Market absorbs payrolls reading before focus shifts to China

Markets are set for another relatively quiet start, with North America closed today for the Labor Day holiday. But the holiday traditionally marks the end of the summer holiday period and should be followed by a gradual increase in volumes and potentially volatility while players position themselves for the final quarter of the year.

Data so far today has shown a modest pick-up in service sector activity last month. The Caixin/Markit PMI reading quickened to 52.1 in August from 51.7 in July but was below June’s reading of 52.7. 

In Europe, the UK PMI jumped to 52.9 from 47.4 in July while service sector activity in the eurozone missed expectations – the reading slowed to 52.8 from 53.1 in July. Meanwhile, the latest Sentix investor confidence reading strengthened to 5.6 in September from 4.2 in August while markets work through Brexit-related shocks.

Discussions among G20 officials continue; they are expected to express the need for fairer rules for trade and investment to kick-start growth and jobs when the final communiqué is released. Brexit also featured, with warnings from the US and Japan over the adverse effects of leaving the EU, while Australian Prime Minister Malcolm Turnbull reiterated his intention to form a “very strong” free-trade agreement with the UK.

US monetary policy is set to remain a major feature in the run-up to the next FOMC meeting on September 20-21. Expectations for a rate rise in September slipped on Friday after the non-farm payrolls reading showed the US economy added 151,000 jobs in August, well below the 180,000 forecast. 

The CME Fedwatch tool currently implies a 21-percent probability on a Fed increase in September from 24 percent at Thursday’s close. Meanwhile, the Fed fund rates imply a 41-percent probability of the Fed raising rates in December, down fractionally from 42 percent on Thursday.

The line-up of data from the US is relatively light this week. Service sector PMI readings are due on Tuesday along with the labour market conditions index and the IBD/TIPP economic optimism reading. JOLTS jobs openings and the Fed Beige book are due on Wednesday ahead of weekly jobless claims on Thursday and wholesale inventories on Friday. 

Eric Rosengren, the  Federal Reserve Bank of Boston President, is also scheduled to speak on Friday. He has been more hawkish recently, suggesting the Fed is close to achieving full employment and its two-percent inflation target and that keeping rates low risks “greater imbalances that could negatively impact the economy in the future”, he said in a speech last week.

Meanwhile, Sunday marks the 15th anniversary of the 9/11 attacks.

Monetary policy elsewhere will also be under scrutiny this week, with the Reserve Bank of Australia, the Bank of Canada and the European Central Bank all scheduled to set policy. All three are expected to keep policy unchanged, with the strength and tone of language in accompanying statements and press conferences of greater focus. 

ECBN president Mario Draghi’s press conference on Thursday will be of particular interest after data last week showed headline CPI inflation remained unchanged at 0.2 percent in August, while core inflation slipped to 0.8 percent from 0.9 percent in July, strengthening expectations for further monetary easing.

Key data from Europe this week includes service PMI readings, the Eurozone Sentix investor confidence reading and Eurozone retail sales on Monday. The eurozone Sentix index is expected to rise to 5 from 4.2 in September, extending its recovery from the post-Brexit slump in July.

The third estimate of second-quarter Eurozone GDP growth is expected to be unchanged on Tuesday while German factory orders are expected to return to growth after contracting by 0.4 percent in June.

German industrial production is scheduled for Wednesday followed by trade data on Friday. Eurogroup and ECOFIN meetings on Friday and Saturday will see EU finance ministers and central bank governors meet.

Manufacturing and industrial production data from the UK will also be under scrutiny while markets gauge the Brexit fallout. Wednesday’s Treasury Committee hearings on the Monetary Policy Committee’s (MPC) quarterly inflation reports will also be of interest.

The industrial metals will be looking to data from China, particularly after the pick-up in manufacturing activity signalled in the official PMI reading last week. Trade data is due on Thursday ahead of CPI and PPI inflation readings on Friday while industrial production, retail sales and fixed asset investment readings are scheduled at the start of next week.

In market-related data, the World Platinum Investment Council will release its supply-demand estimates for the second quarter and its updated 2016 forecasts.

The post Market absorbs payrolls reading before focus shifts to China appeared first on The Bullion Desk.

Read More
Source: Bullion Desk News