This is an action-packed week where central banks and their monetary policies will be in focus. The UK’s stock market is closed for a bank holiday, which means overall trading action in Europe will likely remain quiet, but the US stock market is expected to maintain its normal trading volume.
There is no doubt that April was the worst month for the US tech stocks as the Nasdaq 100 index, a heavy index, recorded its worst monthly performance since 2008. Traders hope that a headline like this will bring some bargain hunters into the market.
A massive selloff in China is reverberating throughout developing economies, threatening to stifle development and drive down everything from equities to currencies and bonds. Fresh Covid outbreaks and the government’s strict policies to manage them are frightening global investors concerned that Chinese shutdowns could ripple around the world, decreasing demand and disrupting supply chains. This is causing them to sell China’s currency, bonds and equities and the assets of any developing country that is strongly reliant on trade with the world’s second-largest economy.
Beijing will close gyms and theatres for the Labor Day vacation. At the same time, Shanghai will maintain virus controls despite a drop in cases as it strives to end the Covid-19 epidemic that has hampered the city’s economy. According to data released on Saturday, China’s economic output fell dramatically in April as a series of lockdowns to manage the quickly spreading virus halted industries and disrupted supply networks. This comes on the heels of broad vows by the country’s senior officials last week to stimulate economic development.
The country is dealing with its greatest epidemic since the disease first appeared in Wuhan in late 2019, with the lockdown imposed on Shanghai residents being one of the longest and worst. The city’s dilemma has spurred neighbouring places to enact more stringent precautions at the first hint of viral outbreaks to avert the social and economic upheaval experienced by the financial centre.
The policy board meeting of the Reserve Bank of Australia will be the most critical event in Asia this week. We now expect the central bank to raise interest rates by 15 basis points to counteract consumer price inflation significantly higher than expected in the first quarter. Meanwhile, Australia’s housing market could cool with prices for high-end homes falling in Sydney and Melbourne.
Job growth in New Zealand should be moderate. In Japan, a rise in core consumer prices in Tokyo is expected to imply that countrywide inflation has finally reached the BOJ’s target of 2%. This will be primarily due to phone charge decreases being excluded from the year-on-year comparison rather than the wage-driven improvements sought by the BOJ. Thailand and the Philippines will also publish CPI figures.
In addition to this, we also have the US ISM manufacturing PMI reading coming out today at 14:00 GMT. The expectations are that the number will match the previous reading of 59.7. Remember, this is an essential set of economic data for the most critical economic number, which will be released later in the week, the US NFP. However, before that, we also have the US Private Jobs number, which is due on Wednesday, and the forecast is for 400K against the previous reading of 455K.
On Wednesday, we also have the Fed’s monetary policy decision taking place at 18:00 GMT, and the expectations are that the Fed will increase the interest rate by 50 basis points. However, speculators believe that the Fed could also increase the interest rate by 75 basis points.
On Thursday, we have the Bank of England announcing its monetary policy decision, and it is widely anticipated that the bank will increase the interest rate by another 25 basis points. So, the final number will be 1.0% from its previous reading of 0.75%.