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Weekly market preview – 2 September 2013
A hugely significant week ahead for the markets as the possibility of Syrian conflict and Fed tapering are likely to dominate global affairs. When we also factor in several monetary policy decisions and PMI figures, there is a potential for one of the volatile weeks in recent months. The main event for the UK economy comes on Wednesday, with the services PMI figure, while the monetary policy decision is likely to take somewhat of a backseat following the promise of relative stability from Mark Carney. Friday dominates the headlines for the US economy, with the release of critical jobs data, providing the final core readings prior to the September asset purchase tapering decision. Meanwhile in the eurozone, the main event of the week is likely to be Thursday’s ECB press conference that accompanies the interest rate decision, where Mario Draghi yet again takes to the stage which has typically led to an attempt to talk down the value of the single currency.
In Asia, an unusually busy week sees the Chinese release the headline manufacturing PMI figure over the weekend, preceding the final HSBC figure on Monday. Whereas in Japan, the BoJ monetary policy decision on Thursday brings the innate weaknesses of the economy back into the light. Finally, the Australian economy has a particularly eventful week, where the RBA monetary policy decision (Tuesday) and GDP figure (Wednesday) round off a highly notable week.
US
For all the talk of potential tapering, we are fast approaching the first possible meeting that this could occur. Markets have been repositioning somewhat in anticipation and thus there are questions as to whether some form of tapering has already been factored into the markets. The primary factor driving the Fed’s decision-making process is job market strength and thus the release of key employment data throughout the week increase the likeliness of volatility despite a four day week owing to the Labour day bank holiday on Monday.
The August ADP non-farm employment change figure on Thursday is the first of four releases, where market expectation is for a reduced figure of around 187k after the July figure broke the 200k barrier for the first time in seven months. This figure is generally seen as a secondary indicator, where Friday’s headline NFP figure dominates. However, given the comments regarding a potential lack of data for tapering from some Fed members, this will be scrutinised more than ever. Therefore watch out for any rise above expectations to likely be dollar positive or negative should it dissapoint.
This is closely followed by the weekly unemployment claims figure, also on Thursday. Owing to the regularity of this figure, the markets largely see the claims data as somewhat insignificant in ‘normal’ climates. However, given the proximity to potential tapering, along with a perceived lack of data, this figure has become increasingly important over recent months. Expectation is for a marginal drop from 331k to 330k, which would further clarify a continuing downward trajectory in this measure, strengthening the taper argument.
Friday will no doubt dominate the week in terms of volatility and importance, given the release of both the non-farm payroll and the headline unemployment rates. The non-farm payroll figure is generally seen as the leading indicator of current employment conditions and thus irrespective of any tapering talk, this release will typically bring about high volatility and speculation. However, with a potential taper on the line at the 17-18 September FOMC meeting, this will be one of the most hotly anticipated releases yet. Bear in mind that expectation is for a rise to 175k from 162k, where any beat of this would likely bring about increased likeliness of reduced asset purchases later in the month.
The final employment release is the unemployment rate, which is largely expected to remain at 7.4%. This headline figure is key owing to the fact that abolition of US quantitative easing was originally linked with a target of 7% unemployment. Thus the ability of this measure to fall is crucial for Fed members to consider the environment conducive to both tapering and an absolute halt of asset purchases.
Apart from the jobs data, it is clear that US involvement in the Syrian crisis has the ability to shock the markets, with recent rises in crude and gold weighing against losses in the stock indices. The UN inspectors are expected to leave the country on Saturday, leaving it open to potential intervention from the US and allies. US Secretary of State John Kerry has indicated that irrespective of the UN findings, it is clear that there has been chemical attacks within the country, paving the way for potential military action. Should this occur, we will be watching for any retaliation from Syria or its allies to judge whether this conflict could be somewhat more of a long term issue. One such potential attack could come from the Syrian Electronic Army, where targets such as financial institutions could be at risk from cyber attacks.
Other key events to look out for are the ISM manufacturing PMI (Tuesday), ISM non-manufacturing PMI (Thursday) and the trade balance (Wednesday) readings. However, for this week it is likely that on the whole markets will be focusing predominantly upon the jobs data.
UK
A similarly notable week for the UK economy, with the three core PMI figures (manufacturing, construction & services) dominating the first half of the week. This is followed by the MPC monetary policy decision on Thursday, which is largely expected to remain as is.
The first release of the week comes in the form of the manufacturing PMI figure on Monday morning, which is expected to continue the positive trend seen over the past five months. Market forecasts point towards a rise to 55.2 from the July figure of 54.6, which would be the highest figure in over two years. Overall the manufacturing sector is not as substantial as some of the more industrially focused economies, however this will certainly watched closely.
