCE Price Index (OCT)
- US: New Home Sales (OCT)
- US: Personal Spending (OCT)
- US: Personal Income (OCT)
- US: Michigan Consumer Sentiment Final (NOV)
- US: FOMC Minutes
- Crude Inventories
Thursday
- New Zealand: Trade Balance (OCT)
- Germany: GfK Consumer Confidence (DEC)
- Germany: GDP Growth Rate Final (Q3)
Friday
- New Zealand: ANZ Roy Morgan Consumer Confidence (NOV)
- Australia: Retail Sales Prel (OCT)
- UK: Nationwide Housing Prices (NOV)
Chart of the Week: Weekly USD/TRY
Source: Tradingview, Stone X
As with many of the Charts of the Week, we are often left speechless after the move from the prior week. USD/TRY is no different after moving parabolic and rising 12.34% for the week, from Monday’s open at 10.0043 to Friday’s close near 11.2391. Once price moved above 9.00, we questioned how quickly it would take to rise above 10.00, then how long it would take to get to 11.00. I’ll ask the question you are think now: How long will it take to get through 12.00? Its anyone’s guess, but it’s difficult to go against a move when its moving parabolic! The CBRT cut rates by 100bps last week and said they will reevaluate their rate cut decisions in December. However, as long as Erdogan is calling the shots for the CBRT, many expect the cuts to continue. The next psychological round number of 12.00 is the next resistance level. Support: last weeks low at 9.9554, then horizontal support just below at 9.8486. Below there is a rising trendline the pair broke through during the week of October 11th near 9.2875. If any type of less dovish comments come out of Erdogan regarding interest rates, watch for the pair to pull back aggressively. In addition, watch for stop losses to be triggered if sellers come in, which could push the pair back down to the week’s lows!
With inflation data still running the markets, traders will be watching this week for any signs of it letting up. The RBNZ will give markets some direction, however traders are keenly aware of how hawkish they are. In addition, watch for signs of the reemergence of the coronavirus is other areas, particularly in Europe, and what the responses will be. In addition, watch for the selection of the new US Fed Chairman this week and the markets response!
If you celebrate the upcoming Thanksgiving Day holiday, enjoy your time off.
Remember, US markets are closed Thursday and have a half day Friday.
Have a great weekend!
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