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  • richard evans

Hoping for no nightmares from Fed in Halloween week

Good morning

It’s a big week. We have rate announcements from FOMC, BoE and RBA, plus the latest US employment data on Friday, with several PMI’s interspersed to ensure we don’t get complacent. Remember, a lot of the recent optimism has come from the idea that central banks are starting to slow the pace of their rate rises. Of all the central banks, most attention is on the US Fed.

FOMC are expected to raise rates 75bps to 4%, the key here will be whether we get any clues as to whether they are looking to slow down the pace of rate increases at any time soon. Regardless, US rates are still well ahead of other major economies and this does not look like changing for the foreseeable future. I think the market could get a bit too caught up as and when Fed do reduce their rate increases. I wouldn’t be surprised to see 50bps in Dec, but with a higher peak in 2023 than currently expected.

BoE also expected to raise by 75bps although I think there is more risk here of a smaller 50bps rise given the economic turmoil we are facing. I know inflation is high but I don’t think BOE should be in a rush right now. On the flip side, rates are still down at 2.25% so a lot of room for them to move higher. Whatever the decision I would expect the statement to be on the dovish side, highlighting the risks that face the economy.

We will hear from RBA in the early hours of tomorrow morning. They surprised with a smaller than expected rise of 25bps last time, there has been some talk of a possible 50bps raise this time but I think that is highly unlikely. I don’t see why they would surprise to the downside one month, then to the upside soon after. I don’t think they are ready to stop rate rises altogether, so for me the only choice is 25bps.

Having closed above 1.1600, GBPUSD started the week lower, currently 1.1560, mostly on a stronger US dollar. EURUSD has seen a similar move, trading down from 0.9960 to 0.9920, which means GBPEUR is holding gains in mid-1.16s and I see GBPAUD had managed the regain 1.8100 for a while late last week, now 1.8070.

i think 2 nov pricing may be a bit wider

Elsewhere, Asian markets were positive overnight although China was an exception, higher Covid cases and more lockdowns responsible for the fall. In the Americas, Brazil elections over the weekend saw Lula defeat the far right Bolsonaro to regain his Presidency. Some are looking for BRL to weaken on their open by as much as 2-3%. Grain prices look like they will trade higher as Russia pulls out of the agreement to allow Ukraine exports through the Black Sea.

Incredibly mild weather over the weekend, I was mowing the lawn and gathering leaves in just shirts and a tee shirt which Is pretty impressive for the end of October. Mind you, it took a long time to clear the lawn oif leaves and no sooner had I finished than I noticed a new later appearing. This autumn is going to be hard work.

Finally, some eleven years late, we have just started watching Game of Thrones. Never really got into it first time around but we were looking for something to watch and thought it was worth a try. Got through series one so far, a long way to go yet. I was expecting some violence but ’ve been surprised at how gory some of it has been, and certainly surprised at the amount of nudity. Just seen my first dragon which was quite exciting. With almost everyone else I know having already seen it, I’ve done pretty well so far to avoid knowing the ending. No spoilers please. Mind you, might have to put GoT on hold for a bit as I’ve just seen a new series of Handmaids Tale is out.

Enough of TV, I’m running late as it is despite starting earlier than normal having taken my eldest to the airport for a flight off to Phoenix in the US. I’ve looked at his possible itinerary which looks very much like seeing some Nascar, NBA and NFL, as well as a trip to the grand canyon. Jealous? Just a bit…..

- 11.00 EU GDP, HICP

- 14.45 US Chicago PMI

- 21.20 RBAs Lowe speaks

- 22.45 NZ building permits

- 02.45 China caixin manufacturing PMI

- 04.30 RBA rate announcement

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