A busy week for global markets, with Western and Eastern economies alike providing key data points which are likely to result in significant volatility from Monday to Friday. The US economy continues to play catch up this week, with the release of GDP and non-farm payroll data coming in later than expected owing to the government shutdown. In the UK, the services PMI figure on Tuesday is likely to provide the major data point whilst the MPC will decide upon monetary policy on Thursday. In the eurozone, the ECB meeting takes on extra importance following the shock fall in CPI seen in the last week.
In Asia, the Chinese trade balance provides the most prominent data point, where markets hope to see a further pickup in activity following a notable slowdown in trade for the Asian powerhouse. Finally, in Australia a busy week sees the release of jobs data on Thursday, along with the latest monetary policy announcement on Tuesday.
[B]US[/B]
A major week ahead for the US economy, as the backlog created by the government shutdown continues to effect the release of major data points. On this occasion, the Q3 GDP and jobs data are in view, with both pushed back by approximately a week. Also later on we are look ahead to the University of Michigan consumer sentiment figure on Friday.
On Thursday, the initial estimate of the Q3 GDP figure is due to be released, with market expectations pointing to a noticeable weakening in the measure. What is evident within previous releases, and in particular the Q2 figure is that there is often a substantial difference between the first and last estimates. For that reason, this month’s estimated figure of 1.9% is actually somewhat less worrying when compared with the initial estimate of Q2, which was 1.7%. However, it is somewhat more troublesome when comparing with the final revision of 2.5%.
What we are looking out for with this figure is an indicator that the economy is progressing significantly. Unfortunately this figure will not include any major element of the government shutdown, which is likely to be the major event which we need to quantify the impact of. However, markets will be watching this figure for signs that the economy is picking up in what has been a somewhat mixed period. Given the focus upon the mindset of the FOMC, we will need the economy to pick up somewhat to improve the sentiment going forward.
On Friday, the job report is released, typically providing one of the most volatile days of the month. The non-farm payroll figure is likely to garner the most attention given the tendency to come in somewhat wide of market estimates. The median estimate for the payroll figure is around 130k, following the September figure of 148k. One thing to bear in mind is that we saw the ADP figure come in precisely at that 130k level, from a revised figure of 145k and thus there seems to be some form of correlation this month. That being said, the ADP figure focuses solely upon the private sector and thus fails to reflect any changes in employment owing to the government shutdown. For that reason, I expect a figure below 130k, which would almost certainly rule out tapering within 2013. It is worth understanding that a poor figure could easily serve to rule out a 2013 taper, yet a favourable figure would not necessarily lead to the notion that we would get to see tapering this year.
The unemployment rate will also be closely followed on Friday, where estimates point towards the first rise in around five months. This would be a real kick in the teeth should it occur and in fact, given the participation rate finally stopped falling in September, we could get a reverse of recent trends where an improvement of the participation rate drives the unemployment rate to rise.
On Friday, the UoM consumer sentiment figure provides a comprehensive reading of how the US population have responded in the period following the government shutdown and debt ceiling standoff. Bear in mind that this figure has fallen short of estimates on the last 5 occasions, which could very well happen again given markets expect a rise from 73.2 to 74.3.
[B]UK[/B]
A big week for the UK economy, where the release of the remaining two PMI figures are followed closely by the release of the latest monetary policy decision from the BoE on Thursday. Last week saw the release of the manufacturing PMI figure, which failed to live up to expectations. Thus we are looking forward to the release of the construction and services PMI figures in the early part of the week to gauge whether that fall was a one off or representative of a more all-round slowdown in the UK economy.
The construction PMI figure on Monday represents the first major data point of note, and with the recent housing price boom firmly in the mind for many, you would be forgiven for expoecting an improvement. However, the market expectation is that we could see a moderate fall in the measure to 58.8 from 58.9. However, given the imposition of government measures to aid property purchases for those without substantial deposits, I believe we could see a continuation of the recent uptrend as the sector seeks to raise supply to account for the increased demand.
On Tuesday, the most important data release of the week comes in the form of the services PMI figure. The reliance of the UK upon the services sector is well publicised and for this reason a continually improving sector is crucial to the development of the economy. Fortunately forecasters are somewhat more positive for this release, with estimates pointing towards a marginal increase from 60.3 to 60.4. The measure has not fallen below estimates within the last 9 occasions and thus should we see a fall it would be highly significant. However, given we saw a minimal fall last month, I believe this could be the occasion that the figure disappoints. Should that occur, it could bring a negative tone to the the days proceedings.
Later in the week, the Bank of England’s MPC will conclude their latest monthly meeting and subsequently announce their latest decision with regards to monetary policy. Given the provision of forward guidance since Mark Carney took office, this monthly meeting has become somewhat of a non event and this month is no difference. No one expects to see any change to the current £375 billion asset purchase facility or 0.5% interest rate and thus we are largely looking to see if any accompanying statement is provided to give market volatility.
[B]Eurozone[/B]
A largely quiet week for the eurozone has turned into a more interesting one than expected after the eurozone inflation figure fell significantly last week, from 1.1% to 0.7%. Thus when the ECB meet again this week, the decision as to whether the interest rates should be cut will be less obvious. The current headline interest rate of 0.5% has been in place for over 6 months since the rate was cut from 0.75% in April 2013. However, the significant fall of inflation to the lowest level since the 2008-2009 financial crash has been perceived as a massive threat to some of the peripheral economies. The fall is widely attributed to the standoff approach from the ECB and thus the pressure is on for a possible move in response. As a result, all eyes will be on the ECB this week to see how they will react.
Also look out for the release of Spanish and Italian PMI data, along with eurozone retail sales figures.
[B]Asia & Oceania[/B]
A fairly quiet week in Asia, where Chinese interests largely lie within the trade balance release on Friday. The focus upon how the Chinese economy is recovering from the recent slowdown relates to not only Asian interests, but the global economy as a whole. For that reason, the trade balance is a key indicator in understanding how the volume of trade is developing. Market expectation is for the total trade balance surplus to increase to 23.5 billion from 15.2 billion. However, I will be keeping a keen lookout for the specific exports and imports as a gauge of whether net exporters such as Australia will be benefiting from the Chinese recovery.
In Australia this week, there are many notable events to keep an eye out for with the release of employment and retail sales figures, along with the latest RBA monetary policy announcement. The markets do not expect any form of rate cut from the RBA despite a clear appreciation of the Australian dollar over the past months. Clearly the pickup in the Chinese economy has had strong knock-on effects to the Australian region and as such there is less anxiety about a deterioration of the export market. The housing market has also picked up markedly, with house prices rising 6.4% in September on a month on month basis, meaning any further reduction could fuel a possible housing price bubble.
Meanwhile, on Thursday, the jobs report is expected to show somewhat different picture, with both the unemployment rate and employment change figures largely suspected to deteriorate somewhat in comparison to last month’s data. The unemployment rate currently lies at 5.6%, having tumbled by 0.2% last month. However, forecasters are expecting some of that to be given back this month, with a rise to 5.7%. Meanwhile the employment change figure is also expected to come in somewhat worse than last month, despite still moving in a positive direction. Estimates point towards a rise of 7,500 employed people, which denotes a slowdown in comparison to the 9,100 number last month. Either way, I believe people are becoming significantly more bullish about the Australian region and thus they will be unlikely to judge the economy too harshly should we see poor figures. The worst appears to be over and for that reason I am looking at such figures in a more favourable light going forward.