Coming up in the markets

Investing

Inflation, central banks, US home prices and commodities are the focus for the week.
Reserve Bank Governor Philip Lowe Appears Before House Economics Committee
CANBERRA, AUSTRALIA – FEBRUARY 07: Reserve Bank Governor Philip Lowe looks on during the House of Representatives Economics Committee at Parliament House on February 07, 2020 in Canberra, Australia. The hearing is part of an accountability process for the Reserve Bank of Australia and provides a forecast for Australian Monetary Policy. The re-escalation of US-China disputes and the coronavirus are creating uncertainty in the economy. (Photo by Tracey Nearmy/Getty Images)
  • RBA governor Philip Lowe speaks on Tuesday 22 November at 5pm
  • New Home Sales in the US – data for October out on Thursday 24 November at 1am
  • FOMC minutes are out 6am on Thursday 24 November

Any rally on global markets in recent months has been very short lived as investor sentiment is met with fear of continued aggressive rate hikes to come especially in the US, aimed at tackling 40-year high inflation.

The rally post-US inflation data being released was no different, as investor confidence failed to overcome concerns of the Fed’s aggressive interest rate hikes still to come. A number of Fed official speeches last week also hit investor confidence as they collectively signalled investors had ‘overreacted’ to the inflation data and that there is still a pathway to follow before the hiking cycle comes to an end.

While markets have already factored in inflation expectations to current share prices, the risk for investors is the inflation number comes in higher than expected, and if so, likely putting further pressure on share prices. Although, the rally we experienced recently demonstrated what can happen when inflation comes in below expectations. For the week ahead, the focus is on whether the rally really was short-lived, especially for high-growth technology stocks, or whether the FOMC minutes being released will spook markets into sell-off mode again.

RBA Governor Philip Lowe speaks – Tuesday 22 November

Australia’s cash rate is now sitting at 2.85%, a level not seen since April 2013, following the November 25-basis point rate hike which matched market forecasts. Investors have been particularly tuned-in to any speeches from RBA officials, especially RBA Governor Philip Lowe, to gauge for any signs of a sway in the RBA’s dovish strategy month-on-month. The last time Governor Lowe spoke was on 1 November, where he shared his expectations for the country’s inflation rate to hit 8% by end of year before it is expected to moderate there forward. Lowe also reiterated the RBA will do what it takes to get the country’s inflation back to the target range of 2%-3% while also understanding the current price pressures faced by Aussie families. When it comes to the speech on Tuesday, we will be keeping a close eye on how investors respond to the speech when the ASX opens on Wednesday.

New Zealand – RBNZ interest rate decision November

Across the ditch on Wednesday, investors will be awaiting the release of the RBNZ’s cash rate decision for November as inflation began cooling in the region in Q3, hitting 7.2% from 7.3% in Q2. Inflation in NZ has been driven by a significant uptick in the prices of construction, rentals for housing and local authority rates, followed closely by the transport sector facing higher prices for petrol and diesel. With inflation starting to cool in the country though, the RBNZ may be more inclined to slow its rate of hikes to 25-basis points in months to come.

New home sales in the US – data for October out on Thursday 24 November at 1am AEST

New home sales data in the US for October is out on Thursday. Following a 10.9% decline in new home sales in the US in September, the markets are expecting further contraction of new home sales in October to US$578K amid the rising cost of borrowing and high inflation placing financial strain on families. The price of new homes in the US continues to rise with the median sales price of new houses sold at US$470,600, up 13.9% from a year ago. While across the board new home sales are declining, homes in the Northeast of the US are quite literally hot property, with sales in that region rising 56% in September.

FOMC minutes – Thursday 24 November

When the US Federal Reserve releases FOMC minutes, markets have traditionally been very reactive on the day of the report as they digest the details of the FOMC meeting for the month. With Fed officials indicating the hiking cycle is still running its course, investors are expected to take prompt action in response to the release of the FOMC minutes out on Thursday morning where we may see a sell-off in high growth stocks like technology again if investors deem the FOMC minutes as hawkish.

Commodities prices

Commodity prices have been seesawing in rhythm with the constant sway between the keeping and scrapping of China’s COVID-zero goal. This week, keep an eye out for further commentary around China’s easing of travel and COVID-19 restrictions, and how each report impacts the price of commodities. Furthermore, pay attention to the price of gold in relation to movements in the US dollar, especially in AUD spot price as this has been sitting at historic highs this year despite price weakness in USD terms.


Grady Wulff is a Market Analyst at Bell Direct


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