Sat, Jan 28, 2023 @ 17:17 GMT
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Week Ahead: Unrest in China, Inflation data, Powell, and NFP upcoming

Last week was a bit slower than usual due to the US Thanksgiving holiday, but the RBNZ was still able to sneak in a hawkish 75bps rate hike! Unrest at China’s iPhone factory and continued lockdowns due to Covid have sent worries through the markets of a continued slowed.  Will it continue this week?   But this week should be all about the data.  Regarding inflation, the EU releases its CPI flash for November and the US releases Core PCE.  In addition, the US will release Non-Farm Payrolls.  Powell also speaks on the economy and labor market at the Brookings Institute on Wednesday.  Watch for more clues as to if the upcoming Fed interest rate hike will be 50bps or 75bps!

RBNZ

The RBNZ hiked the OCR rate by 75bps last week to bring the key rate to 4.25%, the highest since January 2009! The committee discussed hiking rates by as much as 100bps, but ultimately, only went with 75bps.  In addition, the Committee raised its terminal rate from 4.1% to 5.5%, which it expects to see in September 2023!  This is not only higher than the US Fed’s expected terminal rate, but further out as well.  The RBNZ also noted that the New Zealand economy could see a recession in the middle on next year, mainly due to labor shortages and wages pressures.  It also indicated that housing prices will fall 20% from its peak last year.  The RBNZ also now sees CPI at 7.5% in 2023 (vs 5.3% prior) and 3.8% in 2024 (3.01% prior).

Covid returns to China with a vengeance

What began as a Covid lockdown at Foxconn Technology Group, which assembles iPhones, had turned into a full-scale riot as workers walked out after the company offered to pay staffers more to stay, but had not paid them.  Apple has already indicated that iPhone deliveries would be delayed. Eight districts in Zhengzhou, including “iPhone city” have been told to stay at home for five days. The lockdowns only added fuel to the fire as 6.6 million people are confined to their homes.  In Beijing, infections are reaching near record levels and lockdowns and restrictions are returning to numbers not seen since the beginning of the pandemic.  To help ease markets a bit, the PBOC cut the Reserve Requirement Ratio by 25bps, allowing banks to free up capital to the tune of $70 billion.  Will the riots and protests continue this week? How will the lockdowns affect production?  Will supply chain issues increase again?  These will all be questions traders will be asking over the next few weeks.

Fed Chairman Powell to speak at Brookings

Fed Chairman Jerome Powell will be speaking on the economy and labor markets at the Brookings Institute this week.  After the last FOMC meeting on November 2nd, Powell changed the narrative of the meeting from dovish to hawkish.  The statement read that “in determining the pace of rate hikes, we will consider cumulative tightening, policy lags, and economic and financial developments.” Markets read this as dovish. However, during the press conference which followed, Powell said that “incoming data suggests that the ultimate level of rates will be higher than previously anticipated.”  Markets latched onto these comments as hawkish.  Since then, the October CPI was 7.7% YoY vs a previous reading of 8.2% YoY. Although the October reading was much lower than that of September’s, it is till elevated and nowhere near the Fed’s target rate of 2%.  The October NFP data was strong, with 261,000 new jobs added to the economy.   With the latest inflation readings high and the jobs data still strong, which Powell will the markets see:  The dovish Powell, who wants to take policy lags into account, or the hawkish Powell, who talks about higher terminal rates to combat inflation?

Earnings

Earnings season is just about over, however there are a few names that markets will be paying attention to this week.  A few of the more important names due out this week are as follows:

HPE, FIVE, CRM, INTU, BIG, DG, KR, MVL

Economic Data

Economic data this week will matter! Powell speaks on Wednesday, which also happens to be the last day of the November (watch for month-end flows).  On Thursday, the US will release the Fed’s favorite measure of inflation, Core PCE. Expectations are for the print to drop to 5% YoY vs 5.1% YoY in September. Then on Friday, the US will release jobs data.  The Non-Farm Payrolls print for November is expected to be +200,000 vs +216,000 in October.  Although lower, it is still expected to be strong.  A higher print could give the Fed confidence to hike rates by 75bps at its December meeting.  Also, on Wednesday, the EU will release its first look at November CPI data.  Expectations are for the headline print to drop to 10.4% YoY vs 10.6% YoY expected. A higher print could have the ECB hiking 75bps at its December meeting as well.  Other important economic data due out this week is as follows:

