Week Ahead Preview 5th of September

Three major central banks are expected to hike their interest rates by 50 bp or above this week. Investors will also keep an eye on key data releases to adjust their positions accordingly.
 
Markets’ risk appetite deteriorated further on news of Russia cutting off gas supplies completely and indefinity to Europe threatening of an energy crisis this winter in the continent. Consequently, the Euro slipped, and the US Dollar index rallied on Monday to a new 20-year high at 110.04. 
 
A new prime minister will finally be known on Monday in the UK . The foreign minister Liz Truss looks likely to beat her competitor the former Chancellor of the Mr Rishi Sunak. Investors will keep an eye on the new 10 Downy Steet’s resident’ policy to support households and businesses in the current energy crisis and his/her Brexit policy. 
 
The August Jobs report of Friday revealed a robust growth in the US jobs market as the economy added 315 thousand jobs. The report also showed lower-than-expected average hourly earnings at 5.2% with higher labor participation which rose from 62.1 to 62.4%. This data indicates that the Fed may start slowing down its rate hiking pace from November. In this scenario, it is highly likely to see the Fed hiking in September by 75bp, November by 50bp and December by 25bp.

Economic data highlights

Monday 5^th of September

• AUD - Global Services PMI Final (AUG)
• CNY - Caixin Composite PMI (AUG)
• CHF - GDP Growth Rate (Q2)
• EUR - Global Services PMI Final (AUG)
• GBP - Global/CIPS UK Services PMI Final (AUG)
• Retail Sales (JUL)

Tuesday 6^th of September

• RBA Interest Rate Decision
• USD - Global Composite PMI Final (AUG)  
• USD - ISM Non-Manufacturing PMI (AUG)

Wednesday 7^th of September

• AUD - GDP Growth Rate (Q2)
• EUR - GDP Growth Rate (Q2)
• CAD - BoC Interest Rate Decision

Thursday 8^th of September

• JPY - GDP Growth Annualized Final (Q2)
• RBA Gov Lowe Speech
• CHF- Unemployment Rate (AUG)
• ECB Interest Rate Decision and Press Conference

Friday 9^th of September

• CNY- Inflation Rate (AUG)
• CAD- Unemployment Rate (AUG)

 
Major Central Banks’ Decisions
 
The Reserve Bank of Australia will probably deliver a 50bp hike this week taking the current rate from 1.85% to 2.35% aiming to control high inflation levels of 6.1% in July. The Central bank might slow the pace of hiking from here on nonetheless, any future decision is going to be data dependent.
 
The Bank of Canada surprised investors with a 1% hike at the July meeting hinting at more hikes on the horizon to control high inflation levels. The BoC highlighted in the previous meeting that the economy was experiencing “excess demand” and the fact that inflation in July was at 7.6% (far away from its 2% target) it is expected that the BoC could hike by 75 bp in this meeting taking the current interest rate from 2.50% to 3.25%. The central bank is highly likely to hike further this year given its board member’s assurances to bring inflation levels back to target.
 
The new record inflation headline of August 9.1% and ECB members’ hawkish speeches led markets to price in a near 75 bp rate hike in the meeting of September this week, taking the current interest rate from 0.50% to 1.25% .Further hikes are expected in the coming ECB meetings this year in October and December.