Central banks in focus in big week for markets

October 30, 2017 08:57 AM

The Federal Reserve Bank, the Bank of Japan (BoJ) and the Bank of England (BoE) meetings are taking place this week. The BoE is expected to raise rates for the first time in a decade. U.S. labor market and inflation data also are key this week.

It’s been a relatively calm start to trading on Monday but that isn’t likely to last long with the rest of the week packed full of major economic and political events that should ensure markets remain quite volatile.

With the Fed, BoJ and BoE all holding monetary policy meetings this week, there’ll undoubtedly be a strong focus on central banks. When it comes to the Fed though, it may not be the interest rate decision itself that attracts the most attention, rather President Donald Trump’s announcement on who will succeed Janet Yellen as hair from February, with the incumbent still in the race.

With Stanley Fischer, the vice chair, having left the Fed recently, there are actually two posts that need filling, so it’s possible that two of the three frontrunners – Jerome Powell, John Taylor and Yellen –  may take up prominent roles at the central bank. The Fed is not expected to make any changes to monetary policy at this week’s meeting with a rate hike currently priced in for December – 98% according to Fed Funds futures vs.1% this week.

The BoE,on the other hand, is expected to raise interest rates this week, the first such move in a decade, with policy makers claiming to be concerned about above-target inflation in an environment that has so far weathered the Brexit storm better than expected. Interestingly, despite markets strongly pricing in a rate hike – 85% as of this morning – policy makers have given the impression that they are not so convinced in recent public appearances. Should they vote in favor of a hike on Thursday, I will be very surprised if the decision is unanimous.

It’s not just about central banks this week though with a whole host of economic data being released, including arguably the most important of the lot, the U.S. Jobs Report. Markets may be pricing in a rate hike from the Fed in December but weak data between now and then will raise doubts about whether they will follow through. Wages are a key concern for policy makers when it comes to the shortfall in inflation, whereas job growth has been strong for some time, making the conundrum of why wage growth hasn’t followed an increasing frustration.

We’ll get inflation data for the United States today in the form of the core personal consumption expenditure price index – the Fed’s preferred measure – which is expected to show price growth remaining relatively subdued at 1.3% year over year. This will be accompanied by income and spending figures, the latter of which is expected to be particularly strong for September, with the former bouncing back to 0.4%.

Finally this week there’s a number of companies that will report third quarter earnings, including 139 S&P 500 companies.

About the Author

Craig Erlam is senior market analyst at OANDA who also writes for OANDA’s Market Pulse site, Marketpulse.com.