The same goes for the construction PMI figure, due out on Tuesday. The importance of the housing market is undoubtable, with recent indicators pointing to a clear boom in existence. Subsequently, the outlook remains positive, with a high likeliness of a strong figure after five consecutive months of upward movement in this figure. Expectation is for a rise to 58.4 from 57.0 and given the recent perceived strength within the housing sector, there is certainly a strong possibility of another beat in this survey.
The third and most important PMI is the services PMI figure due out on Wednesday. The overreliance of the UK upon services led growth is widely known, and thus the ability of this survey to perform well is absolutely crucial for the overall health of the economy going forward. Market expectation is for the first reduction in over eight months, with predictions estimating that a figure around 59.8 would be likely off the back of the 60.2 figure seen last month. However, it is worth bearing in mind that the PMI figure has outperformed expectations on the last seven occasions and thus there is the potential for a positive surprise should it do so again.
The final event of note for the week comes on Thursday when the MPC release their latest monetary policy decisions at midday. The recent strength of the UK economy, coupled with an emphasis upon stability from Mark Carney points to very few surprises in this meeting. Subsequently whilst this has typically been seen as a major event, it seems to be diminishing in importance given the forward guidance from the BoE and a seemingly stable pathway to higher growth currently within the region. Interest rates are expected to remain at 0.5% and asset purchases at GBP375 billion.
Eurozone
A particularly strong period for the eurozone has seen the likes of PMI and GDP readings moving back into positive territory, bringing a more optimistic tone from many in the markets. In a largely quiet week for the region, the focus will shift towards some of the peripheral countries, followed by the monetary policy decision from the ECB on Thursday.
The first half of the week brings Spain and Italy into focus with the release of manufacturing (Monday) and services (Wednesday) PMI figures. One criticism of the apparent strength of the eurozone has largely been that there seems to be a two tiered system, where the emphasis is upon the likes of France and Germany, and less upon weaker nations such as Spain, Italy and Portugal. Thus a strong move into expansion for some of these figures would be highly notable in the path to stability for the region. Only the Italian manufacturing PMI is currently above the key 50 mark and thus markets will be hoping to see as many as possible of the remaining three move above 50 and into expansion.
On Thursday the ECB will announce the latest interest rate decision, with almost certainty that there will be no change from the current 0.5% level. For all the talk of potential negative interest rates and alike, there is little appetite to make any tangible changes at the moment, especially just as the indicators are pointing towards a better than expected period. Mario Draghi has done a good job of talking the euro down throughout 2013 and this meeting will most likely only provide another opportunity to do so yet again. That being said, the markets are somewhat used to the dovish rhetoric Draghi tries to tout as a means to push the single currency lower and thus I do not see too much volatility off the back of this event.
Asia & Oceania
A particularly busy week for the Asian region, where China kicks off affairs over the weekend with the provision of the official manufacturing PMI figure on Sunday. Much has been made of the differential between the official and HSBC measures in recent months, where HSBC has portrayed a much more bleak picture of the key sector. However, this is largely associated with the overemphasis upon small and medium sized enterprises (SMEs) in the HSBC figure. Given recent positive tones from the region, I expect to see a further recovery in this figure. Market expectation is for a rise from 50.3 to 50.6, which would be the highest survey reading in over three months.
Later in the week, the Japanese economy comes into focus, with the release of the monetary policy statement from the BoJ on Thursday. The Japanese economy is likely to become increasingly central in the coming months, as an increasingly worrying picture in relation to debt is likely to force through some fairly drastic measures. The initial measure which is likely to be taken to stave off such debt will be the much discussed sales tax. However, this is likely to have little impact to the overall debt scenario and thus monetary policy is likely to be used as a means to address the issue. It is unlikely that any changes will be made at this meeting, however it is worth noting any reference to supply side measures such as the sales tax to understand whether there is a tangible desire to address the ongoing issue of debt.
Finally, in Australia we are keenly awaiting the release of their latest interest rate decision and GDP figure in what is a highly significant week for the island nation. The monetary policy decision from the RBA is first to grab the headlines when Glenn Stevens takes to the stage on Tuesday. There is significant appetite for devaluation in the Australian dollar and this has typically been the forum for such efforts. Given we saw a reduction from 2.75% to 2.5% at the last meeting I do not expect to see a further reduction this month. However, the statement has the potential to make an impact should the dovish stance be reiterated as I see likely.
The following day sees the release of the Q3 GDP figure, which markets expect to bring a maintained level of 0.6%. The downturn in the economy associated with the Chinese slowdown and depressed commodities prices has been dragging growth lower and thus this will be key in understanding how the RBA will act going forward in terms of further monetary policy. Given the recent downward pressure on the economy I would be more inclined to say that a miss would be negative rather than positive.
