Market outlook for the week of August 31st – September 4th
Monday starts off quietly, with nothing significant in terms of scheduled economic events for the FX market. On Tuesday, we’ll get the final manufacturing PMI readings for Japan, the Eurozone, the U.K., and the U.S. Additionally, the Eurozone will release inflation data.
Wednesday brings Australia’s GDP q/q, followed by the RBNZ monetary policy announcement. In the U.S., we’ll get the ADP nonfarm employment change, while in Canada the BoC will publish its monetary policy announcement.
Thursday brings the final services PMI readings for the Eurozone, the U.K., and the U.S., as well as the U.S. weekly unemployment claims.
Finally, on Friday, Canada will release the employment change and unemployment rate, while the U.S. will publish average hourly earnings m/m, the nonfarm employment change, and the unemployment rate. In the Eurozone, the consensus for the core CPI flash estimate y/y is 2.5%, unchanged from the prior reading, while the CPI flash estimate y/y is expected at 3.3%, up from 2.5% previously.
Analysts stress that stronger-than-expected inflation readings from France and Spain suggest that the broader Eurozone figures could also come in firmer this week, strengthening the case for another rate hike at the ECB’s September meeting.
Even though inflation rose in July, the ECB’s 1-year and 3-year ahead consumer inflation expectations projections continued to ease.
The base case remains for a 25 bps rate hike to 2.50%. Further tightening cannot be ruled out if price pressures broaden, but analysts from Wells Fargo view 2.50% as the terminal rate through 2027.
At this week’s meeting, the RBNZ is expected to deliver a 25 bps rate hike following the start of its tightening cycle in July. The central bank is likely to keep its projection for a 3% OCR by year-end, but the timing of the next move is less clear.
Economic data has broadly tracked the RBNZ’s forecasts, but core inflation remains elevated within the bank’s target range.
The Bank of Canada is expected to leave interest rates unchanged on Wednesday, following strong economic growth, a near-target inflation and a labor market that’s been stabilizing in recent months.
Q2 GDP grew at a 3.2% annualized pace, while core inflation has hovered near 2% since April. However, higher U.S. tariffs and elevated oil prices have increased uncertainty around the economic outlook.
RBC analysts don’t see the current tariff levels as sufficient to derail the economic recovery, but further escalation could delay the expected BoC rate hikes in 2027 or even bring rate cuts back on the table.
In the U.S., the consensus for average hourly earnings m/m is 0.3%, compared with the prior 0.1%. The non-farm employment change is expected at 58K, compared with -23K previously, while the unemployment rate is expected to remain unchanged at 4.1%.
Analysts from Wells Fargo, however, forecast that non-farm payrolls will rebound to 80K in August following the previous weak reading, with some of the earlier declines in leisure and hospitality, as well as in state and local education employment, likely to reverse. They also project the unemployment rate to rise to 4.2%, partly reflecting a normalization in labor-force participation.
Other labor market indicators point to stabilization rather than further deterioration. Job openings have leveled off, small-business hiring plans have improved, and initial jobless claims remain low. Overall, the report is expected to show modest job growth, contained layoffs, and a broadly balanced labor market.
In Canada, the consensus for the employment change is 15.8K, compared with the prior 75.1K, while the unemployment rate is expected to remain unchanged at 6.4%. However, RBC analysts estimate that Canada’s labor market will show a much more modest gain in August, with their employment forecast being only +5K.
The unemployment rate fell to 6.4% in July following strong job gains over the summer, while retirements and weaker immigration have limited labor supply. However, there is still room for improvement, as unemployment remains elevated by historical standards.
The amount of online job postings saw little changes in August, while broader economic indicators improved since the winter slowdown. Renewed trade uncertainty introduces risks into the economy, but for now the labor market is expected to gradually strengthen.
This article was written by Gina Constantin at investinglive.com.