Forex and Macro

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The coming week is jam-packed with important central bank meetings and high-frequency economic data. The week begins with China's April PMI, which was released over the weekend. Lockdowns are wreaking havoc on the world's second-largest economy as part of the policy response to the Covid outbreak. However, the economic impact appears to be less severe than when the pandemic began in Q1 20, when the economy contracted by 10.3 percent quarter over quarter. Nonetheless, additional stimulus measures by Beijing and the PBOC appear likely.

• On May 3, the Reserve Bank of Australia will meet. After last week's stronger-than-expected Q1 CPI, the market's perception of the likelihood of a hike increased significantly. It increased to 5.1 percent year over year from 3.5 percent in Q4 21 and was higher than the median forecast of 4.6 percent (Bloomberg survey). The underlying measures accelerated to more than 3%, exceeding expectations. Prior to the release of the inflation report, cash rate futures implied a 1-in-4 chance of a 25-basis-point hike.

• The Federal Reserve Board of Governors meets on May 4. A 50 basis point increase is a foregone conclusion. Not only at this meeting, but also at the following three, the Fed funds futures market has priced in a 50 basis point hike (June, July, and September). Additionally, the Federal Reserve will announce its balance sheet reduction strategy. The forward guidance indicated a brief ramp-up period in June, with monthly revenue reaching a maximum of $95 billion.

• On May 5, the Bank of England and Norway's Norges Bank will meet. Despite some weak economic data, including the squeeze on the cost of living, which has resulted in retail sales falling in nine of the last 11 months, the market is confident that the BOE will deliver its fourth rate hike in the cycle that began in December.

• Norges Bank has also increased rates three times already, to 0.75 percent. In March, the underlying rate of inflation, which excludes energy costs and adjusts for tax changes, was a relatively low 2.1 percent.

• The April CPI for Tokyo will be released at the end of next week. Although Tokyo's CPI is published ahead of the national figures, it provides an excellent economic indicator.

• Next week, four additional noteworthy central banks will convene: two from South America and two from central Europe. Brazil and Chile are only one or two hikes away from completion with next week's hikes. The Brazilian Selic rate has been increased by 100 basis points to 12.75 percent.