A hugely significant week ahead for the markets as the possibility of Syrian conflict and Fed tapering are likely to dominate global affairs. When we also factor in several monetary policy decisions and PMI figures, there is a potential for one of the volatile weeks in recent months. The main event for the UK economy comes on Wednesday, with the services PMI figure, while the monetary policy decision is likely to take somewhat of a backseat following the promise of relative stability from Mark Carney. Friday dominates the headlines for the US economy, with the release of critical jobs data, providing the final core readings prior to the September asset purchase tapering decision. Meanwhile in the eurozone, the main event of the week is likely to be Thursday’s ECB press conference that accompanies the interest rate decision, where Mario Draghi yet again takes to the stage which has typically led to an attempt to talk down the value of the single currency.
In Asia, an unusually busy week sees the Chinese release the headline manufacturing PMI figure over the weekend, preceding the final HSBC figure on Monday. Whereas in Japan, the BoJ monetary policy decision on Thursday brings the innate weaknesses of the economy back into the light. Finally, the Australian economy has a particularly eventful week, where the RBA monetary policy decision (Tuesday) and GDP figure (Wednesday) round off a highly notable week.
US
For all the talk of potential tapering, we are fast approaching the first possible meeting that this could occur. Markets have been repositioning somewhat in anticipation and thus there are questions as to whether some form of tapering has already been factored into the markets. The primary factor driving the Fed’s decision-making process is job market strength and thus the release of key employment data throughout the week increase the likeliness of volatility despite a four day week owing to the Labour day bank holiday on Monday.
The August ADP non-farm employment change figure on Thursday is the first of four releases, where market expectation is for a reduced figure of around 187k after the July figure broke the 200k barrier for the first time in seven months. This figure is generally seen as a secondary indicator, where Friday’s headline NFP figure dominates. However, given the comments regarding a potential lack of data for tapering from some Fed members, this will be scrutinised more than ever. Therefore watch out for any rise above expectations to likely be dollar positive or negative should it dissapoint.
This is closely followed by the weekly unemployment claims figure, also on Thursday. Owing to the regularity of this figure, the markets largely see the claims data as somewhat insignificant in ‘normal’ climates. However, given the proximity to potential tapering, along with a perceived lack of data, this figure has become increasingly important over recent months. Expectation is for a marginal drop from 331k to 330k, which would further clarify a continuing downward trajectory in this measure, strengthening the taper argument.
Friday will no doubt dominate the week in terms of volatility and importance, given the release of both the non-farm payroll and the headline unemployment rates. The non-farm payroll figure is generally seen as the leading indicator of current employment conditions and thus irrespective of any tapering talk, this release will typically bring about high volatility and speculation. However, with a potential taper on the line at the 17-18 September FOMC meeting, this will be one of the most hotly anticipated releases yet. Bear in mind that expectation is for a rise to 175k from 162k, where any beat of this would likely bring about increased likeliness of reduced asset purchases later in the month.
The final employment release is the unemployment rate, which is largely expected to remain at 7.4%. This headline figure is key owing to the fact that abolition of US quantitative easing was originally linked with a target of 7% unemployment. Thus the ability of this measure to fall is crucial for Fed members to consider the environment conducive to both tapering and an absolute halt of asset purchases.
Apart from the jobs data, it is clear that US involvement in the Syrian crisis has the ability to shock the markets, with recent rises in crude and gold weighing against losses in the stock indices. The UN inspectors are expected to leave the country on Saturday, leaving it open to potential intervention from the US and allies. US Secretary of State John Kerry has indicated that irrespective of the UN findings, it is clear that there has been chemical attacks within the country, paving the way for potential military action. Should this occur, we will be watching for any retaliation from Syria or its allies to judge whether this conflict could be somewhat more of a long term issue. One such potential attack could come from the Syrian Electronic Army, where targets such as financial institutions could be at risk from cyber attacks.
Other key events to look out for are the ISM manufacturing PMI (Tuesday), ISM non-manufacturing PMI (Thursday) and the trade balance (Wednesday) readings. However, for this week it is likely that on the whole markets will be focusing predominantly upon the jobs data.
UK
A similarly notable week for the UK economy, with the three core PMI figures (manufacturing, construction & services) dominating the first half of the week. This is followed by the MPC monetary policy decision on Thursday, which is largely expected to remain as is.
The first release of the week comes in the form of the manufacturing PMI figure on Monday morning, which is expected to continue the positive trend seen over the past five months. Market forecasts point towards a rise to 55.2 from the July figure of 54.6, which would be the highest figure in over two years. Overall the manufacturing sector is not as substantial as some of the more industrially focused economies, however this will certainly watched closely.
