After the glut of central bank meetings over the past couple of weeks, we have a quieter upcoming calendar. It’s certainly been volatile with hopes we were reaching the point of peak hiking trumped by a reality check from the Fed. The world’s most important central bank hiked rates as expected with a fourth 75bp move. But this was accompanied by a hawkish message from Chair Powell in his press conference.

The fevered speculation around a Fed pivot was initially piqued by tweaks to the Fed statement beforehand. “Cumulative tightening” and the time lag of hikes feeding into the economy were now going to be taken into account. But Powell clearly stated it is too early to consider pausing policy tightening even if downside risks to growth are building. The message is that rate hikes may be slower, but there will be a higher peak rate, which is now priced above 5.25%.

We do get another important part of the inflation puzzle next Thursday with the release of the US CPI data. More high prints are forecast with the core reading remaining elevated versus historical levels. Economists reckon we need to see prints no larger than 0.2% m/m in the core to bring the annual figure back down to the 2% target over time.

Market reaction might be slightly tempered by the fact that one more inflation report is released before the next FOMC meeting in mid-December. A downside surprise in the data would certainly be welcome by stock market bulls. It is now more or less a coin toss chance of either a 50bp rate hike or another 75bp move at that meeting.

Major risk events of the week

07 November 2022, Monday:

–German Industrial Production: Europe’s biggest economy is likely to see production bounce back in September, increasing 0.7% m/m from a contraction of 0.8% in August. Energy prices fell significantly, and supply bottlenecks have further diminished. EUR/USD perked up on Friday but will need to move above its 100-day SMA at 1.0050 to slow the long-term bear trend.

08 November 2022, Tuesday:

–US Mid-Term Elections Opinion polls indicate that we will get a Republican majority in both the House and the Senate. If this happens, President Biden’s ability to pass legislation will be severely reduced, which means less fiscal support through a possible incoming recession. Analysts say this could bring forward interest rate cuts to the second half of 2023. 

10 November 2022, Thursday:

–US CPI: Headline inflation is expected at 8.0% y/y and 0.7% m/m. The October core print is forecast at 6.6% y/y and 0.5% m/m. Upside risks may come from rents and hotel lodging, while falling used car prices could weigh. Softer data could see markets price in a smaller December rate hike and give stocks a boost.

04 November 2022, Friday:

–UK GDP: Economic activity likely contracted 0.6% m/m in September resulting in a 0.6% fall in the third quarter. The month included the mini-budget turmoil and the death of the queen. The Bank of England forecast an extended period of negative growth ahead which could see GBP pushed lower in the medium term.