Upcoming News for this Week:- FOMC, RBA, BOE
The FOMC increased rates by 75bps increasing the Fed Funds rate from 1.75% to 2.50%. The statement confirmed that spending and production were soft, however job increase remain strong. The Fed put softer data aside by saying that it anticipates ongoing increase in the Fed Funds rate. It was announced by the Fed Chairman Powell that the rate decisions will be made on a meeting to meeting basis which depends on the incoming data. On one side it was announced that another unusual large market rate hike could be expected and it could also be possible to slow down the rate hikes to get more restrictive. For now the Fed is data dependent. IF the labor markets continue to be strong, the Fed will continue hiking. If there are cracks in the labor market, the Fed may pull back the pace of rate hikes.
The RBA is expected to increase the rate 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. Employment is also strongest in the past 50 years. Therefore, more rate hikes could be expected. On July 26th the second quarter CPI data was released and the inflation increased form 6.1% to 6.2% expected, and in the first quarter it was 5.1%. Australia’s preliminary composite PMI fell to 50.6 from 52.6 within a month. Based in these data prints a rate hike is expected which would be 75bps.
The Bank Of England is also expected to increase the rates by 50bps when they will have a meeting on Thursday to 1.75%. The latest headline which was released on 20th July by CPI showed that June inflation rose by 9.4% YoY which was 9.1% YoY in May. There was an increase of only 25bps on the last meeting of central bank. The BOE announced that it expects the inflation to rise 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, which is its lowest level since may 2020.