Sunday

  • China: Industrial Profits (YTD) (OCT)Monday
  • Australia: Retail Sales Prel (OCT)
  • UK: CBI Distributive Trades (NOV)
  • US: Dallas Fed Manufacturing Index (NOV)

Tuesday

  • Japan: Unemployment Rate (OCT)
  • Japan: Retail Sales (OCT)
  • UK: BOE Consumer Credit (OCT)
  • EU: Economic Sentiment (NOV)
  • Germany: CPI Prel (NOV)
  • Canada: GDP Growth Rate (Q3)
  • US: S&P/Case-Shiller Home Price (SEP)
  • US: CB Consumer Confidence (NOV)

Wednesday

  • New Zealand: Building Permits (OCT)
  • Japan: Industrial Production Prel (OCT)
  • New Zealand: ANZ Business Confidence (NOV)
  • Australia: Monthly CPI Indicator (OCT)
  • Australia: Building Permits Prel (OCT)
  • China: NBS Manufacturing PMI (NOV)
  • China: NBS Non-Manufacturing PMI (NOV)
  • Japan: Housing Starts (OCT)
  • Switzerland: KOF Leading Indicators (NOV)
  • Germany: Unemployment Change (NOV)
  • EU: CPI Flash (NOV)
  • US: ADP Employment Change (NOV)
  • US: GDP Growth Rate 2nd Est (Q3)
  • US: Fed Chairman Powell Speech
  • US: Chicago PMI (NOV)
  • US: Pending Home Sales (OCT)
  • US: Fed Beige Book
  • Crude Inventories

Thursday

  • Global: Manufacturing PMI Final (NOV)
  • China: Caixin Manufacturing PMI (NOV)
  • Japan: Consumer Confidence (NOV)
  • Germany: Retail Sales (OCT)
  • UK: Nationwide Housing Prices (NOV)
  • EU: Unemployment Rate (OCT)
  • US: Personal Spending (OCT)
  • US: Personal Income (OCT)
  • US: PCE Price Index (OCT)
  • US: ISM Manufacturing PMI (NOV)
  • US: Construction Spending (OCT)

Friday

  • New Zealand: Export Prices (Q3)
  • New Zealand: Import Prices (Q3)
  • Australia: RBA Gov Lowe Speech
  • Australia: Retail Sales Final (OCT)
  • Australia: Home Loans (OCT)
  • Germany: Trade Balance (OCT)
  • Canada: Employment Change (NOV)
  • US: Non-Farm Payrolls (NOV)

Chart of the Week: 240 Minute GBP/USD

Source: Tradingview, Stone X

GBP/USD has moved well off its lows from September 26th, when it reached 1.0357.  More recently, the pair had moved higher from 1.1366 and formed a pennant near the 1.1700/1.2000 area.  As price approached the apex of the pennant, GBP/USD broke higher.  The target for a pennant is the height of the pennant  “pole” added to the breakout point.  In this case it is near 1.2540.  Of course, price rarely moves in a straight line, and on the way to target, the pair consolidated in a flag pattern near 1.2100.  If price breaks out to the upside, the target for the pattern is near 1.2325.  Near-term resistance sits at the high of the shorter -term flag near 1.2155.  Above there, horizontal resistance sits at the highs of August 10th at 1.2277.  If GBP/USD trades above the target for the pennant, the next resistance is at 1.2670, which is the highs from May 27th.  However, if the correction continues lower, first support is at the November 15th highs at 1.2029.  Below there, support is at the pennant lows of 1.1709, then the highs from October 26th at 1.1645.

Will the China unrest and lockdowns continue this week?  If so, it could affect the markets.  However, the main focus of the week will be economic data, namely the European CPI, US Core PCE, and US Non-Farm Payrolls.  Throw in a speech from Fed Chairman Powell, and this week could be volatile!

Have a great weekend!

Forex.com
Forex.com
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