WIKIFX REPORT: Week Ahead Preview 1st of August

Next week is going to be packed with highly important data and central banks rate decisions. High inflation levels (6.1% in Australia and 9.4% in the UK) may lead the BOE and the RBA to increase interest rates in their upcoming meeting/s.

The Risk appetite has improved this week due to the US GDP miss, as markets considered that the current technical recession (two consecutive quarters of negative growth) may slow down the Feds pace in tightening its policy and even could lead the Central bank to cut rates by Q2-2023. However, investors could get further clarity from the upcoming inflation report/s and the Jackson hole symposium taking place between Aug 25-27.

Commodities like Gold and Silver benefited this week from the US dollar retreat, and oil recovered some of its last weeks losses due to a large decline in US inventories.

Economic data highlights

Monday 1st of August

• AUD Manufacturing PMI (Jul)

• EUR Manufacturing PMI (Jul)

• EUR Unemployment Rate (Jun)

• USD Manufacturing PMI (Jul)

Tuesday 2nd of August

• AUD RBA Interest Rate Decision

• CHF Manufacturing PMI (Jul)

• CAD Manufacturing PMI (Jul)

Wednesday 3rd of August

• NZD Unemployment Rate (Q2)

• AUD Retail Sales (Jun)

• CNY Composite & Services PMI (Jul)

• CHF Inflation Rate (Jul)

• USD non-Manufacturing & Services PMI (Jul)

Thursday 4th of August

• GBP BOE Rate Decision

• CAD Balance of Trade (Jun)

Friday 5th of August

• CAD Unemployment Rate (Jul)

• USD Non-Farm Payrolls (Jul)

• USD Unemployment Rate (Jul)

Central Banks Decisions

Central bank interest rate decisions can have a profound effect on the financial markets. The RBA is expected to take the current interest rate up to 1.85% by hiking 50bp. The RBA governor believes that the neutral nominal rate is at least 2.50% therefore, the Australian economy is not in a restrictive territory although it is not far away from it.

A 50 bp hike looks like the more probable scenario for the BOEs upcoming meeting. Inflation numbers have raised to 9.4% in June and according to MPC members, they find themselves “forced” to reduce them. Further hikes (about 100pb) could take place by the end of 2022, while a technical recession in the UK becomes highly likely.

Non-Farm Payrolls

The Fed chair Powell made it clear on multiple occasions that the central banks priority is taking inflation levels back to its target at 2%, even if that comes with the cost of sacrificing growth levels and increasing unemployment numbers.

With that said, next Friday jobs report is expected to reveal a creation of 255 thousand vacancies in the US and a stabilized unemployment rate at 3.6%. If the actual data come in line with expectations, it could help the Fed to continue its tight policy yet at a slower pace, therefore, 50bp may be in the cards for the September Fed meeting.