It’s just not the Reserve Bank of Australia loading its interest rate rise gun and preparing to fire another shot at the still strong economy this week – the European Central Bank (ECB) also has the chance to take aim and pop off either a 0.50% lift or match the Fed with a 0.75% increase.
The Bank of Canada and Malaysia’s central bank are also expected to lift their key rates as well – the Canadian central bank will be forcing its rate gun for a fifth time, with a rise of half a per cent expected after the 1% lift last time around.
Canadian inflation fell to 7.6% in July from 8.1% in June. A rise of 0.75% is expected to take the key cash rate to 3.25%..
Malaysians will see a smaller rise – 0.25% is forecast to 2.25%.
And to drive home the point, Fed chair Jay Powell backs up his speech of 10 days ago with another outing on Thursday which will hammer at any remaining confidence that the US central bank will be easing policy anytime soon.
But the big decision will come from the ECB with its decision Thursday night, Sydney time. Eurozone inflation in August hit 9.1%, up from 8.9% in July. The August reading was the same as America’s June reading and the UK’s reading as well.
The AMP’s Shane Oliver says the ECB “is likely to raise its key policy rates by 0.75% taking its refinancing rate to 1.25% as part of an ongoing effort to combat still rising inflation.
“It’s a close call with a 0.5% hike but given the upside surprise in August inflation and increasingly hawkish ECB Council members a 0.75% hike looks more likely. It’s also likely to foreshadow more rate hikes ahead.”
Economists at Moody’s agree – they wrote on their end of week outlook on Friday “We expect the policy Main Refinancing Rate will be hiked by 75 basis points to 1.25%.”
“This will mean that the deposit rate will increase to 0.75%. With inflation rising in August, and still not likely peaked, we think the ECB will opt for a more hawkish move at the September meeting.
“That said, the pace will go back to 50-basis point hikes at the October meeting,” Moody’s economists predicted.
The decisions by the RBA and the ECB will overshadow other things in the markets – although today’s holiday in the US (Labor Day) marks the end of the US summer break and from Tuesday investment desks will be fully staffed on Wall Street.
So more attention will be paid to the Thursday speech from chairman Powell and the ECB decision will also be given close scrutiny.
The activity survey for the US services sector starts the shortened trading week tomorrow, but that’s about it for the rest of the week.
Chinese trade data for August on Wednesday will be watched closely for more evidence that while exports are still growing, import growth matches the slowdown in the domestic economy, Covid, the drought in the southwest and the still sliding property sector.
Friday sees Chinese consumer and factory gate inflation released and while the latter is forecast to show another fall, the CPI could get closer to 3%.
Besides the RBA decision and statement and the GDP figures, July’s trade data on Thursday will be the most important outside the national accounts.
