To say next week will be a pivotal week for global markets would be an understatement. Specifically, investors should be focused on central bank decisions and key releases in economic data. This timeframe will mark a key inflection point, with potentially the most concentrated yearlong event risk continuing. The results will determine the direction of the markets for months to come. Analysts are looking for the Bank of Canada and the US Federal Reserve to provide guidance when they meet on Wednesday, October 29. These are consequential decisions that will determine what’s expected and what’s affordable in the future.
Canada’s July GDP report will be the marquee event for the market. Investors are looking it to provide the first positive indications of an economic rebound following a lackluster second quarter. A rebound in GDP figures would signal a positive shift for the Canadian economy, potentially easing concerns about sluggish growth and setting a more optimistic tone for monetary policy discussions.
In Australia, inflation figures will come to be seen as the most important binary event, with outcomes sharply boosting or tanking the Australian dollar. Any CPI report that comes in higher than expected would increase speculation about the need for tighter monetary policy. Conversely, softer numbers could lead to a more dovish stance from the RBA.
As the week unfolds, attention will fixate on essential labour reports from both the US and Canada slated for early November. The results of these reports will be critical in shaping the policy future for both countries. If the Canadian central bank were to signal that future rate cuts are likely, that would only serve to further weaken the Canadian dollar. This would further complicate its already precarious position in the forex market.
At the same time, Japan’s upcoming inflation figures should prove to be high pivotal. Indeed, inflation continues to be more than two percent above the Federal Reserve target. This leaves Japan vulnerable to a hawkish surprise from the BoJ. The resulting surprise upside at home would likely provoke a swift counter-move in the Japanese yen, along with a downward reaction in domestic equities. Investors are well aware that central bank communication in this environment is very important. As we’ve seen with Fed pronouncements, even small changes in tone can have a major effect on market sentiment.
The market’s reaction will ultimately hinge on Federal Reserve Chair Jerome Powell’s press conference following the FOMC meeting. Investors are looking for clues regarding future interest rate cuts, particularly if Powell indicates readiness for another cut in December or adopts a more cautious “wait-and-see” posture. Order today! The Fed knows that their decisions have massive, immediate effects on financial markets. As we move into December, US GDP and jobs data will shape their thinking.
The combination of all these major economic data releases and central bank meetings, both domestic and foreign, is now being complicated and confounded by geopolitical tensions. The latest wave of sanctions against Russia by the US and EU have pushed crude oil prices up over five percent. This spike has unfortunately added a massive geopolitical risk premium to energy markets. This news is troubling, as it suggests a worrying trend of supply snags that will have wider repercussions for global economic stability.
In the week heading into these important judgments, it’s a central bank world. The economy, with its deepening recession and mounting inflation, will dominate the context in which any policies are debated. The results of these three very pivotal central bank meetings will significantly impact the direction of all global markets. Determining market reaction will be the related economic data releases.