After a hectic few days of central bank meetings and top tier economic data, the risk calendar next week looks relatively light in comparison. The pushback of early rate cuts by policymakers continued, but interest rates still traded lower. Pressure on US regional banks was a factor and one area to watch going forward, while markets are still convinced that rates will move lower through the year. Indeed, one investment bank has switched the “higher for longer” interest rate narrative to “later and faster”, as policymakers realise they are at a key turning point so would like more data before eventually commencing the rate cut cycle.
Recent economic releases have been solid with an unexpected improvement in manufacturing ISM on the back of decent new orders and rising prices. Today's stellar non-farm payrolls data really then sealed the deal on any notion of early rate cuts. Another massive headline print and revisions, plus unbelievably strong wage growth means the Fed can take its time, though the monthly jobs report does contradict lots of evidence elsewhere of a slowing labour market. Watch out for lots of Fedspeak next week to direct markets and the dollar, which enjoyed a fifth straight week of gains and is threatening to break to the upside.
The RBA meet on Tuesday and is fully expected to stand pat with no prospect of any changes. Money markets price in just under a 50% chance of a rate cut by May. This has been helped by softening inflation data even though monthly prints remain high. Governor Bullock may use this first meeting of the year to gently push back against any premature policy easing, in tune with other major central banks. The inflation genie looks to have been tamed and officials don’t want to let it out of the bottle. The aussie looks to be breaking down after a whippy few days. A pivot point sits around the 200-day simple moving average and the midpoint of the November rally around 0.6570.
Here are the key calendar events:
