Market Overview: RBA & BoE Drive Volatility This Week

Good morning traders! This week, be prepared for potential shifts as we dive into major economic events and data that could shake up the markets. Let’s start with a quick recap of last week’s highlights:

Last Week: Volatility Strikes the Dollar

Last week, the US dollar dominated headlines. Things kicked off with the Manufacturing PMI sliding into contraction territory (fell to 49.2), suggesting a slowdown in the manufacturing sector. Then came the Fed interest rate decision. While acknowledging some easing of inflation, policymakers emphasized that inflation remains high. Chair Powell’s hint that rate hikes might not be imminent,  the market initially reacted negatively. However, the week ended with Friday’s weaker-than-expected labor market data, leading traders to question how tight the labor market really is. This fueled speculation that the FED could become less aggressive in its rate policy leading to depreciation of the dollar once again.

What’s Driving the Markets This Week

This week, a battle of central banks unfolds as traders brace for potential volatility. Tuesday’s Reserve Bank of Australia (RBA) and Thursday’s Bank of England (BoE) interest rate decisions hold the power to shake up the markets. Watch for shifts in policy and any clues about where these central banks see their economies heading. Meanwhile, the British pound could see another major swing as the UK Office for National Statistics releases its preliminary GDP data on Friday. This release will be a crucial indicator of the UK’s economic health in the first quarter of 2024. Finally, keep an ear tuned to speeches from Federal Reserve board members. While the Fed might not make any immediate moves, their interpretation of Friday’s weak Labor Market data could signal potential shifts in future policy.

Monday, May 5th, 2024

Monday offers a brief respite from the week’s upcoming volatility. While major releases are absent, stay tuned for the Eurozone Producer Price Index at 10 am.

Speeches:

• 01:25 pm – SNB Chairman Thomas Jordan
• 05:50 pm – FED Thomas Barkin
• 06:00 pm – FED John Williams

Tuesday, May 5th, 2024

Thursday kicks off with a potentially volatile event as the Reserve Bank of Australia (RBA) announces its interest rate decision at 5:30 am. The recent strength of the Australian dollar stems from pessimism that inflation wasn’t easing. While the RBA’s cash rate remains at 4.35%, investors are bracing for clues about future moves. A rate hike at the end of 2024 would be the 14th in two years and the first since November.

The focus will be on the RBA’s outlook, especially regarding inflation. Governor Michele Bullock’s remarks about the “uncertain” inflation battle and “finely balanced” risks hint at a complex picture for the central bank.

• Hawkish: If the RBA indicates a potential for further rate hikes, the AUD could rally.
• Dovish: If the RBA expresses concerns about slowing growth or hints at keeping rates unchanged, expect potential pressure on the AUD.

Remember: The market reaction will depend on how the RBA’s messaging aligns with or contradicts current expectations.

While the RBA decision will dominate headlines, several European releases also deserve attention. Switzerland’s Unemployment Rate at 6:45 am, offering a glimpse into the health of the Swiss labor market. Shortly after, at 7:00 am, Germany’s International Trade figures. Then, at 10:00 am, Eurozone Retail Sales for March will reveal consumer spending trends, offering clues about economic growth.

Shifting focus to North America, Canada’s Ivey PMI at 3:00 pm is worth monitoring. This survey of purchasing managers offers valuable insights into the overall health of the Canadian economy, with specific attention to trends in purchases and employment.

Speeches:

• 01:30 pm – BoE Jonathan Hall
• 04:30 pm – FED Neel Kashkari

Wednesday, May 5th, 2024

Wednesday offers a potential breather from the week’s more volatile events. While the economic calendar lacks major releases, traders shouldn’t entirely discount it.  Germany’s Industrial Production will provide a glimpse into the strength of its manufacturing sector, a key pillar of the largest European economy. Additionally, the EIA Stocks Change from the US Energy Information Administration offers a supply-side perspective on the oil market, with potential implications for energy prices.

Speeches:

• 04:00 pm – FED Philip Jefferson
• 06:30 pm – FED Lisa Cook

Thursday, May 5th, 2024

Thursday opens with a look into the Bank of Japan’s (BoJ) thinking. The BoJ Summary of Opinions, published after their Monetary Policy Meetings, offers insights into the views of board members on the state of the Japanese economy and monetary policy.

Later, at 4:00 am, China’s international trade data takes center stage. This release provides crucial information on China’s import and export activity, potentially impacting commodity-linked currencies such as the Australian Dollar.

Thursday’s highlight is the Bank of England’s interest rate decision at 12 pm. While the central bank is widely expected to keep rates steady at a 16-year high of 5.25%, market attention will be laser-focused on their accompanying commentary.  With inflation falling and economic growth faltering, the stage is set for a potential shift in the BoE’s stance. Traders will be parsing every word for clues about when, or if, interest rate cuts might be on the horizon.

• Hawkish: If the BoE suggests rates might remain elevated for longer, expect a potential boost for the British pound.
• Dovish: If the BoE signals concern about slowing growth and hints at potential rate cuts any time soon, the GBP could weaken 

Remember: The market reaction will depend on how the BoE’s messaging aligns with or contradicts current expectations.

The day continues with the release of US Initial Jobless Claims data at 1:30 pm. This release takes on added significance after Friday’s weaker-than-expected Non-Farm Payroll (NFP) report and the slight uptick in the unemployment rate. The market will closely scrutinize these figures for further clues about the health of the US labor market.  Remember, the Federal Reserve has expressed its commitment to maintaining higher interest rates if the labor market remains tight, so any signs of a loosening labor market could spark reactions among board members.

Speeches:

• 08:55 am – ECB Elizabeth McCaul
• 12:30 pm – BoE Governor Andrew Bailey
• 01:15 pm – ECB Piero Cipollone
• 01:15 pm – ECB Luis de Guindos
• 02:15 pm – BoE Governor Andrew Bailey
• 05:15 pm – BoE Huw Pill

Friday, May 5th, 2024

The UK takes center stage on Friday with a critical data release at 7:00 am: the Preliminary GDP Growth Rate for the first quarter of 2024. This data will be closely watched by traders as it could significantly impact the British pound.  The consensus forecast predicts a 0.4% growth in Q1, a positive sign for the UK economy and the Bank of England after a technical recession in late 2023.  Along with the GDP release, traders will also receive UK international trade, industrial production, and manufacturing production figures. These additional data points will offer a more comprehensive picture of the UK economy’s health.

The spotlight shifts to North America in the afternoon, with Canada’s April 2024 unemployment rate release taking center stage. This data is crucial for understanding how the Canadian economy is responding to higher interest rates. March saw a sharp rise in the unemployment rate to 6.1%, exceeding expectations and confirming the Bank of Canada’s (BoC) view that rates are having their intended impact on the labor market. Promising CPI figures could strengthen the case for a BoC rate cut – potentially even before a move from the Federal Reserve.

The week ends with the release of the University of Michigan’s Consumer Sentiment Index. This index offers a crucial look at how consumers are feeling, focusing on three key areas: how they view prospects for their own financial situation, how they view prospects for the general economy over the near term, and their view of prospects for the economy over the long term.

Speeches:

• 08:00 am – ECB Piero Cipollone
• 09:45 am – ECB Frank Elderson
• 12:15 pm – BoE Huw Pill
• 02:00 pm – FED Michelle Bowman
• 05:45 pm – FED Austan Goolsbee
• 06:30 pm – FED Michael Barr

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