Any signs that the pace of aggressive tightening among big developed economies could slow is key. That also puts the spotlight on the October U.S. jobs report and euro area inflation data. In emerging markets, all eyes are on the second round of Brazil’s election.
Here’s a look at the week ahead in markets from Kevin Buckland in Tokyo, Lewis Krauskopf and Rodrigo Campos in New York, and William Schomberg and Dhara Ranasinghe in London. Graphics by Vincent Flasseur and Sumanta Sen.
1/ FOUR IN A ROW
A fourth straight jumbo 75-basis point (bps) interest rate hike is widely expected when the Federal Reserve meets on Nov 1-2.
Investors, instead are focused on whether the pace of future hikes will slow as the Fed weighs the risks to economic growth against its progress in curbing soaring inflation.
Wall Street’s latest rally is underpinned by some hopes the Fed will react to softer economic data by easing up on their aggressive rate hikes. Fed chair Jerome Powell has come under political pressure to be careful of putting U.S. jobs at risk by tightening policy too much.
A consequential week for markets also includes Friday’s October U.S. payrolls report, with economists polled by Reuters forecasting the economy created 200,000 new jobs.
2/ MORE OF THE SAME
The Bank of England looks set to raise rates by the most since 1989 on Thursday with a 75 bps increase baked into market expectations.
That is down from near-100% bets on a full percentage-point leap in the Bank Rate which were doused last week by new finance minister Jeremy Hunt when he reversed almost all of former Prime Minister Liz Truss’s tax cuts.
But the delay of the first budget plan of Hunt and new Prime Minister Rishi Sunak until Nov. 17 will make it harder for the BoE to spell out its economic forecasts.
After delays caused by Britain’s recent market mayhem, the BoE is also due to start selling bonds from its stimulus stockpile on Tuesday.
3/ PEAK, WHERE ART THOU?
In the euro area, all eyes are on the October flash inflation estimate on Monday.
Inflation in the bloc is running at almost 10% and the European Central Bank just delivered its second 75 bps rate increase to control price pressures.
Like other big central banks, the ECB is hoping for signs that peak inflation is coming. That doesn’t mean the danger is over and policymakers and markets will wait to see if underlying price pressures are broadening out.
Core inflation, which strips out volatile food and energy prices, was at 6% in September – well above the ECB’s 2% target. No wonder some ECB officials are keen to take monetary tightening further by winding down the bonds the ECB holds on its balance sheet.
4/ DOVISH TOO SOON?
The Reserve Bank of Australia is under pressure ahead of Tuesday’s policy gathering.
Its decision to slow hikes to a quarter point clip earlier this month reverberated through global markets as investors began to consider peak rates might be near.
But data on Wednesday showing a shock jump in Aussie inflation to a 32-year peak suggests the RBA has thrown itself behind the curve, and beckons Governor Philip Lowe to perform an embarrassing about-face.
The Aussie dollar’s reaction has been fairly subdued so far, but a sudden shift back to a hawkish policy outlook should provide some welcome support to a currency that has been battered by global equity market angst and China growth worries.
5/ BRAZIL TAKE TWO
Brazil’s presidential runoff takes place on Sunday and leftist former President Luiz Inacio Lula da Silva is striking above 50% in some polls.
Right-wing President Jair Bolsonaro may have been hurt by a recent incident in which his ally Roberto Jefferson, a former lawmaker, shot at police as he resisted arrest. This was the wrong kind of harbinger for a Wall Street concerned about a contested result, and Brazil’s currency fell over 4% from Monday to Wednesday.
Still, the real remains the best performing free-floating emerging market currency in Latin America versus the U.S. dollar so far this year.