Business and consumer confidence surveys will provide an update on how key segments of the economy are tracking.
Key Takeaways
- US CPI scheduled for release on Thursday, and US Retail Sales on Friday
- Australian Consumer Confidence and Business Confidence on Wednesday
- Speeches by various key Central Bank members (Reserve Bank of Australia (RBA), US Federal Reserve (Fed), European Central Bank (ECB) and the Bank of England (BOE)
- US 3rd Quarter profit reporting season commences
Watch for guidance from Central Bankers as to whether they will follow the lead of the RBA and moderate the pace of tightening. The US CPI on Thursday headlines the data and will provide a key update on how US inflation is progressing and whether actions today have started to bite. The US profit reporting season kicks off with financial companies leading the way.
Australian equities rose strongly following the Reserve Bank of Australia’s decision to raise rates by 25bps at the October meeting, highlighting the sensitivity of investors to central bank policy actions. While the RBA have said they will continue to lift rates, with emergency settings now removed, further actions will be more linked to data on the economy and inflation. Business and consumer confidence surveys will be released, providing an update on how these key segments of the economy are tracking.
Following on the heels of the Bank of England’s recent intervention, the smaller than expected rise by the RBA, and tentative signs of stress in the global financial system, investors are looking closely at the US Federal Reserve for signs of a shift in either the pace or size of US rate hikes. There are ample opportunities for Central banks to provide the market with an update on their thinking, with senior central bankers in Australia, the US, the UK, and Europe all scheduled to speak in coming days.
Policy makers are treading a fine line given imperfect and often backward-looking information and the risk of miscalibration is high. Being too aggressive risks recession, albeit there is growing evidence that recession is already likely. Alternatively, not tightening enough risks a more protracted inflation problem and further and more aggressive tightening down the track and perhaps an even deeper downturn.
With inflation the key factor behind interest rate hikes to date and the future course of interest rates, Wednesday’s US Producer Price data and Thursday’s US CPI print will provide important insight as to whether policy actions, together with improving supply chain constraints and lower energy costs are starting to moderate the all-important trend in US core inflation. While consensus expects annualised CPI inflation will remain elevated at around 8% y/y, focus will be on the core measures with a surprise either side of consensus potentially triggering an outsized move in financial markets.
A further key for markets is the start of the US earnings seasons which kicks off with large US banks and brokers reporting. While we have seen some moderation in corporate profits already, the upcoming reporting period will give us a clearer read on the impact of monetary policy tightening which only began in earnest in the 2nd quarter. Actual outcome and future guidance will be important for investors. Surveys show CEO confidence is plummeting, and this does typically foreshadow challenges ahead.
Simon Doyle is the CIO and Head of Multi-Asset, Australia. Schroders