It’s a hugely busy week of risk events with another three major central banks on tap. The key question for markets will be if we see more policymakers hinting that we have hit “peak” rates. The widely anticipated FOMC meeting takes place next Wednesday with markets fully expecting the world’s most powerful central bank to deliver a further jumbo-sized 75bp interest rate increase. This will take the amount of hikes to a total of 3.75% in the current cycle, which in itself is a strong argument for taking stock of the situation.

For the hawks, the economy has returned to growth with a decent third quarter GDP report this week. Inflation is still sticky and elevated while the jobs market also remains solid with job vacancies exceeding the number of unemployed American workers by four million. (We get the latest non-farm payroll figures after the Fed meeting on Friday). Fed officials remain determined to drive prices lower although we have seen a slightly more dovish line taken by three other major central banks very recently. The Fed’s whisperer in the media also suggested this tweak in stance last Friday.

The market is desperate for any hints of a Fed pivot; that is a slowing down in the pace of rate hikes, even if the FOMC is not ready to stop hiking. That does seem highly unlikely at this stage, so Chair Powell’s tone in the press conference will be critical for market direction. If he remains hawkish, then the recent stock rally will evaporate and the dollar should regain some lustre.

Other central bank meetings this week are more uncertain, at least in the size of the rate rises expected. RBA watchers have been scared by the most recent bumper inflation data which showed a shocking 6.1% increase in the annual rate. That might demand a more urgent response from policymakers who are meant to be led by incoming data. So, a fifth straight 0.50% rate increase could be on the cards again, which is more than the consensus view of a 25bp rate hike and would boost the subdued aussie.

Thursday’s Bank of England meeting is likely to deliver a 75bp rate increase, but this is quite a close call and could see high volatility in the pound.  A previously heavily divided MPC will now make a decision with an expected boost from fiscal policy now similar to what was expected before the September meeting. With GBP now stronger too and the latest data not providing a clear need for an unprecedented jumbo-sized hike, might the Old Lady surprise with just a half point hike? This would see GBP/USD retreat to the support zone around 1.14 which includes the pandemic low and 50-day simple moving average.

Major risk events of the week

31 October 2022, Monday:

–Eurozone CPI: Huge pressures in energy prices are expected to be the main driver of this key piece of data, although gas prices have been falling very recently. Analysts forecast the headline annual figure easing to 9.6% from 9.9%. The core reading is seen remaining at 6%. National releases have been hot with German inflation advancing to 11.6% and Italy to 12.8%. EUR/USD is battling with parity and support/resistance at 0.9952. Resistance sits at the 100-day SMA at 1.0080.

01 November 2022, Tuesday:

–RBA Meeting: Markets anticipate another 25bp rate hike, taking the cash rate to 2.85%. October saw the bank slow the tightening pace to 25bps after four consecutive moves of 0.50%. But the hotter than expected Q3 inflation data was the highest increase since 1988. This has prompted some analysts to predict a 50bp move. Expect AUD volatility with support/resistance at 0.6363.

–US ISM Manufacturing: The market median estimate forecasts manufacturing activity falling to 50.0 from 50.9. That was its lowest reading since May 2020. A reading above 50 indicates expansion in manufacturing which account for 11.9% of the US economy. New orders and employment measures are expected to contract further amid aggressive interest rate hikes. This has raised fears of a recession next year.

02 November 2022, Wednesday:

–FOMC Meeting: The Fed is expected to deliver another outsized 75bp hike, its fourth in a row, taking rates to 3.75%. The terminal rate has come down from a recent high at 5%, as job creation and wage data slows. The tone of the press conference and hints of a slightly more dovish bias, in line with other major central banks will be the key focus.

03 November 2022, Thursday:

–Bank of England Meeting: Another 75bp rate looks likely with the latest headline inflation remaining in double digits. Speculation around an even bigger move has evaporated as deficit nerves have calmed after the Truss leadership left office. Updated economic forecasts and the press conference should dictate bias and market reaction. 

04 November 2022, Friday:

–US Non-Farm Payrolls: Consensus expects a headline print of 200k payroll gains.  This comes after a sixth straight beat in September. The unemployment rate is forecast to tick up to 3.6% from multi-decade lows. This is likely to put off the next leg down in wage growth which is projected at 0.3%.

–Canada Jobs: Job creation is set to soften but wage growth may remain above 5% for a fifth straight month. The recent rebound in jobs has been tepid given the declines of the previous three months. The September jobless rate did beat forecasts but a lot of that reflected a lower participation rate.