Worldwide inflation concerns boost US dollar
The main event for markets this week will be the publication of the September payrolls report in the US. A number of central banks, including those in Australia and New Zealand, will meet this week. We expect a continuation of recent hawkish surprises as inflationary pressures, caused by excess demand over strained supply chains, shows little sign of abating, which should boost the respective currencies.
The decisionmakers agreed to increase rates by 75 bp., surprising the market that expected a 50 bp. hike. Bank’s rhetorics indicates that the CNB should continue to increase rates, with the current market pricing suggesting they will rise again before the end of the year and in 2022, with the two-week repo reaching a somewhat higher level than the previous cycle-high of 2.25%.
This week will bring a number of macroeconomic readings from Czechia, with Friday’s retail sales data for August being the most important. As the CNB meeting is already behind us until the next inflation is out (11/10) koruna will most likely react to outside news.
The inflation report out of the Eurozone delivered yet another upward surprise, even against expectations that had already undergone a significant upgrade in the days leading up to the release of the data. Headline prices rose by 3.4% on the year, the highest rate since before the global financial crisis in 2008. Even the typically sticky measure of core inflation rose to 1.9%, albeit we note that these price increases are largely a result of the base effect.
Soaring energy prices should provide ammunition to the hawks in the ECB, which have been strangely absent of late. This week’s release of the minutes from the meeting will be somewhat stale, but we have a slate of speeches from ECB council members that we will be paying close attention to.
Drama over the debt ceiling in the US seems to us to be one of those non-issues that should be completely ignored by markets. Other than a slight pick up in Treasury bill rates, they seem to have largely done so for now. Far more important is the steady drip of inflationary news; last week’s turn was the personal consumption expenditures deflator (PCE) which again came out above expectations.
This week’s payrolls report out on Friday is expected to deliver another solid, but not quite exceptional, headline of net job creation. We will be looking closely at the wage numbers for signs that employees are finally pushing back against the real wage cuts they have experienced so far this year.
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