Week Ahead Preview - 15 of August

Markets await important data releases in addition to major central banks’ minutes this week. Investors will read through the RBA and the Fed minutes carefully to find out how monetary policymakers think about their economies and what they may do in the next meeting. investors will keep an eye also on the New Zealand Reserve meeting, to follow the central bank update on its monetary policy and if there are any hints of a near policy change, especially after signs of a decline in the country’s economic performance.

The market’s risk appetite improved significantly last week thanks to the US inflation report for July. The CPI data came in at (8.5% vs 8.7% expected) showing a noticeable decline in the headline inflation from last month’s print at 9.1%, and this was enough reason for investors to rally US major indies between (2.5% – 5%) driven by the idea that the data could lead the Fed to lower its pace in hiking rates and possibly start to cut rates between Q1 and Q2 next year. However, the rally slowed down after Fed members’ speeches that mostly maintained a hawkish tone, stating that this data was not considered a victory over high inflation levels.

Commodities such as Gold, Silver and Copper benefited from the US dollar’s sell-off caused by the improvement in risk appetite, and Oil also recovered some of its losses and rose last week on the possibility of better demand reported by the International Energy Agency (IEA), which expected that the rise natural gas prices may lead to replacing gas with oil. 

Economic data highlights

Monday 15 of August

• JPY- GDP Q2
• CNY- Industrial Production (JUL)
• USD- NAHB Housing Market Index (AUG)

Tuesday 16 of August

• RBA Meeting Minutes
• GBP- Unemployment Rate (JUN)
• EUR- ZEW Economic Sentiment Index (AUG)
• CAD- Inflation Rate (JUL)
• USD- Industrial Production (JUL)

Wednesday 17 of August

• RBNZ Interest Rate Decision
• GBP- Inflation Rate (JUL)
• EUR- GDP Q2
• USD- Retail Sales (JUL)
• USD- FOMC Minutes

Thursday 18 of August

• AUD- Unemployment Rate (JUL)
• EUR- Inflation Rate (JUL)
• USD- Existing Home Sales (JUL)

Friday 19 of August

• JPY Inflation Rate (JUL)
• GBP-Retail Sales YoY (JUL)
• CAD- Retail Sales YoY (JUN)

 
New Zealand reserve decision

Markets expect the RBNZ to continue tightening its monetary policy at this meeting considering the high inflation print in July (7.3%). Hence, it is highly likely to see the central bank hiking the current rate to 3.0% ie, hiking 50 basis points. The RBNZ will release its economic forecasts and probably reduce GDP growth expectations due to signs of economic slowdown (growing unemployment levels from 3.2% to 3.3%).
The Chinese Covid-19 zero policy and its restrictions have affected the New Zealand economy negatively, due to the strong correlation between the two economies. Therefore, markets will look for any indication of monetary policy change in the short/mid-term ie, trimming 25 or 50 bp from the expected 100bp rate hike until mid-2023, and considering rate cuts before the end of 2023.
 
Federal Reserve Minutes
 
Investors wait for the July 27 FOMC meeting minute to find out about the Fed members’ thoughts about the US economic performance and whether the current technical recession (two consecutive quarters of negative growth in GDP) is concerning for them at this stage, knowing that many Fed members’ speeches have been delivered since then.
Its highly likely that the focus of the minute discussions was on inflation levels, and that the next step from the central bank would be data-dependent. Therefore, it is not expected for this minute to move the market a lot, unless showed something that the market has not considered.
It’s worth noting that the market expects the Fed to hike rates by 100 points until the end of the current year, 50 points in September, 25 points in November and 25 in December.