weekly market outlook

Weekly Market Outlook: NFP and RBNZ Rate Hike Highlight the Week

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An interesting start for the fourth quarter, as traders awaits US employment report and two major central banks policy meetings. The Reserve Bank of Australia will kick off the week with its policy meeting on Tuesday, with no changes expected. Meanwhile, all eyes turn to the US employment data and a priced-in rate hike in New Zealand. The economic calendar also includes services PMIs worldwide and the OPEC+ meeting which is expected to offer guidance into the coalition’s production plans.

USD Cautiously Awaits NFP Data 

The US Non-Farm Employment Change is scheduled on Friday, the jobs report is expected to print a 490K job increase in September. August’s lower-than-expected rise of 235K has raised concerns about the pace of labor market recovery amid rising COVID-19 cases which could obstruct the Fed’s tightening plans. Meanwhile, the unemployment rate is forecasted at 5.1%, down from 5.2% in August, monthly growth in average hourly earnings is expected to ease from 0.6% to 0.4%.

Now that the Federal Reserve paved the way for policy tightening, with an expected announcement in November, employment data will be influencing how fast the bank moves towards policy normalization. With inflation stabilizing above the Fed’s target of 2%, all focus is on the labor market, which is seen 6 million jobs away from its pre-pandemic levels.  

The ISM Non-Manufacturing PMI survey will probably point to another month of growth in the service sector during September, while investors will be paying much attention to inflationary pressure. The private sector is expected to add 455 thousand jobs in September after 374 thousand jobs were added a month earlier. 

RBNZ is Ready for Rate Hike 

RBNZ is seen hiking interest rates by 25 basis points to 0.50% during its October meeting, marking the first hike since the pandemic. Despite the continued uncertainty about the outlook given recent lockdowns and the spread of the Delta variant, the economy has managed to print a notable recovery. Economic growth accelerated in Q2 to 2.8% QoQ, double the pace of Q1 growth and well above market forecasts for a 1.1% expansion. New Zealand’s economic performance has been consistently better than expected. Another rate hike in November is highly predictable depending on the upcoming data. The market appears to be pricing five rate hikes over the next 12-months, two rate hikes by the year-end followed by additional 2 or 3 rate hikes in 2022.  

In its August meeting, RBNZ officials expected a hike before year-end to anchor inflation expectations and help achieve maximum sustainable employment. The board stated that inflation pressures are set to increase in the near term, amid rising capacity pressures, higher oil prices and transport costs, and supply shortfalls. Near-term consumer price inflation is expected to rise above the committee’s target before returning to the 2% midpoint in mid-2022.

RBA to Stay on Hold 

weekly market outlook - Australian dollars
Australian Dollars

No changes are expected from the Reserve Bank of Australia policy meeting on Tuesday. Interest rates to be held unchanged at 0.10%, while maintaining bond purchases at a weekly pace of $4 billion, which is expected to continue until February 2022 at least.

Last month, the bank stated that recovery in the Australian economy has been interrupted by the Delta outbreak and the associated restrictions on activity. GDP is expected to decline in the third quarter and the unemployment rate will move higher over the coming months. However, the RBA kept its optimistic view of the economy, stating that this setback to the economic expansion is expected to be only temporary. The Delta outbreak is expected to only delay the recovery. It sees the economy bouncing back as vaccination rates increase and restrictions are eased. 

But for now, and until data shows otherwise, the RBA is seen keeping its current policy stance for the rest of the year.  

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