Volatility could increase later in the week as the RBA makes its decision on an interest rate hike and the US releases the FOMC minutes, as well as the NFP.

Central bank leaders were in the spotlight last week at the European Central Bank Forum. Fed Chairman Powell, ECB President Lagarde, and BOE Governor Bailey gave the same message: We must bring inflation down at all costs, even if it causes a recession. Will the news and data due out this week continue to paint a picture of a global economy characterized by high inflation and slower growth? The RBA meets on Tuesday and is expected to rise 50 basis points, although AUD/USD fell to its lowest level since June 2020. Will this move help the struggling currency pair? On Wednesday, the US will release the minutes of the June FOMC meeting. What was the discussion about the decision to raise the 75 basis points? Also, on Friday, the United States releases nonfarm payrolls. Will the employment picture continue to point to a strong job market?

RBA

The RBA meets on Tuesday this week for its July interest rate decision meeting. The markets anticipate a rise of 50 bps, which would raise the level of key rates from 0.85% to 1.35%. At the last meeting on June 7e, the board of directors decided that due to inflationary pressures and a strong labor market, further tightening was ahead. However, for those who may be hoping for a 75 basis point increase at this week’s meeting (much like the FOMC), RBA Governor Lowe has already closed that down, saying in late June that the decision at the next meeting would be between 25 and 50 basis points. Since the June meeting, employment data, PMI data, retail sales and inflation expectations have all been stronger than expected. However, global fears of a recession also crept into the market, driving commodity currencies lower. AUD/USD printed low at 0.6764, a 2-year low and now the 50% retracement level from March 2020 pandemic lows to February 2021 highs at 0.6757. Will the RBA be hawkish enough to give the Aussie a rebound?

FOMC Minutes

At the June FOMC meeting, the Committee rose 75 basis points. Markets had been expecting 50 basis points until just days before the meeting, when the Fed announced to the Wall Street Journal that it would hike 75 basis points on the back of the CPI and stock index. Michigan inflation expectations higher than expected. Markets will be watching to see how much discussion has taken place to raise the 75 bps from 50 bps. Furthermore, the Committee raised its rate forecast to 3.4% by the end of the year. The current rate is 1.75%. Inflation forecasts have also been revised upwards. Powell noted at that press conference that the Fed is “very watchful” of inflation risks and that the Committee continues to see inflation risks on the upside. Was the whole discussion about reducing inflation? To what extent has the discussion focused on the possibility that the Fed could raise rates “too much” and push the economy into a recession? The minutes published on Wednesday will give us a better view of the FOMC’s thinking at the June meeting.

Non-agricultural payroll

At the June FOMC meeting, Powell indicated that “our goal is to bring inflation down to 2%, while the labor market remains strong.” On Friday, the United States will have a better idea if the employment numbers are still strong. The expectation for the print headline is +265,000 compared to May’s reading of +390,000. Last month’s print was above expectations, but the lowest reading since May 2020 following the outbreak of the pandemic . Furthermore, the unemployment rate is expected to remain at 3.6% while the average hourly wage is also expected to remain unchanged at 0.3% MoM. However, there is a risk that the NFP stock could be weaker than expected as the four-week moving average for initial claims hit 231,750, the highest since mid-December 2021. If job growth starts to slow, or even worse, turn negative, how hawkish will the Fed be on raising rates? This will be an important economic data point for the Fed to watch this week!

Earnings

The start of the 3rd quarter brings with it a new set of earnings releases for the second quarter. However, earnings season won’t start in earnest until next week. There are a few names coming out this week including Sainsbury’s and Currys.

Economic data

US nonfarm payrolls will be the main draw in terms of economic data this week. However, there are other data points that can cause volatility. On Tuesday, China will release its Caixin Services PMI and the US will release Factory Orders. The EU will release retail sales on Wednesday and Thursday, the US will release ADP employment developments. In addition to the US NFP on Friday, Canada will also release its employment change. Other important economic data due out this week include:

Monday

  • Australia: Building permit (MAI)
  • Australia: Home Loans (MAI)
  • Germany: Trade Balance (MAY)
  • EU: PPI (MAY)
  • Canada: Final Manufacturing PMI (JUN)

Tuesday

  • Global: services PMI final
  • New Zealand: NZIER Business Confidence (Q2)
  • Australia: Retail Sales Final (MAY)
  • China: Caixin Services PMI (JUN)
  • Australia: RBA decision on interest rates
  • US: Factory Orders (MAY)

Wednesday

  • Australia: RBA Map Pack
  • Germany: Factory Orders (MAI)
  • EU: S&P Global Construction PMI (JUN)
  • EU: Retail sales (MAY)
  • United States: Global Services PMI Final (JUN)
  • United States: ISM PMI non-manufacturing (JUN)
  • United States: FOMC Minutes
  • Crude inventories

Thursday

  • Australia: Trade Balance (MAY)
  • Germany: Industrial production (MAY)
  • UK: Halifax House Price Index (JUN)
  • Mexico: CPI (JUN)
  • United States: ADP Employment Change (JUN)
  • Canada: Trade Balance (MAY)
  • United States: Trade Balance (MAY)
  • Canada: Ivey PMI sa (June)

Friday

  • Canada: job change (JUN)
  • United States: Nonfarm Payrolls (JUN)

Chart of the week: US 10-year weekly yields

Source: Tradingview, Pierre X

US 10-year yields fell back below 3% this week and fell to a low of 2.791%, ending the week down more than 7%. Yields had fallen since early November 2018, when they were close to 3.232%. At the start of the pandemic, 10-year yields bottomed out at 0.333% in March 2020, then slowly began to rise in a symmetrical triangle formation. Yields eventually broke above the top of the triangle’s top as it approached the top during the 1st week of January 2022. The target for a symmetrical triangle breakout is the height of the triangle, added to the breakout point, which is near 3.30%. Bonds fell and yields continued to climb in the first half of 2022, reaching the target in 6 months! During the week of June 13e, yields hit the highs of November 2018 and formed a shooting star candlestick formation with the RSI in overbought territory, a signal that yields could pull back. The high of the move was 3.497%. Since then, yields have fallen sharply and are trading near 2.9%. First support is at the lowest since the week of May 30e at 2.643. Below, the price may drop to the 38.2% Fibonacci retracement from the March 2020 lows to the recent June 13 highs.e near 2.288%, then horizontal support at 2.063%. First resistance is at last week’s high at 3.258%, then the highs of the week of June 13e at 3.497%. Above that, yields can reach 2011 highs of 3.737%.

It’s the start of a new month and a new quarter, as well as the start of the second half of the year. With a US holiday on Monday, the week can start slow. However, volatility could increase later in the week as the RBA makes its decision on an interest rate hike and the US releases the FOMC minutes, as well as the NFP. Also keep an eye out for new silver flows hitting the market early in the week.

If you are celebrating the American holiday on Monday, take advantage of it.

Have a good week-end!

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