Recession Trading: 5 Reasons Why You Shouldn't Be Afraid of Recessions

Weekly Market Outlook: US Jobs and Inflation Data Set to Fuel Ongoing Volatility

Weekly Market Outlook – Market volatility continues as investors brace for key economic data. Payroll and inflation numbers, along with Eurozone flash CPI figures and China’s PMI prints for August, are under close review. Concerns over the US and Eurozone economies grow as the economy slows. 

Weekly Market Outlook: UK and US inflation, RBNZ, Fed Minutes to watch

What to watch on the Economic Calendar this week: 

* - Important   

Monday, August 28: 

  • AUD: Retail Sales m/m* 
  • GBP: Bank Holiday 
  • EUR: German Buba President Nagel Speaks 
  • CNY: CB Leading Index m/m 

Tuesday, August 29:       

  • JPY: Unemployment Rate 
  • EUR: German GfK Consumer Climate 
  • AUD: RBA Gov-Designate Bullock Speaks* 
  • EUR: EU Economic Forecasts 
  • USD: S&P/CS Composite-20 HPI y/y* 
  • USD: HPI m/m 
  • USD: CB Consumer Confidence* 
  • USD: JOLTS Job Openings* 

Wednesday, August 30:       

  • AUD: CPI y/y* 
  • JPY: Consumer Confidence 
  • EUR: German Prelim CPI m/m* 
  • CHF: KOF Economic Barometer 
  • EUR: Spanish Flash CPI y/y* 
  • CHF: Credit Suisse Economic Expectations 
  • USD: ADP Non-Farm Employment Change* 
  • USD: Prelim GDP q/q* 
  • USD: Prelim GDP Price Index q/q* 
  • USD: Goods Trade Balance 
  • USD: Prelim Wholesale Inventories m/m 
  • USD: Pending Home Sales m/m* 
  • USD: Crude Oil Inventories 

Thursday, August 31:     

  • JPY: Prelim Industrial Production m/m 
  • JPY: Retail Sales y/y 
  • NZD: ANZ Business Confidence 
  • AUD: Private Capital Expenditure q/q 
  • AUD: Private Sector Credit m/m 
  • CNY: Manufacturing PMI* 
  • CNY: Non-Manufacturing PMI* 
  • JPY: Housing Starts y/y 
  • EUR: German Retail Sales m/m 
  • CHF: Retail Sales y/y 
  • GBP: MPC Member Pill Speaks 
  • EUR: Core CPI Flash Estimate y/y* 
  • EUR: CPI Flash Estimate y/y* 
  • EUR: Unemployment Rate 
  • USD: Core PCE Price Index m/m* 
  • USD: Unemployment Claims* 
  • USD: Natural Gas Storage 

Friday, September 1:  

  • JPY: Capital Spending q/y 
  • JPY: Final Manufacturing PMI 
  • CNY: Caixin Manufacturing PMI* 
  • GBP: Nationwide HPI m/m 
  • AUD: Commodity Prices y/y 
  • CHF: CPI m/m* 
  • CHF: Manufacturing PMI 
  • EUR: Final Manufacturing PMI 
  • GBP: Final Manufacturing PMI 
  • CAD: GDP m/m* 
  • USD: Average Hourly Earnings m/m* 
  • USD: Non-Farm Employment Change* 
  • USD: Unemployment Rate* 
  • CAD: Manufacturing PMI 
  • USD: Final Manufacturing PMI 
  • USD: ISM Manufacturing PMI* 
  • USD: ISM Manufacturing Prices* 

Keeping up with the Global Economic Calendar will ensure you don’t miss any crucial updates, upcoming events, important announcements, or important data releases. 

Economic data highlights scheduled for August 28 week:   

In the week of August 28, there will be important data about the job market. On Tuesday, we’ll get JOLTS data for July. Wednesday brings the ADP employment report for August. On Thursday, there’s the Challenger report on layoffs in August and initial jobless claims. The most significant data comes on Friday: the employment situation for August. 

We want to know if the Fed‘s efforts to control the economy have balanced job supply and demand without causing unemployment. It’s likely that businesses will have fewer job openings, and hiring is slower, but layoffs are uncommon in most sectors. The Fed expects the job market to cool down. 

