Weekly Market Outlook

Weekly Outlook: The Greenback turns to the NFP

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Another quiet summer trading week with no scheduled policy meetings for central banks. The US economic calendar, however, is loaded with big data and market movers. Highlights for this week include: 

  • US Employment data. 
  • ISM Manufacturing and Services PMI. 
  • Australian GDP Figures. 
  • Eurozone CPI Flash Estimates. 

Will the NFP support upcoming Tapering Moves? 

NFP Market News

The main event this week will be the Non-Farm Payroll employment change on Friday. Expectations point to a 750K job gain in August, and the unemployment rate to fall from 5.4% to 5.2%. The upcoming data will be perceived as an additional sign of the recovery pace of the labor market and the overall US economy. 

The data will be out after several comments from Fed’s officials that advocate tapering in the coming months as the economy recovers. Fed Chair Powell signaled in his latest remarks at the Jackson Hole symposium that the bank will likely begin tapering before the end of the year. However, any reduction in asset purchases does not guarantee a direct increase in interest rates. The Fed will continue to hold the interest rates at its current levels until the economy achieves maximum employment, and inflation has reached 2% and is on track to moderately exceed 2% for some time.

July’s Meeting Minutes showed that if the economy evolves as expected, then reducing the asset purchase will likely be needed later this year. This revived hopes that the Fed will start shifting its policy stance towards tightening.

Other data to watch will be the ISM manufacturing and services PMIs surveys that should point to another month of strong manufacturing and service growth rates.

Lockdowns to slow down Australian Growth in Q2

Despite the rapid economic recovery, Australia has been trapped in lockdown again till the vaccination rate reaches 80% of the population. This means slower economic growth ahead. For the second quarter, markets are expecting the economic growth to ease to 0.5% on a quarterly basis. However, the annual GDP growth is expected to jump to 9.2% from a year earlier, when the pandemic crisis peaked. 

Slower economic growth may push the Reserve Bank of Australia to abandon any possible asset purchases tapering in the upcoming meetings. The bank kept interest rates unchanged at a record low of 0.1% during its August meeting. The policy statement acknowledged that the economic recovery has been stronger than was earlier expected. However, the recent COVID-19 outbreaks were interrupting the recovery, and GDP is expected to decline in Q3, it added. The RBA reiterated it will not increase the cash rate until inflation is within the 2 to 3% target range, a condition that will not be met before 2024. 

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