The Week Ahead

During the week ahead the market is likely to look towards a number of key market themes and events which have the potential to indicate financial market moves.

The economic calendar is jammed packed with important events and releases this week. The release of the US CPI inflation headlines, however, central bank decisions from the RBNZ and the BOC will also be closely observed.

BOC Rate Decision

Last month the Bank of Canada unexpectedly raised the target for its overnight rate by 25bps to 4.75% in June 2023, after pausing the tightening campaign in the previous two meetings, while markets were anticipating interest rates would be left on hold. 

After a five month ‘pause’, the consensus looks for the Bank of Canada to lift interest rates by 25 basis point for the second straight meeting in July, takings it key rate to 5.00%, according to Reuters.

Recent inflation data showed a significant decline in price pressures, with the annual rate diving to 3.4% year on year from 4.4%, though some analysts suggested that it might be a result of base effect.

Personally, I think that the central bank will hike rates this week and start to sound more dovish towards more rate hikes.

US CPI

The U.S. economy added the fewest jobs in two-and-a-half years in June, but persistently strong wage growth indicated that labour market conditions remain tight. This could make it hard for the FED to justify back-to-back rate hikes.

Forecasts are for Consumer prices are seen rising +0.2% month on month in June (prev. 0.1% M/M), while the annual measure is expected to pare back to 3.0% Y/Y from 4.0% in May.

Core consumer prices are expected to rise 0.3% M/M, while the annual measure of core inflation is expected to slip to 5.0% Y/Y from 5.3% in May.

Core CPI is the key to getting the FED on board to start to stop hiking altogether. Credit Suisse says the easing core inflation would be welcome for the Fed since it has been stuck around a monthly rate of 0.4% this year. This I agree on.