The same goes for the construction PMI figure, due out on Tuesday. The importance of the housing market is undoubtable, with recent indicators pointing to a clear boom in existence. Subsequently, the outlook remains positive, with a high likeliness of a strong figure after five consecutive months of upward movement in this figure. Expectation is for a rise to 58.4 from 57.0 and given the recent perceived strength within the housing sector, there is certainly a strong possibility of another beat in this survey.
The third and most important PMI is the services PMI figure due out on Wednesday. The overreliance of the UK upon services led growth is widely known, and thus the ability of this survey to perform well is absolutely crucial for the overall health of the economy going forward. Market expectation is for the first reduction in over eight months, with predictions estimating that a figure around 59.8 would be likely off the back of the 60.2 figure seen last month. However, it is worth bearing in mind that the PMI figure has outperformed expectations on the last seven occasions and thus there is the potential for a positive surprise should it do so again.
The final event of note for the week comes on Thursday when the MPC release their latest monetary policy decisions at midday. The recent strength of the UK economy, coupled with an emphasis upon stability from Mark Carney points to very few surprises in this meeting. Subsequently whilst this has typically been seen as a major event, it seems to be diminishing in importance given the forward guidance from the BoE and a seemingly stable pathway to higher growth currently within the region. Interest rates are expected to remain at 0.5% and asset purchases at GBP375 billion.
Eurozone
A particularly strong period for the eurozone has seen the likes of PMI and GDP readings moving back into positive territory, bringing a more optimistic tone from many in the markets. In a largely quiet week for the region, the focus will shift towards some of the peripheral countries, followed by the monetary policy decision from the ECB on Thursday.
The first half of the week brings Spain and Italy into focus with the release of manufacturing (Monday) and services (Wednesday) PMI figures. One criticism of the apparent strength of the eurozone has largely been that there seems to be a two tiered system, where the emphasis is upon the likes of France and Germany, and less upon weaker nations such as Spain, Italy and Portugal. Thus a strong move into expansion for some of these figures would be highly notable in the path to stability for the region. Only the Italian manufacturing PMI is currently above the key 50 mark and thus markets will be hoping to see as many as possible of the remaining three move above 50 and into expansion.
On Thursday the ECB will announce the latest interest rate decision, with almost certainty that there will be no change from the current 0.5% level. For all the talk of potential negative interest rates and alike, there is little appetite to make any tangible changes at the moment, especially just as the indicators are pointing towards a better than expected period. Mario Draghi has done a good job of talking the euro down throughout 2013 and this meeting will most likely only provide another opportunity to do so yet again. That being said, the markets are somewhat used to the dovish rhetoric Draghi tries to tout as a means to push the single currency lower and thus I do not see too much volatility off the back of this event.
Asia & Oceania
A particularly busy week for the Asian region, where China kicks off affairs over the weekend with the provision of the official manufacturing PMI figure on Sunday. Much has been made of the differential between the official and HSBC measures in recent months, where HSBC has portrayed a much more bleak picture of the key sector. However, this is largely associated with the overemphasis upon small and medium sized enterprises (SMEs) in the HSBC figure. Given recent positive tones from the region, I expect to see a further recovery in this figure. Market expectation is for a rise from 50.3 to 50.6, which would be the highest survey reading in over three months.
Later in the week, the Japanese economy comes into focus, with the release of the monetary policy statement from the BoJ on Thursday. The Japanese economy is likely to become increasingly central in the coming months, as an increasingly worrying picture in relation to debt is likely to force through some fairly drastic measures. The initial measure which is likely to be taken to stave off such debt will be the much discussed sales tax. However, this is likely to have little impact to the overall debt scenario and thus monetary policy is likely to be used as a means to address the issue. It is unlikely that any changes will be made at this meeting, however it is worth noting any reference to supply side measures such as the sales tax to understand whether there is a tangible desire to address the ongoing issue of debt.
Finally, in Australia we are keenly awaiting the release of their latest interest rate decision and GDP figure in what is a highly significant week for the island nation. The monetary policy decision from the RBA is first to grab the headlines when Glenn Stevens takes to the stage on Tuesday. There is significant appetite for devaluation in the Australian dollar and this has typically been the forum for such efforts. Given we saw a reduction from 2.75% to 2.5% at the last meeting I do not expect to see a further reduction this month. However, the statement has the potential to make an impact should the dovish stance be reiterated as I see likely.
The following day sees the release of the Q3 GDP figure, which markets expect to bring a maintained level of 0.6%. The downturn in the economy associated with the Chinese slowdown and depressed commodities prices has been dragging growth lower and thus this will be key in understanding how the RBA will act going forward in terms of further monetary policy. Given the recent downward pressure on the economy I would be more inclined to say that a miss would be negative rather than positive.