Week Ahead Economic Preview: Week Of 01 August 2022

 | Jul 29, 2022 11:55

This week sees the release of worldwide manufacturing and services PMI data which will give an insight into global growth, inflation, and labour market trends in key economies for the first month of the third quarter. June's PMIs and their early July flash readings have hinted at a deteriorating economic environment, showing business activity falling in the US and Eurozone as the cost of living crisis and tighter monetary policies hit demand. Elsewhere, China's Caixin PMI will be watched with particular interest to assess the ongoing impact of its zero COVID policy after June's encouraging rebound.

After last week's Fed 75 basis point hike, US markets will be eagerly awaiting non-farm payroll numbers which will help guide the future path of the Fed. The market is currently expecting a slowing in the pace of job gains with the latest figure expected to come in around the 260k mark (down from 372k). Meanwhile, the unemployment rate, is predicted to hold steady at 3.6%, while monthly earnings growth is also likely to hold at 0.3%.

Central bank meetings will meanwhile flow thick and fast this week, with Reserve Bank of Australia the first to make their rate decision with a 50 basis point hike now expected. Meanwhile, July flash S&P Global / CIPS UK PMI data pointed to a slowdown in growth and even a contraction in manufacturing output. The Bank of England is nevertheless projected to also hike their rate by 50 basis points.

The Reserve Bank of India (RBI) will meet for its quarterly monetary policy meeting on Thursday where it looks set to follow the general global trend of tightening monetary policy. Inflation rates have remained elevated which the RBI will look to control by hiking their rate by 35 basis points.

Brazil's selic rate decision will be another interesting central bank meeting to follow. In our baseline focus, we anticipate that GDP will decline in Q3 and Q4 (QoQ). Risks to policy continuity, coupled with high inflation, tight monetary policies, and a weaker external environment have increased the likelihood of recession.

h2 Bank of England to hike rates to highest since 2008/h2

Among the various central bank policy meetings in the coming week, the most important will be the gathering of the Bank of England's Monetary Policy Committee. Concerned over the rapid rise of consumer price inflation to a four-decade high of 9.4%, and emboldened by increasingly aggressive policy stances at the FOMC and ECB, the BoE is set to hike interest rates by another 50 basis points. The rise would be the largest since 1995 and means the MPC will have tightened policy for a sixth successive meeting to take Bank Rate to 1.75%, its highest since late 2008.

With a 50bp August rate hike already priced in, the focus shifts to the future policy path. Our forecasters here at S&P Global Market Intelligence expect further 25 bp hikes in September, November, and December, as well as in February 2023, taking the policy rate to a peak of 2.75%, reflecting the anticipated stickiness of elevated inflation in the UK. Although PMI data have indicated a tentative peaking in price pressures, household energy prices are expected to rise sharply into the winter, keeping inflation uncomfortably above the bank's 2% target and adding to fears of a wage-price spiral.

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However, this projected rate path is contingent on the UK experiencing only a mild recession. GDP is expected to contract slightly in Q2 and Q3 2022 before marginal growth returns from late 2022, thanks to the government's support package for households. The PMI data, including additional colour in the coming week, will be an important gauge of how likely that growth projection looks.