The central bank bonanza is back in town this week, with five big names lining up to announce their latest monetary policy decisions. After all the recent drama involving oil prices, bond yields, and the stock market, perhaps it is time for central bankers to have their say again.
Of note, we will have the RBNZ, BOC, Fed, ECB, and BOJ all on the agenda this week. And looking to market pricing, traders seem to have a pretty good idea of what to expect already from the decisions to come. So, the only question is will there be any surprises? Let’s see.
The RBNZ will kick things off on Wednesday with traders fully pricing in a 25 bps rate hike. That leaves little suspense surrounding the decision itself, although traders will be watching for clues on whether policymakers are prepared to tighten further in December.
Then, the BOC will follow later in the day with markets pricing in roughly 83% odds of a 25 bps rate hike. The pricing reflects relatively strong conviction with just a bit of room for a potential surprise. But all else being equal, the central bank should deliver as expected this week. Perhaps the bigger question is whether another rate hike will be needed as policymakers continue to wrestle with inflation risks. So, that will be the key risk trigger for the loonie reaction in the aftermath.
After that, we will have the Fed to finish off the day with traders assigning around 91% odds of no change in interest rates. As such, the decision itself won’t be the main talking point here. Instead, it will all rest on Fed chair Warsh’s pess conference. His remarks will be closely scrutinised, especially with rising oil prices complicating the inflation outlook while recent weakness in the stock market raises fresh concerns about growth.
And on Thursday, it is then on the ECB to take the wheel with markets pricing in roughly 90% odds of a hold. But with energy-driven inflation pressures building and European growth showing signs of weakness, ECB president Lagarde will have a lot to address with her press conference. In particular, traders will be looking for clues on December, where expectations for another rate hike have been building.
Finally, the BOJ will round things off on Friday with traders seeing roughly 98% odds of no change in interest rates. But with the yen still struggling and underlying inflation holding near 2%, the focus will be on whether policymakers offer any stronger signals about a potential move in December. BOJ governor Ueda’s press conference is likely to steer clear of any pre-commitment though, so there might not be much to the key risk event here; all else being equal.
All things considered, I wouldn’t expect the interest rate decisions alone to deliver much drama this week. As we’ve seen time and again, it is often what central bankers say about their next move that ends up stirring markets the most. So, that is what I’ll be watching more closely with the meeting decisions and press conferences this week.
This article was written by Justin Low at investinglive.com.