The August employment report needs careful consideration. The number of jobs added in August usually starts low and gets revised higher later. August is challenging for data collection due to vacations and seasonal work transitions. Ongoing strikes might also affect job numbers. Once these strikes end, they should boost job counts. If the August job report seems weak, we should remember these factors. 

United States/USD: PCE inflation and NFP report to drive market!

It’s payrolls week in the United States, and anticipation is building for the August numbers. Signs of slowing job growth and alarm bells about hiring conditions were raised by the latest S&P Global PMI survey. Nonfarm payrolls are projected to have increased by 170k in August, moderating from the 187k jobs added in July.  

The unemployment rate is expected to remain steady at 3.5%, while average hourly earnings growth is also forecast to stay unchanged at 4.4% y/y in August. Thursday’s personal income and outlays report, which includes the core PCE price index, is also generating attention. Another solid reading for August would ease worries about a slowing economy. 

USD Steady mid 101 ahead of CPI Data

The stickiness of the Fed’s favored inflation gauge has been a more significant concern. Although core PCE did fall to 4.1% y/y in July, it remains double the Fed’s 2% target. The economic risks are tilted somewhat more towards a recession than a soft landing after the PMI releases.  

The Conference Board’s consumer confidence index and JOLTS job openings for July will be watched on Tuesday. On Wednesday, the second estimate for Q2 GDP growth and ADP employment report will be released. Pending home sales are due on Wednesday, and the Chicago PMI will follow on Thursday. On Friday, the ISM manufacturing PMI, expected to come in at 46.6 for August, will have the final say on how markets close for the week. 

The Dollar Index peaked last September around 114.75 and hit a low in mid-July near 99.55. Fed Chair Powell's remarks had an impact - the Index dropped to around 103.75 during his speech, but immediately rallied to session highs of about 104.45. This level is the best since June 1, with the previous high in late May closer to 104.70. It settled just above the upper Bollinger Band (~104.25). 

Eurozone/ EUR: Will Inflation in the Eurozone Keep Dropping? 

Recession fears are rising across the pond, with no relief in sight for European businesses. Manufacturing saw a slight improvement in August, but services output contracted further. Interest rates are at record highs, energy prices are rising, and demand is weakening in key export markets like the US and China. However, Europeans can find some solace in decreasing inflation.  

Flash estimates for August, due on Thursday, are expected to show further declines in CPI. The European Central Bank’s primary priority is to bring core CPI down to 2%. The recent deceleration in growth raises doubts about the need for further rate increases. The euro may firm if there are upside surprises in rate hike bets for September, but gains could be limited due to the risk of a severe downturn. 

After selling, the euro fell to nearly $1.0765 before the weekend but managed to recover before encountering new sellers at around $1.0810. It closed below key support at $1.08 and settled below the 200-day moving average (~$1.0805), a level it hasn't breached since last November. The technical tone is weak, with limited meaningful support ahead of the late May and early June lows (~$1.0635-65). To reverse the trend, the short-squeeze high during Fed Chair Powell's speech ($1.0840) must be surpassed. 

Japan/JPY: Key Data Point to Watch After June’s Decline 

Japan has a bunch of economic data coming up in the next few days, like employment, retail sales, industrial output, and capex. We already know that consumption and business spending slowed down in Q2, but luckily the external sector kept things from getting worse.  

Overall economic growth is expected to take a big hit this quarter, slowing down to around 0.8% to 1.0% annualized after the 6% growth in Q2. However, it’s not all bad news, as consumption and private investment are expected to rebound. July retail sales will likely be a key data point, especially after the 0.6% decline in June. Also, keep an eye on what’s happening in the capital markets. The 10-year JGB yield, and the value of the yen are both doing some interesting things.  

Weekly Market Outlook

Things are a bit tense because there’s a chance the Bank of Japan might jump in and buy some 10-year bonds like they did earlier this month. It’s hard to say if they’re also intervening in the foreign exchange market like they did last year around this price range.  

Regardless, just a heads-up that we might see some resistance around the JPY147.50 mark, and let's not forget about the previous highs from last November in the JPY148.45-85 range. 

China/CNY: Banks lower China GDP predictions below 5% 

Previously, the PMI garnered attention and influenced market reactions. However, the likelihood of this happening now has diminished. Chinese officials recognize the need for additional economic support, as some banks have revised down growth predictions, falling short of the 5% target set after a previous miss. It may be less relevant to discuss pre-Xi leadership practices, as Xi has charted a new path for China, distinct from Western leftists but more aligned with conservatives.  

