Fed minutes & PMIs to drive trading – Daily Market Brief, November 23, 2022

Markets brace themselves for increased volatility ahead of the Thanksgiving holiday tomorrow. The minutes of the November Fed meeting and global PMI data are in focus.

·         Eurozone Composite PMI to fall to 47.2 in October from 47.3; EUR/USD rises in early trade

·         Will the Fed minutes have a less hawkish stance and boost stocks higher?

·         RBNZ hikes rates by a record 75 basis points, pulling AUD/NZD to an 8-month low

RBNZ

The RBNZ hiked interest rates by 75 basis points marking the largest rate hike in the central bank’s history. As it fights against 20-year high inflation, at 7.2%, and record-high wage inflation, the RBNZ has raised interest rates by more than 2.6% this year, taking the Official Cash Rate to 4.25%. The RBNZ is now forecasting that the OCR will rise to 5.5% next year, up from the 4.1% forecast in August, suggesting that the fight against inflation is far from over. The central bank expects New Zealand to enter a recession in 2023. The next RBNZ meeting is now not for another three months.

The hawkish move from the RBNZ is in sharp contrast to the RBA, which has slowed the pace of rate hikes in recent meetings to just 25 basis points. Although the central bank says that it remains flexible and stands ready to raise or pause rate hikes as the data dictates. Still, the divergence in monetary policy has weighed heavily on AUD/NZD, which trades at an 8-month low.

Fed minutes

Sticking with central banks, the minutes from the November Federal Reserve meeting are due to be released today. The minutes, along with PMI data, are likely to be the main focus ahead of the Thanksgiving holiday tomorrow.

The minutes come from the Fed meeting where the US central bank raised interest rates by 75 basis points. The statement pointed to the Fed acknowledging the lag time between hiking interest rates and the impact on the real economy, suggesting a slower pace in hikes may be necessary. However, Powell then pushed back on a less hawkish stance, saying that the terminal rate will likely need to rise much higher.

Since then, inflation has cooled. However, Fed speakers have been mixed. Some, such as Loretta Mester and Mary Daly, have suggested that the time to slow rate hikes is approaching. Others, such as James Bullard, have said that rates would need to rise much higher. Investors will scrutinize the minutes to see where other policymakers sit on the matter.

 A less hawkish stance to the minutes could be a positive for stocks, helping equities push higher while pulling the US dollar lower.

PMIs

In addition to the Fed minutes, PMI data will be in focus. The European composite PMI is expected to fall to 47.2 in October, down from 47.3. The level 50 separates expansion from contraction. Delving deeper into the numbers, the service sector PMI is expected to fall to 48.4 from 48.6 as the cost of living crisis sees the consumer rein in spending. However, the manufacturing sector is expected to tick higher to 46.5, up from 46.4, pointing to signs of the contractions stabilising.

Ahead of the releases, the DAX points to a 0.1% rise on the open. Meanwhile, the EUR/USD is on the rise, trading 0.3% higher at 1.0330 at the time of writing.

PMI data is also due from the UK and the US, in addition to US durable goods orders and jobless claims.

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

Sources: Bloomberg, CNBC, Reuters

Original article provided by Trading Writers

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