Two central bank decisions, the Fed’s favorite inflation measure and more

Rally until the end of the year? Not so fast. Volatility and uncertainty remain high after the Federal Reserve’s (Fed) dovish decision, which remains data-dependent. Moreover, other central banks have not yet fully reacted.

1) RBA may surprise with rate cut after Fed

Tuesday 4:30 GMT. The Reserve Bank of Australia (RBA) may be enjoying the country’s latest jobs report and is in no mood to cut, with inflation at 3.5% a year. The economic calendar indicates that the bank is leaving borrowing costs unchanged at 4.35%. However, there are also reasons to cut.

RBA iSource: FXStreet

First, inflation is forecast to fall to 2.8% in the upcoming report. Second, China’s economy is struggling to pick up steam and that means less demand for Australian metals.

Third, and perhaps most importantly, the Fed’s double-dose rate cut means the RBA may want to follow suit. While central bankers are reluctant to admit their dependence on the Fed, Washington has an impact on the global economy.

There is room for a surprise rate cut by the RBA, which would reverberate around the world and affect other currencies. In the event of a no-change decision, the Aussie would hold out.

2) CB consumer confidence expects growth prospects

Tuesday 14:00 GMT. The Conference Board’s consumer confidence index rose to 103.3 in August and could remain around that level for another month. This would support the soft-landing narrative, boosting the markets.

On the other hand, a consumer who fears the prospects will hesitate before buying. A lower figure would imply a harder landing, which is adverse for equities but bullish for the US dollar and gold.

I expect an upbeat figure because gas prices are falling – and these panels have a significant impact on consumer sentiment.

3) The SNB can surprise by holding rates

Thursday, 7:30 GMT. The Swiss National Bank (SNB) meets only once a quarter, and these decisions can provide significant surprises.

The Alpine country’s central bank is set to cut interest rates by 25 bps, which appear to be in line with the similar trend. However, the NBS interest rate is at 1.25%, an already low level. This places it significantly below the level of the European Central Bank (ECB) and seems unjustified.

Will the SNB surprise by leaving rates unchanged? Acting SNB President Thomas Jordan could keep rates unchanged in his latest decision.

Continued tapering would imply concern about the strength of the Swiss franc (CHF) and a desire to depress it. Such a “currency war” approach would have ramifications beyond Switzerland and could prompt other central banks to rush to cut rates faster.

4) Jobless claims stand out through emphasis on new jobs

Thursday, 12:30 GMT. While Gross Domestic Product (GDP) is the overarching measure of the economy, the upcoming publication is the latest release for the quarter that ended in June – three months ago.

Meanwhile, weekly jobless claims are for the week ended September 20. More importantly, the Fed is focusing on the labor market, and weekly claims data can serve as the “canary in the coal mine” — an early indicator of faster deterioration.

The economic calendar points to a small increase from 219K last time to 225K in the next publication. A bigger rise from previous levels – around 230,000-235,000 – would already cause some concern, weighing on equities and the US dollar while supporting gold.

5) Core PCE has high expectations, may fall short

Friday 12:30 GMT. Late but critical – the Price Index for Personal Consumption Expenditure (PCE) report, which comes after the Consumer Price Index (CPI). However, the Fed focuses on PCE when targeting inflation, making it a significant driver in the market.

The Fed aims to cut core PCE — which excludes volatile food and energy costs — to 2%, and at 2.6% a year, it’s close to “mission accomplished.”

US Core PCE. Source: FXStreet

The economic calendar points to a slight increase at 2.7% in August, while MoM core PCE is expected to repeat the 0.2% increase reported in July.

Any deviation of 0.1% can affect the markets. Last month, core PCE YoY surprised down 2.6%. I think another negative surprise cannot be ruled out. This would boost stocks and gold while hurting the US dollar.

A rise in YoY core PCE to 2.7% would hurt equities and precious metals, giving the Greenback a small boost.