While China possesses the means to stimulate spending, the government’s current approach aligns with ordo-liberalism. Whether Xi employs Keynesian fiscal policy depends on the severity of crises, and it seems he doesn’t perceive matters to be that dire at present. The strengthening value of the dollar hints at the challenges Beijing might face in halting further depreciation of the Chinese yuan.  

While the specified threshold of 7.35 against the dollar might not precisely indicate the intervention point for China's central bank, given the permitted 2% movement around a certain value, if the value exceeds 7.2058, it may reach beyond 7.35. Although the trade of yuan outside China largely adheres to domestic rules, Beijing is still engaged in this market. On August 17, the offshore market nearly reached a dollar-yuan exchange rate of 7.35, but a pattern suggests that it might test higher levels again. 

United Kingdom/GBP: Interest Rate Fluctuations Affect the UK Economy.

The UK shares house price, mortgage, and consumer credit info, which usually has a limited impact on the economy. British currency (the pound) has recently declined from trading at $1.26-$1.28 to around $1.2550, the lowest since mid-June.  

Additionally, UK interest rates, particularly short-term rates, have fluctuated. Initially, the UK offered lower rates than the US by over 125 basis points, but starting in June, the UK rates increased to 55 basis points on July 11. This shift influenced the pound’s value, reaching a peak on July 14. However, last week, the UK two-year investment rate fell below the US by nearly 30 basis points.  

With an upcoming Bank of England (BOE) meeting, the financial market is uncertain about the outcome. There was speculation of a potential 25-basis point increase, then a shift to considering a 50-basis point increase based on wage data and stable core CPI. However, the market now believes there is a very low chance (less than 10%) of a significant rate hike, impacting the pound’s value. 

The pound has been underperforming recently and there are signs it may continue to weaken. Despite some indicators showing poor performance, with the pound dropping below $1.2605 in the last two sessions, attention should be paid to the $1.2400 mark. A decline below $1.2600 could signal a more dire situation. Additionally, a pattern suggests the pound may further decrease, possibly reaching $1.20. 

Canada/CAD: US and Canadian job reports are typically in sync!  

This, reports on US job numbers for August and Canadian economy performance in June and the second quarter (April to June) will be released. A recent Bloomberg survey suggests that experts expect Canada’s economy to have grown less than previously thought for April to June.  

Weekly Market Outlook

In July, StatsCan, a government agency, indicated that the economy contracted by 0.2% in June but likely grew by 1.2% for the whole second quarter. However, the Bloomberg survey predicts a further slowdown in the third quarter, with growth dropping to 0.7%. Concerning exchange rates, the US dollar has been strengthening against the Canadian dollar for the past five days, with the rate fluctuating around 1.35 to 1.36 Canadian dollars for 1 US dollar.  

The rate rose to 1.3640 Canadian dollars just before the weekend, approaching the April and May levels of 1.3650 to 1.3670 Canadian dollars for 1 US dollar. For stability, the exchange rate would need to remain above 1.3500 Canadian dollars for 1 US dollar. 

Australia/AUD: We’ll see two economic reports in the coming days!  

Keep an eye on July retail sales, due to be reported on August 28. If these sales don’t improve following a 0.8% decline in June (which caused a 0.5% drop in retail sales for the second quarter, the third consecutive decline), it could suggest a worse-than-expected performance for the economy in Q3. 

Another important event is the release of the Consumer Price Index (CPI) for July on August 30. In the June report, prices rose by 5.4% YoY. For the entire quarter, the YoY price increase was even higher at 6.0%. The Australian dollar hit its lowest point of the year on August 17, reaching around $0.6365, before bouncing back to nearly $0.6490 the following week. However, selling pressure drove its value down to nearly $0.6380 by the weekend. 

Some speculate that the Australian dollar may have peaked twice at around $0.6900, potentially leading to a decline to about $0.6300. While the indicators suggest the speed of price change is reaching its lowest point, it's uncertain whether a price correction or sideways movement will occur. To confirm a price correction, the value needs to rise above $0.6500. If this happens, the initial target for the correction could be between $0.6560 and $0.6600. 

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