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by Darius Anucauskas

Weekly Outlook: August 03 – August 07: RBA and BoE Interest Rates, US Jobs In Focus

The economic calendar will be a busy one this week. We have manufacturing and non-manufacturing PMIs delivered across the globe from various countries. In addition to that, services PMIs will be in the spotlight. The RBA and the BoE are set to deliver their interest rate decisions. And, of course, the US jobs sector will be in focus on Friday.

On Monday, Canada will be celebrating its Civic Holiday, which means that the Canadian Exchanges will be closed. In regards to the economic calendar, there will be a few countries, which will deliver some of their economic data.

Monday has started off with Japan’s final QoQ and annualised GDP growth rate figures. Initially, the forecast for the QoQ number was sat at -1.1%, which already was a disappointment for the Japanese economy. The actual release showed the same reading as previous, at -0.6%. The annualised GDP figure was also on the brighter side in relation to its initial forecast. The actual number also came out as the previous -2.2%, showing up well above the expected -4.4%. The data helped maintain the positivity in Nikkei 225 today.

Various nations will be reporting their manufacturing PMI numbers for the month of July. During the Asian morning, Japan kicked off with its release, which was previously expected to have improved, going from the 40.1 to 42.6. The actual number showed up at an even better level, at 45.2. The data also helped to keep Nikkei 225 in the positive territory for today.

Now, jumping over the Korean peninsula, in China, the picture was also more positive, suggesting that manufacturing in the country continues to pick up. The Caixin manufacturing PMI number was believed to have improved fractionally from 51.2 to 51.3, But it showed up at a much better level, at 52.8. Although the number is good, still, market participants will continue putting a bit more emphasis on the ongoing issues with the coronavirus and the US-China tensions.

Later on, we will get the eurozone manufacturing PMIs, together with reports from some individual member states. Overall, it is expected that the eurozone will show a decent number, indicating that it got back into expansionary territory, moving from the previous figure of 47.4 to 51.1.

The US is also set to deliver its manufacturing PMI reading, together with the ISM manufacturing PMI, both for July. The first indicator is forecast to have moved from contraction zone to an expansionary one, jumping from 49.8 to 51.3. The ISM figure is believed to have improved as well, from 52.6 to 53.6. If the readings comes out as forecasted, this could be seen as a positive, but comparing it the June number, the uprise wouldn’t be a significant one. That said, due to the times of pandemic, as long as the reading stays in expansionary territory, investors might remain satisfied.

US ISM Manufacturing PMI

On Tuesday, Japan will deliver its YoY Tokyo core and headline CPI figures for the month of July. The first one is believed to have stayed the same, at +0.2%. There is currently no forecast available for the headline number, but we know that the previous one was at +0.3%.

After a couple of hours, it will be Australia’s turn to take the spotlight. The country will first deliver its MoM and QoQ retail sales figures. Lately, the MoM reading has been very volatile, ranging roughly between -18% and +17%. At the moment, it is expected that the MoM retail sales for June have moved to +16.3%, which if comparing to the same MoM reading at the same time last year (+0.4%) would be a major jump. However, due to the coronavirus, it is difficult to have a like-for-like comparison, using previous year’s data and this year’s data. For now, we will focus mainly on the previous readings and the forecasts. A better than expected figure could help support the Australian dollar and bring a bit of positivity into the near-term economic outlook.

But the main focus for AUD traders will be on the RBA and its interest rate decision and the accompanying statement. Currently, the expectation is that the Bank will keep the cash rate at the same level of +0.25%. In the last month’s monetary policy statement, the RBA stated that the Australian economy is experiencing the biggest contraction since the 1930s. The country’s unemployment has risen roughly by an additional 2%, comparing to where it was throughout 2019 and in the first three months of 2020. The Bank continues to monitor carefully the economic situation in the country and the tensions between the US and China.

Australia Interest Rate

As for the rest of Tuesday’s data, oil traders might keep an eye on the weekly US crude oil inventories delivered by the American Petroleum Institute. Currently, there is no forecast for the upcoming figure.

Wednesday will be a busy day in terms of economic data releases. During the early Asian morning hours New Zealand will release its jobs numbers, which are expected to have worsened slightly, comparing to the previous readings. The QoQ employment change number is believed to have dropped to -1.9% from the previous +0.7%. Participation rate is forecasted to have moved to 69.70% from 70.40%, and the overall unemployment rate is believed to have risen from 4.2% to 5.7%. That is roughly a 35% jump in registered people who are without a job, but actively seeking employment. If all the actual numbers show up as forecasted, or worse, this may have a negative effect on the New Zealand dollar.

Wednesday will also be a service PMI day, with various countries across the globe delivering their data on this indicator. China’s composite and Caixin services PMI numbers do not have any expectations at the moment. All we know that the Caixin number has been on the right track, as it continued to rise from April, after a heavy decline in March. The composite number has been on a more stable side, after its recovery in April.

Sweden will also be one of those countries, which will deliver its services PMI reading, which currently has no forecast available. Instead, the spotlight will fall on the country’s GDP flash growth rates on a QoQ and YoY basis. Currently the expectation is to see better than the previous numbers, going from 49.2 to 52.9.

