US Fed Chairman Jerome Powell told the Senate and Banking Committee last week that he was withdrawing the word “transitional”. It should have thrilled the market. However, the chills felt may be from something else – the continuing threat from the Omicron variant of the coronavirus that was discovered the previous week. Ahead of next week’s big central bank show (FED, BOE, ECB), we’ll get a glimpse of what central banks might think this week when the BOC and RBA meet. How concerned are they with the variant? In addition, inflation is the main concern of all central bankers these days. Towards the end of the week, we’ll see the Chinese CPI and CPI, as well as the US CPI. Central bankers will pay attention!
The United States released non-farm wages on Friday, as is customary on the first Friday of the month. The title was well below expectations at +210,000 against +550,000 expected. However, the unemployment rate fell from 4.6% to 4.2%, with an increase in the participation rate. But this data will be of little importance to the FOMC when it meets in 2 weeks. The conference will focus on inflation and the Omicron variant of the coronavirus. As mentioned, Powell is removing the word âtransient,â indicating that the Fed now recognizes what many market participants already knew: Inflation is here to stay.
The unknown variable for the Fed, and all central banks, will move away from jobs and inflation and switch to the exponentially growing variant of the coronavirus, Omicron. The number of new daily cases of the coronavirus variant continues to grow hourly. From what were just a few cases last week, it has now grown to 40 countries, including 4 states in the United States, according to the New York Times tracker Omicron. There are still a lot of unanswered questions about the variant. We know it is growing exponentially. But is this the main cause of the increase in cases in Germany and Austria? Can the variant bypass existing vaccines? We will know more over the days of next week!
This week, the RBA and BOC meet to discuss monetary policy. RBA expected to remain on hold, after scrapping its November 2 yield curve control programsd Meet. They have said they will continue to buy government bonds at a rate of AU $ 4 billion per week until at least February 2022, a policy which began this summer. Many economists expect the RBA to start rising in 2023. However, they appear to be behind on interest rates. As a result, the AUD / USD has fallen from 0.7532 to 0.7003 (as of this writing) since the last RBA meeting. Will the RBA curb its complacency? With the AUD / USD moving so large since the last meeting, watch out for profit taking on Monday.
The Bank of Canada surprised markets by ending its quantitative easing program on their October 27e Meet. Although the committee believes inflation will rise over the next year, it expects it to return to its 2% target by the end of 2022. November 17e, Canada released the CPI for October at 4.7% from 4.4% in September. It was the highest level since February 2003! Will BOC hike rates at this week’s meeting? Not likely. However, watch for clues as to how they will handle inflation in 2022 and perhaps for clues as to whether they might hike rates in the second half of 2022.
Profit season is almost over. However, there are a few names to watch out for this week, including everyone’s favorite GME memes stock! Other companies to report profit are: ORCL, GME, LULU, AVGO, COST, HOV, CHWY, RYCEY
To quote ECB President Christine Lagarde, “inflation, inflation and inflation” will be on everyone’s mind until the first half of 2022. China is releasing both the CPI and the PPI this week , with expectations of 2.5% and 12.6%, respectively. In addition, Japan will release the PPI and the United States will release the CPI data, both on Friday. Expectations are for an impression of the US CPI of 6.7% against a reading of 6.2% in October. If printing is in-line or higher, the FOMC may be caught in a stalemate, between inflation and the Omicron variant. Are they going to increase the reduction or leave it at the current rate of $ 15 billion per month? With the exception of inflation data, the economic calendar will be busy this week, but Germany will release its ZEW Economic Sentiment Index. Other economic data to be released this week is as follows:
- Germany: Factory orders (OCT)
- Germany: Construction PMI (NOV)
- United Kingdom: Construction PMI (NOV)
- EU: Construction PMI (NOV)
- Australia: final building permit (OCT)
- Australia: House Price Index (Q3)
- China: Trade balance (NOV)
- Australia: Decision on Interest Rates
- Germany: Industrial production (OCT)
- United Kingdom: Halifax Hourly Price Index (NOV)
- Germany: ZEW Economic Sentiment Index (DEC)
- EU: GDP growth rate 3e Estimate (T3)
- Canada: Trade balance (OCT)
- United States: Trade balance (OCT)
- United States: Final non-agricultural productivity (Q3)
- United States: final unit labor costs (Q3)
- Canada: Ivey PMI sa (NOV)
- IBD / TIPP Economic Optimism (DEC)
- 3-year ticket auction
- Japan: Growth rate of final GDP (Q3)
- Australia: RBA Map Pack
- Canada: BOC decision on interest rates
- United States: auction of 10-year banknotes
- Stocks of crude
- China: CPI (NOV)
- China: IPP (NOV)
- Germany: Trade balance (OCT)
- United States: 30-year banknote auction
- New Zealand: Business NZ PMI (NOV)
- Japan: IPP (NOV)
- Germany: IPC Final (NOV)
- United Kingdom: Trade balance (OCT)
- United Kingdom: Manufacturing production (OCT)
- United Kingdom: industrial production (OCT)
- United Kingdom: GDP (OCT)
- United States: CPI (November)
- United States: Michigan Consumer Sentiment Prel (DEC)
Chart of the week: weekly AUD / USD
Source: Tradingview, Pierre X
AUD / USD’s 0.7000 level has served as support and resistance no less than 10 times since late 2015. Traders will look for stops below the psychological number (if they haven’t already done so at the end of 2015). as you read this!). The last time the price was at this level was November 2020. The price has retraced 1000 pips since it peaked during the week of February 22nd.sd, 2021 to 0.8007! The 38.2% retracement from the March 2020 lows to the February 2021 highs was 0.7052. The 50% retracement level is the next support level over the weekly period at 0.6757. The horizontal support below is at 0.6570. If the price goes up 0.7000, the 200 week moving average is at 0.7189 then on October 25e weekly highs at 0.7555.
This week has the potential to be volatile. Now that the Fed has pulled the rug out from under the markets by withdrawing the word transitional, markets fear that the Fed is ready to accelerate the reduction in bond purchases. Watch the RBA and BOC this week to find out how central banks could handle the Omicron variant of the coronavirus, ahead of the Fed, BOE and ECB next week. Also keep an eye out for inflation data this week!
Have a great weekend and always remember to wash your hands!