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The following article is based on research by Marshall Gittler, Head of Investment Research for FXPRIMUS.
The focus this week will be squarely on the monthly US nonfarm payrolls (NFP) figure.
It’s even more important than usual because it’s the last one before the September FOMC meeting. As we heard from Fed officials in Jackson Hole on Friday, there’s a good chance that they raise rates in September, depending on the data. The market is forecasting a rise in payrolls of 185k and a further decline in the unemployment rate to 4.8%. That’s the same level the FOMC said in June represents the long-term unemployment rate. If the payroll data does come in as strong as expected, watch for a rise in Fed rate expectations and a stronger dollar.
As usual, the market will be watching Wednesday’s ADP report to get an idea of what the NFP might be. Unfortunately, the ADP report hasn’t been a good predictor of the NFP recently, but that doesn’t seem to matter as it’s the best we have.
The other main event will be Thursday’s purchasing managers’ indices (PMIs). We get the final ones from the countries that we got preliminary ones from last week, such as Europe and the US, as well as PMIs from those countries that we didn’t get anything from, such as China and the UK. The PMIs for Europe and the US showed continued expansion. China though is expected to show either stagnation or even a marked slowdown, depending on whether you believe the official PMI or the Caixin/Markit PMI. The US ISM index is also out on Thursday; it’s expected to show a deceleration in US manufacturing activity.
The main point of interest for the EU is the release of inflation data this week. Germany announces its CPI on Tuesday and the EU-wide CPI will be released the following day, as usual. Both are expected to show inflation accelerating slightly. Combined with the stable PMIs, this may reduce expectations for further ECB easing and thereby support the euro.
For the UK, the big event will be the aforementioned manufacturing PMI on Thursday and also the construction PMI on Friday. Mortgage approvals are expected to be lower, similar to the BBA mortgage data that was released last week. Gfk consumer confidence (Tue) and the Nationwide house price index (Wed) are likely to get more attention than usual as investors search for any insight they can find about the UK economy.
As for today, the UK is on holiday and there are no major announcements due out during the European day, so trading is likely to be thin until the US trading day begins and US personal income and expenditure are released. The forecast 0.4% mom rise in US personal income is relatively strong and should be well received, but personal spending is forecast to show some deceleration from the previous two months. Combined with an expected slowdown in the core personal consumption expenditure (PCE) deflator, the Fed’s preferred inflation gauge, the data may be negative for the dollar.