Week ahead: central banks galore and more employment data!
There are a host of central bank meetings to focus on this week, including the RBA on Tuesday, the BOC on Wednesday, and the ECB on Thursday!
After markets were hit in the face by nonfarm wages, traders and investors are less clear on whether the Fed will cut at the end of the month at its September FOMC meeting. The August print was only 235,000 jobs added to the economy, up from an estimate of +750,000. Watch for other fallout from NFP printing this week. There are a host of central bank meetings to focus on this week, including the RBA on Tuesday, the BOC on Wednesday, and the ECB on Thursday! The RBA and BOC have already started to decline. Will they continue? Meanwhile, the ECB will debate whether to reduce its bond purchases. And the August employment data is just beginning. This week, it’s Canada’s turn to declare their job change on Friday!
Huge lack for NFP
The non-farm payroll report released on Friday showed 235,000 jobs have been added to the economy against an estimated 750,000 additional jobs. There was an upward revision in July’s print, from +943,000 to an astonishing 1,053,000, but that was not enough to offset the sharp drop this month. In addition to the NFP title, the unemployment rate fell from 5.4% to 5.2%, while the average hourly wage increased by 0.6%. As might be expected, the US dollar has fallen. However, the stock indexes also started to fall. (As a general rule, one would expect stocks to rise in this QE world we live in). Maybe index traders are starting to worry about bad data. Over the next 3 weeks traders will reflect and position themselves for the Fed meeting on September 22sd. At the Jackson Hole Symposium, Powell noted that there is still a long way to go to reach maximum jobs, which is a target the Fed has set itself to start cutting back. Does bad NFP data meet this criterion? Note that Challenger job cuts fell to their lowest level since 1997 and initial jobless claims were at their lowest since the pandemic began last week and printed at less than 400,000 in the past 4 last weeks!
Central bank bonanza
This week, three central bank meetings will be organized, including the Reserve Bank of Australia (RBA), the Bank of Canada (BOC) and the European Central Bank (ECB). At their July meeting, when in full lockdown across the country due to the coronavirus, the RBA left their bond purchases at A $ 5 billion per week. However, they said they would cut their bond buying program to A $ 4 billion per week at the meeting in early September. Will they honor that pledge, or has the virus claimed too many lives, which may cause them to wait for the meeting?
The BOC should leave their bond purchases unchanged at their meeting this week. On their July 14e meeting, the central bank reduced its bond purchases from C $ 3 billion per week to C $ 2 billion per week. Unfortunately, the August job change will not be reported until Friday, 2 days after the meeting. Their last PPI impression was negative. There are also elections on September 20e. Will the BOC unravel again or will it prefer to wait for better data and until after the election?
There will be a lot of talk at BCE see you this week. ECB members, both doves and hawks, hit the threads hard last week to explain their take on whether the central bank should cut its bond purchases. Under the ECB’s Emergency Pandemic Purchase Program (PEPP), the ECB can buy up to € 1.85 trillion in bonds, at whatever pace it sees fit. Since March, the committee has been buying for nearly 20 billion euros per week. At its July meeting, the ECB changed its guidance on inflation. They changed the wording to target a “symmetrical 2%”, rather than “near but less than 2%”. They also noted that there could be a transitional period in which inflation is slightly above target, however, they expect it to moderate to 2% in 2022. In addition, Christine Lagarde noted in her press conference that the ECB will not increase rates if inflation is below 2%. The inflation rate for August released last week was 3%.
It will be a quiet week on the earnings front as the last month of the third quarter begins. Some of the more notable names are: ORCL, LULU, GME, AFRM, HOV, KR
As mentioned above, the economic data point for the week will be the change in employment in Canada on Friday. Expectations are up 75,000 from 94,000 in July. The unemployment rate is also expected to drop from 7.5% to 7.3%. Other important economic data for this week is as follows:
- Germany: Factory orders (JUL)
- EU: Construction PMI (August)
- United Kingdom: new car sales (August)
- Australia: final building permit (JUL)
- China: Trade balance
- Australia: RBA decision on interest rates
- Germany: Industrial production (JUL)
- United Kingdom: Halifax House Price Index (AUG)
- EU: Final job change (T2)
- EU: 3rd East growth rate (T2)
- Germany: ZEW Economic Sentiment Index (SEP)
- United States: auction of 3-year banknotes
- Japan: Current account (JUL)
- Japan: Growth rate of final GDP (Q2)
- Australia: NAB Business Confidence (AUG)
- Canada: Ivey PMI (August)
- Canada: BOC decision on interest rates
- United States: IBD / TIPP Economic Optimism (SEP)
- United States: auction of 10-year banknotes
- Stocks of crude
- China: inflation rate (AUG)
- Germany: Trade balance (JUL)
- EU: Decision on interest rates
- United States: 30-year bond auction
- Australia: consumer inflation expectations (SEP)
- Germany: final inflation rate (AUG)
- United Kingdom: Trade balance (JUL)
- United Kingdom: Industrial production (JUL)
- United Kingdom: Manufacturing production (JUL)
- United Kingdom: GDP (Jul)
- Canada: Job Change (AUG)
- United States: PPI (August)
Chart of the week: Nikkei 225 weekly
Source: Tradingview, Pierre X
Japan’s Nikkei 225 Index has been trading in an orderly uptrend since it hit a pandemic low in March 2000 at 15,998. The index rose for almost a year before peaking from 30,724 during the week of February 15.e, 2021. It then began to retreat, very slightly, in a corrective side channel towards the 23.6% Fibonacci retracement from the March 2020 low to the February 2021 high, near 27,272. Last week, the index finally broke through the corrective channel near 29,000. Resistance is at February highs of 30,724. Above there, next resistance is not before the lower trendline of the sloping channel longer term ascending near 33,150. Support is on the upper trendline of the corrective channel near 29,000 and then on last week’s low at 27,600.
This week will be devoted to central banks and employment. Will there be continued fallout from the misprint of non-farm payroll in the United States? Will there be tapering from the RBA, the BOC or the ECB? And will the evolution of employment in Canada be worse than the data on employment in the United States? These are the questions traders will be looking for answers to this week!
Have a good week-end!