There is a glut of economic data due out this week that could sway decisions at upcoming interest rate meetings.
The UK, and the rest of the world, will mourn the passing of Queen Elizabeth this week. As a result, the Bank of England postponed its upcoming interest rate decision meeting from Thursday to September 22nd. However, data releases will still proceed as planned. This will give the BOE one more week to digest the glut of UK data this week. After the RBA hiked rates by 50bps, the BOC hiked rates by 75bps, and the ECB hiked rates by 75bps, the BOE is expected to increase 75bps. “75bps is the new 25bps” has been written in satires. But it’s not only the UK with data releases this week. There is a glut of economic data that could sway decisions at upcoming interest rate meetings, including CPI and Retail Sales from the US and a data dump from China on Friday!
Last week, the RBA, BOC, and ECB all hiked rates and said more rate hikes are on the way. The RBA hiked interest rates by 50bps to bring rates to 2.35% and said it expects to increase rates in the months ahead to bring inflation down to its 2% to 3% target. However, on Thursday, RBA Governor Lowe said that the RBA could slow the pace of tightening. With that, expectations are that the RBA will only hike 25bps at its next meeting.
The BOC hiked rates 75bps to bring its key rate to 3.25%. As with the RBA, the BOC said that it will need to raise rates further given the outlook on inflation. On Thursday, the BOC’s Rogers said that getting inflation all the way back to 2% will take some time. Will the BOC hike again at its next meeting? On Friday Canada released it Employment Change for August. The print was -39,700, bringing the 3-month total to -113,500. How many more jobs will be lost before the BOC stops raising rates?
The ECB also hiked interest rates by 75bps to bring the key rate from 0% to 0.75%. In addition, the statement read that further rate hikes will be needed to guard against higher inflation expectations. However, Christine Lagarde noted that the central bank is not on a pre-set path and decisions will be made on a meeting by meeting basis.
This week’s data may swing the BOE’s decision as to whether it hikes 50bps or 75bps at its meeting on September 22nd. The UK releases GDP, Manufacturing Production, Industrial Production, Claimant Count Change, CPI, and Retail Sales. The most important of the data points this week will be the August CPI release. Expectations are for an increase to 10.2% YoY after a July reading of 10.1% YoY. The BOE noted at its last meeting that inflation could rise in October to 13.3% and remain elevated through much of 2023. Could a lower than expected reading stop the BOE from hiking 75bps? It’s unlikely. If inflation does fall below 10%, it’s unlikely to be by much, and inflation will still be extremely high.
The US will also release a plethora of data which could swing the FOMC’s decision from 75bps to 50bps when it meets on September 21st. This data includes CPI, Retail Sales, Philly Fed Manufacturing Index, and the Michigan Consumer Sentiment Index. As in the UK, the most important of the data releases will be August CPI. Expectations are that the headline print will fall to 8.1% YoY from 8.5% YoY in August (and from 9.1% YoY in July). However, the Michigan Consumer Sentiment Index could raise some eyebrows as it has been near record lows for the past few months. In addition, the inflation component could be important if it moves higher. However, note that Federal Reserve members will be in the black-out period before the FOMC meeting the following week. Therefore, markets won’t get to hear any type of response to the data before the meeting.
China will have a data dump of its own on Friday when it releases Industrial Production, Retail Sales, and the Unemployment Rate. Recall last month that the data was awful and the PBOC cut interest rates prior to its release. On Wednesday, the PBOC will announce any changes to the 1-Year MLF. If the PBOC is aware that the data on Friday will again be poor, will it cut rates before hand?
Earnings releases will be few and far between for the next month or so. Important earnings releases this week are as follows:
ORCL, MANU, ADBE
Given all the economic data releases mentioned above, one may have considered this to be a busy week. Well, it is! Not only is there important data from the UK, US, and China, but Australia will also release its Employment Change and Germany will release its ZEW Economic Sentiment Index. Other important economic data to be released this week is as follows:
- UK: GDP (JUL)
- UK: Manufacturing Production (JUL)
- UK: Trade Balance (JUL)
- UK: Industrial Production (JUL)
- US: Consumer Inflation Expectations (AUG)
- Japan: BSI Large Manufacturing (Q3)
- Japan: PPI (AUG)
- Australia: Westpac Consumer Confidence Index (SEP)
- Australia: NAB Business Confidence (AUG)
- Germany: CPI Final (AUG)
- UK: Claimant Count Change (AUG)
- Germany: ZEW Economic Sentiment (SEP)
- US: CPI (AUG)
- China: PBOC 1-Year MLF Announcement
- Japan: Reuters Tankan Index (SEP)
- Japan: Machinery Orders (JUL)
- Japan: Industrial Production Final (JUL)
- UK: Inflation data (AUG)
- EU: Industrial Production (JUL)
- US: PPI (AUG)
- Crude Inventories
- New Zealand: GDP (Q2)
- Japan: Trade Balance
- Australia: Employment Change (AUG)
- Australia: RBA Bulletin
- EU: Trade Balance (JUL)
- EU: Labour Cost Index (Q2)
- EU: Wage Growth (Q2)
- UK: BOE Interest Rate Decision **postponed 1 week**
- Canada: Housing Starts (AUG)
- US: Retail Sales (AUG)
- US: Philadelphia Fed Manufacturing Index (SEP)
- US: NY Empire State Manufacturing Index (SEP)
- US: Industrial Production (AUG)
- US: Manufacturing Production (AUG)
- China: House Price Index (AUG)
- China: Industrial Production (AUG)
- China: Retail Sales (AUG)
- China: Unemployment Rate (AUG)
- UK: Retail Sales (AUG)
- EU: CPI Final (AUG)
- US: Michigan Consumer Sentiment Prel (SEP)
Chart of the Week: Weekly UK 10 Year Yields
Source: Tradingview, Stone X
UK yields have been falling since 1982! However, focusing on the weekly timeframe over the last 15 years, 10-Year Gilt Yields have traded from a high of 5.576% in July 2007 down to 0.07% in July 2020. As the fall in yields became smaller and smaller, a descending wedge formed and yields broke out above the pattern in September 2017, near 1.4%. However, yields continued to ride the top trendline of the wedge lower, eventually reaching the July 2020 lows at 0.70%. Since then, UK 10-year yields have been moving higher. This week, yields reached their highest level since June 2011 as expectations of BOE interest rate increases moved higher. Yields reached 3.187%. The first resistance is a gap fill from June 2011 at 3.194%. Above there, yields can move to the 61.8% Fibonacci retracement level from the highs of July 2007 to the lows of July 2020, near 3.473%. Above there, yields can move to 2011 highs at 3.853%. However, notice that the RSI is in overbought territory, an indication that UK 10-year yields may be ready for a correction. The first level of support is the highs from June at 2.744%, followed by the lows from the first week in August at 1.711%. Below there, support is at the February lows of 1.105%.
People from around the world will be offering their condolences for the death of the Queen Elizabeth this week. As a result, the BOE meeting has been pushed back one week to September 22nd. However, that doesn’t mean it will be a slow week! There will be lots of economic data reports to sift through as traders wait for the BOE and the FOMC the following week! Hang on tight for what could be a volatile week!
Have a great weekend!