Weekly Market Outlook

Weekly Market Outlook: Fed, BoE and RBA Meetings Highlight the Week

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The first week in November is packed with central bank meeting. All eyes will be on the top, the Fed meeting, alongside the jobs data for October. The Bank of England meeting may finally have something exciting for GBP traders this week as market participants are pricing in a sooner rate move. Meanwhile, the Reserve Bank of Australia is expected to keep everything unchanged, while keeping all cards on table.  

USD Awaits Fed and NFP Data 

The US Federal Reserve is expected to announce on Wednesday the tapering plan for its massive bond buying programme. The announcement is widely anticipated by market participants, especially after the last FOMC minutes  hinted at the committee’s intentions to scale back its pandemic stimulus by mid-November. The tapering cycle is seen to begin with an initial monthly reduction of $10 billion in treasury purchase and $5 billion in mortgage-backed securities.  

The minutes also revealed concerns expressed by Fed officials during the September meeting about inflation pressures that are seen to last longer than assumed.  Investors will be curious for any clues about raising interest rates to curb inflationary pressures. The annual inflation rate rose to a 13-year high of 5.4% in September from 5.3% in August. The core index, which excludes food and energy, accelerated by 4% annually. Market participants are pricing in a possible shift in the Fed’s narration about inflation, and maybe admit that inflation is persistent instead of judging price pressures as transitory. 

The job market data, the Fed’s other mandate, will be released on Friday. The US economy is expected to add 397 thousand jobs in October, after a soft reading of 194 thousand in September, which marked the lowest employment level in nine months. Unemployment rate is anticipated to fall from 4.8% to a pandemic low of 4.7%.  

The ISM PMI surveys should show continued growth in both manufacturing and services sectors during October.  

RBA to Sound Cautiously Hawkish  

The Reserve Bank of Australia will be meeting Wednesday morning, with no policy changes are expected this meeting. However, the bank will probably deliver a hawkish tone supported by rising sentiment about recovery in the next few months amid the gradual lift of lockdowns, economy reopening and accelerating vaccination rates. Resuming recovery should give another boost to inflation that is now stabilizing at 3% annually in the third quarter, near its 12.5-year high printed in Q2 at 3.8%.  

The board has been expressing confidence in the economic conditions, expecting the economy to resume its rebound cycle in December. Policymakers stated that the timing and pace of the economic rebound in Australia are uncertain and will depend much on the easing of restrictions.  

The RBA held interest rates at a record low of 0.10% during its October meeting, as widely expected, while continuing the purchases of government bonds at a trimmed pace of A$4 billion a week until at least mid-February 2022. The board reiterated that interest rates won’t rise until inflation sustainably stabilizes within the 2-3% target range, a condition that will not be met before 2024.  

Expectation split between another asset purchases tapering announcement. Maybe the bank will reconsider the end date for its asset purchases, which has been recently pushed forward to February 2022.  

GBP Lower Ahead of BoE’s Meeting

GBP - Weekly Market Outlook

The British Pound has been trading near its 2-week low ahead of BoE’s meeting on Thursday. The Bank is widely expected to keep policy unchanged, however, all eyes are turning to the official statement looking for any clues about a sooner-than-expected rate hike. Governor Bailey stated earlier in October that policymakers would have to act to curb the inflationary pressures. GBP traders are pricing in a rate hike this year, followed by another one next year, and the pound would be hard hit if the bank signals otherwise. 

The annual inflation rate went up 3.1% in September, near its 9-year peak hit in August at 3.2%. In its September meeting, the Bank of England acknowledged that the case for modest tightening strengthened, as inflationary pressures seem to be more persistent. Although considerable uncertainties remain, the bank judged that recent economic development may warrant modest policy adjustments. Two MPC members, Dave Ramsden and Michael Saunders voted for a reduction to government bond purchases by 35 bn. Unlike the Federal Reserve, the first tapering move from the Bank of England could be a rate hike, possibly by 0.15%, and will likely end the asset purchase in December as scheduled.  

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