Market Outlook for the Week of 11 – 15 September

<p dir="ltr">Last week the BoC kept rates unchanged, as expected, leaving the door open for further hikes if necessary. However, analysts believe the hiking cycle has peaked and the Bank won't raise interest rates further.</p><p dir="ltr">For the weak ahead there are several notable economic events scheduled:</p><p dir="ltr">On Tuesday, in Australia we have the Westpac Consumer Sentiment and the NAB Business Confidence index, while the U.K. will publish its labor market data. U.K. data releases will continue Wednesday with the GDP m/m, followed by the most awaited event of the week: the U.S. inflation.</p><p dir="ltr">Thursday will be a busy day with the employment change and the unemployment rate in Australia; the Main refinancing rate, monetary policy statement and ECB press conference in the Eurozone; as well as the Core PPI m/m; Core Retail Sales m/m and the Unemployment Claims in the U.S.</p><p dir="ltr">On Friday, to close out the week, the U.S. will publish the Empire State Manufacturing Index, the Prelim UoM Consumer Sentiment and the Prelim UoM Inflation Expectations.In the previous month, Westpac's consumer sentiment index continued to showcase persistent consumer apprehensions. These concerns were a direct outcome of the RBA's series of rate hikes. Notably, the RBA's recent decision to maintain interest rates at their current level during the last meeting had limited impact on the index.</p><p dir="ltr">The recent surge in fuel prices and other cost of living pressures are expected to exert ongoing pressure in the near term, but the sentiment might improve on a backdrop of easing inflation and a sustained pause in the hiking cycle.</p><p dir="ltr">All eyes on the U.K. labor market data as the BoE will watch it in order to decide its next move regarding monetary policy at the next meeting. There are some signs that inflation is starting to cool down, the economy is slowing and also the labor market, but the BoE needs to see the data in order to decide what to do next. </p><p dir="ltr">The market expects the Bank to hike again in September and then to pause in November. In the U.K. the focus will be on the labor market data, as it holds the key to the BoE's decision-making process for the next monetary policy move. Surveys indicate a gradual cooling in inflation, a deceleration in economic growth and a slowdown in the labor market, but these need to be confirmed in the actual data.</p><p dir="ltr">Wage growth in the private sector is likely to stay at 8.2%. The market currently anticipates the BoE will perform another rate hike in September, followed by a pause in November. However, the ultimate decision will be shaped by the unfolding labor market dynamics and economic conditions.</p><p dir="ltr">The highly anticipated event of the week is the U.S. CPI release scheduled for Wednesday. In the United States, inflation has shown some signs of moderation, maintaining its downward trajectory, despite a slight uptick in year-over-year data recorded last month. Wells Fargo's expectation for August is a 0.18% rise, for a year-over-year inflation rate of 4.3%.</p><p dir="ltr">The month-over-month increase will be driven primarily by elevated gasoline prices. The Fed will be closely monitoring this data, especially as it precedes the next FOMC meeting. Presently, the most plausible scenario suggests that the Fed will opt to maintain the federal funds rate at its current level, with a reassessment scheduled for November to determine the suitability of another 25bps hike.</p><p dir="ltr">Despite the recent downward trend in inflation, it remains far from the Fed's 2% target, suggesting it will take longer to reach the desired level of sustained inflation, even if it might hit 2% on a three-month basis.</p><p dir="ltr">In Australia, the consensus for the employment change is 25.9K and the unemployment rate is expected to remain unchanged at 3.7%. ING analysts foresee a potential reversal of the previous month's losses in full-time jobs, accompanied by a decrease in the part-time job figures. Their expectations point towards a 15K increase in overall employment.</p><p dir="ltr">At this week's meeting, the ECB is expected to keep its interest rates on hold. Lately inflation has shown signs of cooling down, but it remains elevated compared to the Bank's 2% target, especially the core inflation which has proven to be more resilient. The ECB is likely to keep the door open for further hikes if the economic conditions require it. The "higher for longer" stance is expected to last for a while especially if inflation remains high for too long. The economy is facing headwinds in the euro area reflected in the soft data for manufacturing and services PMI. </p><p dir="ltr">Analysts at Citi expect "higher inflation forecasts for 2023, broadly unchanged in 2024 at 3% and slightly lower in 2025 – 2.1% for the headline inflation and 2.2% for core."</p><p dir="ltr">U.S. retail sales growth m/m is likely to drop from 0.7% to 0.2%. Analysts believe last month's rise was an exception that's not going to last and this week's data will reflect the state of consumers during uncertain economic conditions.</p><p dir="ltr">The consensus for the U.S. Prelim UoM Consumer Sentiment is a drop from 69.5 to 69.2. For the Prelim UoM Inflation Expectations it's likely that the latest rise in energy prices will add to the uncertainty and make it climb to 3.7% for one year, remaining below recent highs. </p><p dir="ltr">Nevertheless, the Fed will focus on the 5-10 year inflation, which is expected to exhibit greater stability.</p><p dir="ltr">This article was written by Gina Constantin.</p>

This article was written by FL Contributors at www.forexlive.com.