A mixed period in the markets right now, where a general lack of any substantial political and economic trends means people will be looking for economic events to provide guidance and direction. The US in particular allows for an interesting week ahead, where the backlog as created by the government funding shutdown continues to dominate proceedings. The main event in the US is certain to be the FOMC meeting where a decision upon tapering is yet again at the fore. In the UK, a quiet week sees the manufacturing PMI figure represent the only tier 1 release to note. Meanwhile, in the eurozone, a similar story sees the unemployment rate for September provide one of very few events that could make an impact.
In Asia, the Chinese manufacturing PMI figure due on Friday brings the main event of the week following a strong HSBC figure recently. We are also looking ahead to the BoJ monetary policy statement on Thursday for any indication of a change in tact for the central bank. This is also the case in New Zealand, where the RBNZ are due to make their monetary policy decision on Wednesday.
[B]US[/B]
An important week for the US economy ahead, where the FOMC come back to the fore with the meeting due to take place throughout the middle of the week. Alongside that, we have a number of key releases which have been increased by the US shutdown earlier this month. The two other major releases we will be looking out for are the retail sales and ADP non-farm payroll figures.
On Wednesday, the FOMC releases their latest decision with regards to monetary policy to much fanfare. The typical decision with regards to whether the current pace of asset purchases should be increased or interest rates cut have been replaced somewhat with speculation as to whether the current $85 billion monthly asset purchases should be reduced, or ‘tapered’.
The decision not to taper in September seems to have been the correct one, with the government shutdown and disappointing jobs data in recent weeks bringing the US economic strength into focus. Given the unknown impact of the shutdown in economic terms, it is highly likely that the committee will decide to hold off yet again this month until we see a continued strengthening and stabilisation in the data.
It is also worth noting that the decision to push both the budget and debt ceiling discussions back to January and February 2014 might give some short term respite, yet also gives the Fed a significant dark cloud to watch out for going forward. Thus I could see the FOMC holding out on any monetary tightening until both are resolved, by which time the jobs data is most likely to have shown significant improvement. Thus I expect no chance in both asset purchases of interest rate this month.
On Tuesday, we are due to receive the latest retail sales figure, with the September number expected to show a lowered figure of 0.1% after a rise of 0.2% in August. The ability of the US to keep retail sales strong is absolutely critical to a economic health in a consumer driven economy such as the US. This figure is a strong indicator of both current and future confidence within the populace in relation to employment and economic conditions. Looking at the recent trajectory of this figure, it does seem likely that the figure could come in lower than last month. It is also worth noting that should it push into negative territory, we may see a notable market response.
The third major event of the week comes on Wednesday, with the ADP non-farm payroll figure. This is typically seen as a leading indicator of where the official payrolls data is likely to move, yet the correlation seems to have been lost somewhat. The disparity between the ADP and official non farm payrolls is likely to be bigger than ever this month, with the government shutdown largely ignored in the ADP figure owing to its focus upon private sector jobs. That being said, the ADP figure is still likely to provide a source of volatility given that the jobs market is so important as an economic indicator. This is also likely to be the case because this month’s jobs report has been pushed back a week, leaving the ADP figure as the most notable jobs figure of the week. Market expectations point towards a reduced figure of 150k, down from 166k last month, which would be the lowest in five months.
[B]UK[/B]
A quiet week in the UK, with the one event of note coming in the form of the manufacturing PMI figure, due on Friday. Market expectations highlight the possibility of a fall in this figure, from 56.7 to 56.5. This would represent the second consecutive reduction in this measure following six months of rises, and subsequently a new trajectory for the indicator. Given we saw a fall of 0.4 last month, this months figure could come in lower than estimates, which may provide markets with a more bearish outlook going forward. That being said, whilst manufacturing is important, the response is likely to be less than the services sector PMI which is released the following week.
[B]Eurozone[/B]
A similarly quiet week in the eurozone this week, where a range of data releases seemingly amount to very little in terms of significant markets movable events. One which could make the markets pay attention is the eurozone unemployment rate, due on Thursday. Recent strength in the region has been notable. This is particularly evident in Spain which finally moving out of recession (according to the Spanish central bank) in Q3. Subsequently, it appears to be that even the more troubled economies have begun to pick up some momentum. With Spain in particular, it has been very significant that the quarterly unemployment rate fell from 26.3% to 26.0% last week. Given that Spain accounts for the second highest rate of unemployment of any eurozone country, we can safely say it is a move in the right direction. With regards to the eurozone unemployment figure, we are expecting to see little in terms of movement from last month’s level of 12.0%. However, given strengthening of the employment conditions in countries like Spain, I am keeping an eye out for a possible reduction in this figure on Thursday.
[B]Asia & Oceania[/B]
The Chinese manufacturing sector comes back into focus this week, following last week’s HSBC manufacturing PMI figure. On this occasion it is the official manufacturing PMI figure in question, due out in the early hours of Friday morning. The ability of the Chinese economy to maintain a strong manufacturing sector is of course vital for future and current growth both within the country itself and the global economy. Thus the recent spike in the HSBC measure to 50.9 was highly notable for many in the markets. One of the important factors regarding the HSBC figure is that it is more focused upon small to mid-sized businesses, whom tend to struggle more than the bigger firms given targetted stimulus measures. Thus where we see strong performance of those smaller companies, it typically follows that the bigger firms are also having a good time. For this week’s official release, the market forecasts point towards a marginal rise from 51.1 to 51.2. However, in the past, the forecasters have always expected a notably smaller move than actually takes place and thus be aware that this could move quite significantly, bringing with it the market attention and movement.
In Japan, the BoJ monetary policy decision on Thursday represents the major event of the week with markets speculating as to whether governor Kuroda is likely to make any alterations to the current rate of asset purchases. In all likeliness we will see no change to the quantitative easing and interest rate levels, with signs pointing to a gradual strengthening of the Japanese economy and rise of the inflation rate. The core target of the BoJ and Japanese government has been a 2% rate of inflation along with strong growth, both of which seem to be increasingly moving in the right direction. This is largely as a result of Kuroda’s gutsy monetary policies, where the total growth of the monetary base is expected to be as large as 10% of GDP this year. Whilst we do not expect any significant shift in the current stance, we will always look out for the accompanying BoJ statement for hints that the stance is changing towards a more dovish or hawkish stance.
In New Zealand, the RBNZ are also set to announce their latest monetary policy decision on Wednesday. A similar story to Japan, where the policies of the central back have been largely successful and thus there is no change expected at this month’s meeting. One difference is that the RBNZ has largely relied upon talking down the national currency as the primary means of increasing competitiveness. However, with the NZDUSD rising to a two month high recently, there is a possibility that we could see a return to the more dovish rhetoric this week. Given that we haven’t seen a rate cut in around 20 months, it is worth keeping an eye out for the accompanying statement for the real market mover.
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