A look at the day ahead in European and global markets from Wayne Cole.
The start of the month was quiet, with holidays in the U.S. and Canada draining liquidity ahead of a deluge of U.S. payrolls data that will culminate on Friday. Wall Street and European stock futures were little changed.
PMIs in Asia for August were good, with China’s Caixin index rising to 50.4, beating expectations of 50.0, although it also showed the first decline in new export orders in eight months. However, Chinese stocks are still down, led by losses in the property sector.
Japan’s PMI also improved to 49.8, while business investment gained momentum in the second quarter. Markets are still betting that the Bank of Japan will hold off on raising interest rates in October, even though the meeting is at the end of the month and there will be plenty of data by then. As long as the BOJ doesn’t give up, it may want to get back on track toward normalizing monetary policy.
For the Fed, markets are betting that the size of the September rate cut could depend on the jobs report, given that Fed Chairman Jerome Powell has stated categorically that they do not want to see further weakness in the labor market.
A result that is in line with expectations of +165,000 and 4.2% would likely push the chance of another 50bps lower, although it would take an unusually strong report to make markets give up 25bps.
Expectations range from +100,000 to +208,00 and 4.1% to 4.4%, with anything like the latest reading likely to reignite recession talk and prompt investors to call for a half-point rate cut. Futures are forecasting a 100% cut of 25 basis points to 31% of 50 basis points.
Federal Reserve Governor Christopher Waller and New York Fed President John Williams are expected to speak after the jobs data, giving the market an almost immediate reaction.
Other important data releases this week include the Institute for Supply Management surveys, JOLTS job openings, ADP employment, trade, and the Fed’s Beige Book.
The Bank of Canada is widely expected to cut interest rates on Wednesday, with markets pricing in a 22% chance of a 50 basis point cut given signs the economy slowed in July.
In currencies, the euro was not helped by a far-right victory in German local elections, which added a new layer of political uncertainty over the fate of the European Union. The euro was steady at $1.1050 with support at $1.0948. The dollar was slightly lower at 146.00 yen, having earlier hit a high of 146.60 yen.
Key developments that could impact markets on Monday:
– S&P Global Purchasing Managers’ Indices for Germany, France, UK and EU
– Introductory statement by ECB Banking Supervisor Claudia Buch at the hearing of the European Parliament’s Economic and Monetary Affairs Committee
Comments are closed, but trackbacks and pingbacks are open.