US Fed Chairman Jerome Powell testified last week in front of the Senate and Banking Committee that he is retiring the word “transitory”. This should have sent shivers through the market. However, the shivers felt may have been from something else: the continued threat of Omicron variant of the coronavirus that was discovered the prior week. Before the big central bank show next week (FED, BOE, ECB), we’ll get some insight as to what central banks may be thinking this week when the BOC and the RBA meet. Just how concerned are they about the variant? In addition, inflation is on the top of every central banker’s minds these days. Towards the end of the week, we will see China CPI and PPI, as well as US CPI. Central bankers will be paying attention!
The US released Non-Farm Payrolls on Friday, as is customary on the first Friday of the month. The headline print was way below forecast at +210,000 vs +550,000 expected. However, the Unemployment Rate fell from 4.6% to 4.2% ,with an increase in the participation rate. But this data will matter little to the FOMC when they meet in 2 weeks. The talk will be all about inflation and the Omicron variant of the coronavirus. As mentioned, Powell is retiring the word “transitory”, therefore indicating that the Fed now recognizes what many market participants already knew: inflation is here to stay.
The unknow variable for the Fed, and all central banks, will move away from employment and inflation and onto the exponentially growing variant of the coronavirus, Omicron. The number of new daily cases of the coronavirus variant continues to grow by the hour. From what was only a few cases last week has now grown to 40 countries, including 4 states in the US, according to the New York Times Omicron tracker. There are still many questions unanswered about the variant. We know it is growing exponentially. However, is this the main cause of the increase in cases in Germany and Austria? Can the variant circumvent existing vaccines? We’ll find out more as each day passes throughout next week!
This week, the RBA and the BOC meet to discuss monetary policy. The RBA is expected to remain on hold, after dropping their yield curve control program at the November 2nd meeting. They stated that they will continue to buy government bonds at a pace of A$4 billion a week until at least February 2022, a policy which began in the summer. Many economists expect the RBA to begin hiking in 2023. However, they seem behind the curve when it comes to interest rates. As a result, AUD/USD has fallen from 0.7532 down to 0.7003 (as of the time of this writing) since the last RBA meeting. Will the RBA rein in its dovishness? With such a large move in AUD/USD since the last meeting, be alert for profit taking on Monday.
The Bank of Canada surprised markets by ending its Quantitative Easing Program at their October 27th meeting. Although the committee believes inflation will move higher over the next year, they expect it ease back to their 2% target by the end of 2022. On November 17th, Canada released CPI for October at 4.7% vs 4.4% in September. This was the highest level since February 2003! Will the BOC raise rates at this week’s meeting? Not likely. However, watch for clues as to how they will navigate inflation in 2022 and possibly for clues as to if they may raise rates in the second half on 2022.
Earnings season is all but over. However, there are a few names to watch this week including everyone’s favorite meme stock GME! Other companies to release earnings are as follows: ORCL, GME, LULU, AVGO, COST, HOV, CHWY, RYCEY
To quote ECB President Christine Lagarde, “Inflation, inflation, and inflation” will be on everyone’s minds through the first half of 2022. China releases both CPI and PPI this week, with expectations of 2.5% and 12.6%, respectively. In addition, Japan will release PPI and the US will release CPI data, both on Friday. Expectations are for a US headline CPI print of 6.7% vs a reading of 6.2% in October. If the print is in-line or higher, the FOMC may be caught in a bind, between inflation and the Omicron variant. Will they increase tapering or leave it at the current pace of $15 billion per month? Except for the inflation data, the economic calendar will be lite this week, however Germany will release their ZEW Economic Sentiment Index. Other economic data to be released this week is as follows:
- Germany: Factory Orders (OCT)
- Germany: Construction PMI (NOV)
- UK: Construction PMI (NOV)
- EU: Construction PMI (NOV)
- Australia: Building Permits Final (OCT)
- Australia: House Price index (Q3)
- China: Trade Balance (NOV)
- Australia: Interest Rate Decision
- Germany: Industrial Production (OCT)
- UK: Halifax Hours Price Index (NOV)
- Germany: ZEW Economic Sentiment Index (DEC)
- EU: GDP Growth Rate 3rd Estimate (Q3)
- Canada: Trade Balance (OCT)
- US: Trade Balance (OCT)
- US: Nonfarm Productivity Final (Q3)
- US: Unit Labor Costs Final (Q3)
- Canada: Ivey PMI s.a. (NOV)
- IBD/TIPP Economic Optimism (DEC)
- 3-Year Note Auction
- Japan: GDP Growth Rate Final (Q3)
- Australia: RBA Chart Pack
- Canada: BOC Interest Rate Decision
- US: 10-Year Note Auction
- Crude Inventories
- China: CPI (NOV)
- China: PPI (NOV)
- Germany: Trade Balance (OCT)
- US: 30-Year Note Auction
- New Zealand: Business NZ PMI (NOV)
- Japan: PPI (NOV)
- Germany: CPI Final (NOV)
- UK: Trade Balance (OCT)
- UK: Manufacturing Production (OCT)
- UK: Industrial Production (OCT)
- UK: GDP (OCT)
- US: CPI (NOV)
- US: Michigan Consumer Sentiment Prel (DEC)
Chart of the Week: Weekly AUD/USD
Source: Tradingview, Stone X
The 0.7000 level in AUD/USD has acted as support and resistance no less than 10 times since late 2015. Traders will be gunning for stops below the psychological round number (if they haven’t already by the time you read this!). The last time price was at this level was November 2020. Price has retraced 1000 pips since making a high during the week of February 22nd, 2021 at 0.8007! The 38.2% retracement from the March 2020 lows to the February 2021 highs was 0.7052. The 50% retracement level is the next support level on the weekly timeframe at 0.6757. Horizontal support below there is at 0.6570. If price rallies from 0.7000, the 200 Week Moving Average is at 0.7189 and then the October 25th weekly highs at 0.7555.
This week has the potential to be volatile. Now that the Fed has pulled the rug out from markets by retiring the word transitory, markets are concerned that the Fed may be ready to increase the pace of tapering of bond purchases. Watch the RBA and BOC this week for clues as to how central banks may be handling the Omicron variant of the coronavirus, ahead of the Fed, BOE and ECB next week. Keep an eye on the inflation data as well this week!
Have a great weekend and remember to always wash your hands!