Top Events: BOE, ECB, & RBA Rate Decisions; Canada Jobs Report; US NFP

[MongiIG]

02/01 Tuesday | 03:30 GMT | AUD Reserve Bank of Australia Rate Decision
The Reserve Bank of Australia will take note of the fact that inflation pressures and expectations remain elevated, and a rebounding labor market is expected to help keep growth tilted higher for the foreseeable future. Similarly, they will likely zero out their QE program. The current Australian unemployment rate of 4.6% is quickly approaching the RBA’s 2022 year-end forecast of 4.2%. These factors point to an aggressive RBA this year – but no rate hikes are imminent.

According to Australia overnight index swaps (OIS), the first 25-bps rate hike is anticipated for July (54% chance). A second rate hike is expected in September (61% chance) and a third rate hike anticipated in December (64% chance). Any commentary that drags forward rate hike odds will prove beneficial for the Australian Dollar, as the RBA closes the policy gap with more hawkish central banks like the Federal Reserve.

02/03 Thursday | 12:00 GMT | GBP Bank of England Rate Decision
With UK inflation rates at their highest level in a decade and accumulating evidence that the labor market is steadily improving, both Bank of England policymakers and rates markets believe that more policy tightening is ahead. Rates markets are discounting February 2022 as the most likely period for when rates will rise next, with an 98% chance of a 25-bps rate hike; this is an increase from 66% at the start of January. Moreover, rates markets have discounted a fourth rate hike in 2022, up from three at the start of 2022. A BOE rate hike this week aligns neatly with the release of the Monetary Policy Committee’s next iteration of the Quarterly Inflation Report (QIR). The British Pound should remain well-supported around an increasingly hawkish BOE.

02/03 Thursday | 12:45 GMT | EUR European Central Bank Rate Decision & Press Conference
ECB policymakers have been beating the same drum for the past several months: no rate hikes are coming in 2022. The final policy meeting of 2021 noted that the Governing Council believed that “monetary accommodation is still needed for inflation to stabilise at the 2% inflation target over the medium term.” ECB President Christine Lagarde has called the current rise in inflation as a “hump.” Inflation data this week is showing that price pressures are not pulling back as quickly as anticipated, however. Rates markets are pricing in an 89% chance of the first 10-bps rate hike to arrive in July 2022. Nevertheless, Euro rallies may be providing a selling opportunity as ECB rate hike odds fall back, in line with policymakers’ commentary.

02/04 Friday | 13:30 GMT | CAD Employment Change & Unemployment Rate (Jan)
A surge in COVID-19 omicron variant infections coupled with increasing protests about mandatory vaccinations may have hindered the Canadian labor market at the start of 2022. According to a Bloomberg News survey, the Canadian economy lost -117.5K jobs in January after adding +54.7K jobs in December. The Canadian unemployment rate is expected to jump considerably, from 5.9% to 6.2%. But with risk appetite starting to stabilize and oil prices continuing to press higher, any weakness seen in the Canadian Dollar around a weak January labor report may prove to be a ‘buy the dip’ opportunity.

02/04 Friday | 13:30 GMT | USD Nonfarm Payrolls & Unemployment Rate (Jan)
Like in Canada, the spread of the COVID-19 omicron variant appears to have weighed on the US labor market. Notably, US jobless claims have ticked higher every week through January, and alongside declining PMI readings, a weaker US jobs reading is expected. According to a Bloomberg News survey, forecasters are looking for jobs growth of +153K while the unemployment rate (U3) is anticipated to hold at an impressive 3.9%. Meanwhile, the US labor force participation rate is due to stay on hold at a still-meager 61.9%. Wage growth is expected to remain robust, at +5.2% y/y in January from +4.7% y/y in December.

Atlanta Fed Jobs Growth Calculator (January 2022)
Chart of Atlanta jobs growth calculator from 1980 to 2020

The US economy continues to inch closer towards achieving ‘full employment’ as experienced pre-pandemic. According to the Atlanta Fed Jobs Growth Calculator, the US economy needs +424K jobs growth per month over the next 12-months in order to return to the pre-pandemic US labor market of a 3.5% unemployment rate (U3) with a 63.4% labor force participation rate. Tastytrade