Apart from some individual European member states, the eurozone as a whole will deliver its composite and services PMIs for the month of July. Currently, the expectations are that the sectors have moved out of the contractionary territory into the expansionary one, with the composite reading believed to show up at 54.8 and the services figure forecasted to appear at 55.1. If so, euro traders may take it a good sign, if the actual numbers show up better than expected. However, if the actual readings are above 50, but below forecast, that might cause EUR to retrace a bit lower against USD, which could be seen as a corrective move, following a strong rally during last week.

UK, US and EU Services PMI

Later, the light will fall on the US data, in particular on the country’s ADP non-farm employment change, services PMI, ISM non-manufacturing PMI and crude oil inventories. The first one is sometimes used as gauge for the upcoming US non-farm payroll number, which is set to be delivered on Friday. The ADP reading is expected to have declined to 1500k from the previous 2369k. If so, then investors might assume that Friday’s payroll number could come out on the lower side as well. That said, let’s not forget that one should not solely rely on this theory, as history shows that the two data sets might not always move hand in hand in the same direction.

US services PMI is expected to have risen from the previous 47.9 to 49.6. Although it may be seen as a good result, still, that would keep the sector in contractionary zone, below 50. The ISM non-manufacturing reading is forecast to have declined somewhat, going from 57.1 to 55.0. Nevertheless, that would still keep the figure in expansion zone. If the actual readings of the indicators discussed above come out as expected, this might cause a slight negative effect on the US dollar.

US ISM non-manufacturing PMI

US weekly crude oil inventories are also coming out and the expectation is currently for an increase in the number of barrels stored. The previous figure was at -10.612mln, whereas the current reading is believed to have risen to +0.357mln barrels, which could be seen as a negative for the price of crude oil.     

Thursday will kick off with the Bank of England and its interest rate decision. In addition to that, the BoE will present the Inflation Report. In terms of the interest rate decision, no fireworks are expected there, as the Bank is believed to keep the current rate unchanged, at +0.1%. The Monetary Policy Committee will continue monitoring the effects of the coronavirus on the British economy. Also, one of the main concerns for the BoE have been low levels of inflation. The headline CPI on a YoY basis, during the past 3 readings, came out even below 1%, which is far from the Banks target of +2.0%. Certainly, one of the measures to try and raise inflation could be to lower the interest rate, however the rate is already at its historic low of +0.1% and we doubt that the Bank would try to send the rate below zero any time soon.

Later on, UK will produce its construction PMI figure for July, which is forecasted to come out at 57.0. If so, that would be a good increase from the previous 55.3 reading and could help support the British currency.

As every week, from the US we will get the initial jobless claims, together with the continuing jobless claims. The current forecast for the initial jobless claims sits at around 1450k, which is very close to the previous reading of 1434k. Lately, the number has stabilised just slightly below 1500k, which some might see as a positive. However, the number is still on the high side, comparing to where it was before mid-March.

US Initial vs Continuing Jobless Claims

Continuing jobless claims remain well above the pre-April levels. The previous reading was at 17018k, when in the end of March it was only around 1800k. The current expectation is for the reading to come out at around 17200k.   

Finally, on Friday, we will have a busy day already from the early hours of the Asian morning, when the RBA will deliver its monetary policy statement.

But still, the main focus will fall on the US jobs numbers for the month of July. The previous reading we had was at 4800k, whereas this one is believed to come out slightly less than half of the June figure, at around 2200k. Given that July was another difficult month for US businesses, due to the lockdowns in various states, after the coronavirus cases surged sharply, there is a possibility that the number might stay on the lower side. Although the unemployment figure is believed to have ticked down from 11.1% to 10.5%, we prefer to wait for the official release first. If the numbers are below their forecasts, we might see the US indices turning south slightly. However, this might be short-lived, as the main focus right now is on the coronavirus and US-China tensions. The USD might take the role of safe-haven and strengthen a bit.

US NFP

Also, the average hourly earnings number on a MoM basis is believed to have improved from -1.2% to -0.5%, however the YoY number is forecasted to have declined from +5.0% to +4.1%, which still keeps the grim on the labour market stability.

Canada will also produce its jobs figures for the month of July. Unemployment is expected to have moved a bit lower, from 12.3% to 11.1%. The focus will also fall on Canada’s labour participation number. The previous number was 63.8%, but the actual figure is forecasted to have improved fractionally, going to 64%.

Disclaimer:

The content we produce does not constitute investment advice or investment recommendation (should not be considered as such) and does not in any way constitute an invitation to acquire any financial instrument or product. The Group of Companies of JFD, its affiliates, agents, directors, officers or employees are not liable for any damages that may be caused by individual comments or statements by JFD analysts and assumes no liability with respect to the completeness and correctness of the content presented. The investor is solely responsible for the risk of his investment decisions. Accordingly, you should seek, if you consider appropriate, relevant independent professional advice on the investment considered. The analyses and comments presented do not include any consideration of your personal investment objectives, financial circumstances or needs. The content has not been prepared in accordance with the legal requirements for financial analyses and must therefore be viewed by the reader as marketing information. JFD prohibits the duplication or publication without explicit approval.

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