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Last week had strong volatility with Powell’s less hawkish (dovish?) speech at the Brookings Institute on Wednesday and Non-Farm Payrolls from the US on Friday. Will the excitement continue this week? The news for the upcoming week will start before the markets open on Monday as OPEC+ has a virtual meeting to discuss whether to increase, decrease or leave oil supply unchanged on Sunday. It’s also the beginning of major central bank meetings as the RBA meets on Tuesday and the BOC meets on Wednesday. Markets are undecided on how much, if at all, the central banks will hike rates. On Friday, China will release its CPI data as it slowly begins to move away from its zero-Covid policy. Will the data show that inflation is on the rise in China?
OPEC+
OPEC+ meets on Sunday to discuss what it should do with oil supply. Should they increase supply, decrease supply, or leave supply unchanged. Although we have seen OPEC+ surprise the markets before, indications are that the group will do nothing, leaving oil supply unchanged. First, the situation in China is very fluid at the moment as it moves away from its zero-Covid policy. How fast will the country reopen? Will the virus spread rapidly? When will manufacturing return to pre-Covid levels? All these questions will affect the demand for oil. Therefore, OPEC+ may be willing to sit and wait until there is more clarity on demand from China. In addition, OPEC+ may want to wait and see what the effects will be of the EU price cap on Russian seaborne oil. The price cap is set to begin on Monday, however, the EU has not reached an agreement on the price of the cap. The last price discussed was $60 per barrel, with the goal of reviewing the cap every few months to keep it roughly 5% below market value. However, some counties are looking to punish Russia further for its invasion of Ukraine and therefore, haven’t agreed on a cap amount. For these reasons, it appears OPEC+ may be on hold.
RBA
The Reserve Bank of Australia is set to meet on Tuesday this week. However, there are questions as to if the RBA will raise rates by 25bps or leave them unchanged. At the last meeting, the board said that further rate hikes will be needed as inflation is too high. It also said that it sees inflation peaking around 8% this year, vs a previous forecast of 7.75%. However, last week Australia released its first monthly CPI report (previously it only issued CPI quarterly). The October results showed that Consumer Price Index felled to 6.9% YoY vs an expectation of 7.4% YoY and a September reading of 7.3% YoY. The main reason for the miss was due to lower food prices. Was this fall in inflation enough to cause the Board to pause its rate hikes? Probably not. The Committee said that it will do whatever is necessary to bring inflation down, and 6.9% seems still too high for them to pause the rate hike cycle.
BOC
The Bank of Canada is in a similar situation to that of the RBA. The markets seem split on whether the central bank will increase rates by 25bps or 50bps. At its last meeting, the BOC surprised markets by hiking rates only 50bps vs an expectation of a hike of 75bps, bringing its overnight rate to 3.75%. The jobs data released Friday was still strong, showing that the Canadian economy added 10,100 jobs during November. (As a reminder, the October reading was +108,300!). However, the number of full-time jobs added during November was +50,700 while the number of part-time jobs was -40,600. In addition, the Unemployment Rate fell to 5.1% vs 5.3% in October. At the last meeting, the Committee said that it would need to increase rates further as its preferred measure of inflation, Core Inflation, was still much to high. October’s Core CPI was 5.8% YoY vs an expectation of 5.6% YoY and a September reading of 6% YoY. Also, this week, Canada will release its Ivey PMI data for November. The print is expected to be 50.1, just above the expansion/contraction level. The BOC could possibly have to weigh a slowing manufacturing sector (below 50) vs a strong jobs market and high inflation. Yikes! So, will the Bank of Canada raise 25bps or 50bps? (The US is also facing weakening growth vs a strong jobs market and high inflation. They are expected to raise rates by 50bps next week.)
Earnings
There aren’t many companies left to report Q3 earnings. However, a few to watch this week are COST, AVGO, and SNOW
Economic Data
The economic…
Read More: Week Ahead: OPEC+, RBA, BOC, and China CPI
