This week started slowly as the markets awaited the Reserve Bank of Australia, Federal Reserve, and the Bank of England interest rate meetings. How would they respond to rising inflation? Were faster interest rates ahead as future markets have been pricing? All of the world’s central banks did the same thing. They recognised the rising inflation risks, but they did not show signs of panic. The Fed announced their bond taper as expected. However, Fed’s Chair Powell stressed that the Fed would be patient before raising rates. That allowed US stocks to keep rising through all-time highs. The Bank of England held back on hiking rates and that sent the GBP crashing lower.
Other key events from the past week
- AUD: Interest Rate meeting, Nov 02: The RBA was hawkish indeed, but dovish in word. Yes, the RBA ended the April 2024 yield curve target, opening up the potential for rising rates before 2024. However, Governor Lowe stressed that the board still considered a 2023 rate hike as ‘uncertain’.
- USD: Interest Rate meeting, Nov 03: The Fed announced tapering of $15 billion per month and stated it could be flexible around the timing for the end of asset purchases. However, in the Press conference, risk assets lifted as Powell stressed patience before lifting rates.
- GBP: Interest Rate meeting, Nov 04: The Bank of England held back from hiking rates and the BoE has communicated by this decision that they fear hindering growth by raising rates too quickly more than the risk of rising inflation. Many investors will expect the GBP to be sold on rallies next week.
Key events for the coming week
- USD: Inflation, Nov 10: Will rising inflation in the US pressure the Fed to move even more aggressively towards hiking rates? A larger than expected print in the CPI reading next week and watch out for more USDJPY upside as a reaction.
- Seasonal trades: Nikkei, November 10: The Nikkei has risen 9 times in the last 10 years between November 01 & December 13. The largest gain was 14.75% More gains on a patient Fed? Check out the strong seasonal pattern here.
- AUD: Employment print, Nov 11: The RBA board require the labour market to be tight enough to generate wage growth that is materially higher than its current rate. A strong print here and AUD could see some gains!