Next week, members of the Bank of Canada's governing council will vote on whether to keep Canada's interest rate unchanged or strengthen its recently resumed series of rate hikes. Furthermore, Japan, which is being closely watched due to its strong stock market performance, will report its Q2 GDP growth rate, which, according to initial estimates, is higher than that of most Western countries.
Wednesday, 06.09. 14:00 GMT, Canada Interest Rate Decision
The Bank of Canada governing council members vote on whether to raise, decrease, or leave interest rates unchanged. These decisions affect the currency's value, and interest rate policy is among the key instruments to regulate inflation. Investors closely follow central banks' decisions and changes in the level of interest rates, as this information can be crucial to their trading strategies. The value of a currency tends to rise when interest rates are high, as they attract investors seeking higher returns on their deposits. Conversely, when interest rates are low, the currency's value tends to fall as investors look for other places to invest their money.
In July 2023, the Bank of Canada implemented its anticipated move by raising the target for its overnight rate by 25 basis points to 5%. This adjustment was in line with market expectations and followed a surprising 25 basis points rate increase that had been introduced in the previous meeting. The bank continued its tightening trajectory, extending this cycle beyond the temporary pause observed in March and April. The Governing Council of the central bank indicated that the prevailing strength in consumer spending and the persistent tightness within the labour markets contributed to the endurance of inflationary pressures, particularly within the services sector. Together, these factors justified a further upward shift in borrowing costs.
Consequently, the central bank modified its projections, now foreseeing a more protracted period for the slowdown in inflation. According to the forecast, inflation is expected to hover around 3% next year before gradually declining to the targeted rate of 2% by mid-2025. The central bank remains committed to rigorously assessing the dynamics of core inflation and the overall outlook for CPI inflation.
Source: Tradingeconomics.com
A higher-than-expected rate may be positive for the CAD and negative for the stock market, while a lower-than-expected rate may be negative for the CAD and positive for the stock market.
Impact: CAD, S&P/TSX
Thursday 07.09. 23:50 GMT, Japan Gross Domestic Product (GDP) QoQ (2Q)
Gross domestic product (GDP) indicates the total value of goods and services produced in a country for a certain period. GDP is an important indicator of the health of an economy because it gives an overall picture of how well or poorly it is doing. If the GDP growth is higher than expected, the economy is in good shape and growing faster than expected. On the other hand, if the GDP growth is lower than expected, the economy performs weaker than anticipated.
According to the initial estimates, the Japanese economy showed robust growth during Q2 of 2023, surging by 1.5% quarter-over-quarter. This exceeded market predictions, which had anticipated a more modest 0.8% increase, and marked an acceleration from the previously adjusted 0.9% growth in Q1. This performance marked the economy's second consecutive quarter of expansion and showcased the swiftest pace since Q4 of 2020.
The driving force behind this growth was a notably positive influence from net trade. The rebound in exports, registering a 3.2% rise versus the preceding -3.8%, played a significant role. Moreover, imports underwent their third consecutive quarterly decline, decreasing by -4.3% compared to the prior -2.3%. Conversely, government spending exhibited limited growth (0.1% vs. 0.1%), and capital expenditure remained stagnant following a 1.8% expansion in the previous quarter. Private consumption, which accounts for more than half of the economy, declined after two consecutive quarters of growth, mainly due to significant cost pressures. The contraction in private consumption was -0.5%, compared with growth of 0.6% in the previous quarter.
Last year, the Japanese economy grew by 1.1%, a slowdown from the 2.1% growth recorded in 2021. This deceleration was influenced by persistent global challenges that affected economic momentum.
Source: Tradingeconomics.com
A higher-than-expected reading may have a bullish effect on the JPY, while a lower-than-expected reading could be bearish for the JPY.
Impact: JPY
Friday 08.09. 06:00 GMT, Germany Consumer Price Index (CPI) YoY (August)
The CPI index measures changes in the prices of consumer goods and services. It covers different types of products, such as food, fuel, transportation services, cosmetics, household goods, clothing, and many others. The purpose of the CPI index is to measure the increase or decrease in the cost of living for consumers. As the CPI index rises, consumers' purchasing costs increase, affecting their money's purchasing power. The CPI index is used to monitor inflation or the overall rise in prices in the economy. It allows us to assess whether prices are rising too fast or too slowly and to determine what economic policy measures should be taken to offset the adverse effects of inflation.
According to the preliminary results published on August 30th, Germany's rate of consumer price inflation in August 2023 demonstrated a moderation, settling at 6.1% on a year-on-year basis. This represented a slight dip from the preceding month's figure of 6.2%. The preliminary estimate aligned closely with market projections, slightly surpassing the expected rate of 6.0%. Despite this minor reduction and the alignment with the 14-month low recorded in May, the inflation rate remained significantly elevated compared to the European Central Bank's targeted rate of 2.0%.
Notably, the core inflation rate, which excludes volatile elements such as food and energy, exhibited no change and remained consistent at 5.5%. Services inflation experienced a gentle easing, descending from July's 5.2% to 5.1%. Conversely, the inflation rate pertaining to goods accelerated, rising from 7.0% to 7.1%. This acceleration was primarily attributed to a surge in energy costs. In contrast, food prices rose at a slower pace.
On a month-to-month basis, consumer prices displayed a 0.3% advancement in August - the same as in the prior period.
Source: Tradingeconomics.com
On the one hand, if the reading is higher than expected, inflation is higher, which may favour a fall in the EUR. Meanwhile, it is also a stimulus for the ECB to raise interest rates and reduce the money supply, causing an increase in the EUR. On the other hand, if the reading is lower than expected, it may give the ECB an argument to stop its policy of raising interest rates.
Impact: EUR, DAX
Stocks to watch
Zscaler (ZS) announcing its earnings results for the quarter ending on 07/2023. Forecasted EPS: 0.4912. Positive earnings surprise in 10 out of the last 10 reports. Time: Tuesday, September 5, after the market closes.
Copart (CPRT) announcing its earnings results for the quarter ending on 07/2023. Forecasted EPS: 0.325. Positive earnings surprise in 1 out of the last 10 reports. Time: Wednesday, September 6.
Kroger (KR) announcing its earnings results for the quarter ending on 07/2023. Forecasted EPS: 0.914. Positive earnings surprise in 10 out of the last 10 reports. Time: Friday, September 8, before the market opens.
Santa Zvaigzne-Sproge, CFA, Head of Investment Advice Department at Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis, and opinions contained, referenced, or provided herein are intended solely for informational and educational purposes. The personal opinion of the author does not represent and should not be constructed as a statement, or investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73,02% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
