Wayne Cole provides an update on European and global markets for the day ahead.
It was a quiet start to the month, with public holidays in the United States and Canada reducing liquidity ahead of a deluge of data that will culminate in the release of U.S. jobs figures on Friday. Wall Street and European stock futures were little changed.
Asian PMIs for August were decent, with China’s Caixin index hitting 50.4, beating expectations of 50.0, although it also showed the first decline in new export orders in eight months. Chinese stocks continued to fall, however, as losses in the property sector weighed.
Japan’s PMI also improved to 49.8, as business investment accelerated in the second quarter. Markets continue to bet that the Bank of Japan will hesitate to raise rates in October, although the meeting is at the end of the month and there will be plenty more data under the bridge by then. As long as the Nikkei doesn’t collapse, the BOJ may want to get back on track to normalize policy.
As for the Fed, markets are betting that the size of the September rate cut could hinge on the payrolls report, given that Chairman Powell has been adamant that he does not want to see further weakness in the labor market.
A result in line with forecasts of +165,000 and 4.2% would further reduce the chances of a 50 basis point cut, although it would take an extraordinarily strong report for markets to abandon the 25 basis point idea.
Forecasts range from +100,000 to +208,000 and from 4.1% to 4.4%, and anything resembling the latter would reignite recession talk and prompt investors to call for a half-point cut in rates. Futures are at 100% for 25 basis points and 31% for 50 basis points.
Fed Governor Christopher Waller and New York Fed President John Williams will speak after the jobs figures are released, allowing the market to react almost instantly.
ISM surveys, JOLTS and ADP payrolls, trade and the Fed’s Beige Book will also be important this week.
The Bank of Canada is expected to cut rates on Wednesday, with markets pricing in a 22% chance it will cut rates by 50 basis points, given signs of economic stagnation in July.
In currencies, the euro was not helped by the victory of far-right parties in German regional elections, which added a new layer of political uncertainty over the fate of the EU. The euro is stuck at $1.1050, with support at $1.0948. The dollar edged down to 146.00 yen, after hitting a high of 146.60.
Key developments that could influence markets on Monday:
– S&P Global PMIs for Germany, France, UK and EU
– Introductory statement by Claudia Buch, ECB Banking Supervisor, at the hearing of the European Parliament’s Committee on Economic and Monetary Affairs.
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