Market news

Last Friday’s marquee speech at the Jackson Hole central bank gathering by Fed Chair Powell should continue to be digested by traders at the start of the week. He acknowledged that monetary policy is “restrictive” and that policymakers will “proceed carefully” in determining whether to hike rates further. The September FOMC meeting is set for a pause, but fresh robust growth means the door remains open to a little more tightening.

Markets predict a 50-50 chance of a final hike by November. Odds have been yo-yoing through the summer for the September meeting in a few weeks’ time but a 25bp hike on the 20^th is only given a 20% chance. Last week’s nuanced approach by Powell saw the dollar print a sixth straight week of gains though it closed off its highs on Friday. Stocks still look jittery even though they halted three weeks of consecutive losses.

Of course, data is now key, and it doesn’t get much bigger than US non-farm payrolls released on Friday. The consensus predicts a further cooling in employment growth with job gains of 170k in August, moderating from the 187k jobs added in July. The unemployment rate is forecast to remain close to multi-decade lows at 3.5%. We note the latest S&P global PMI survey did raise a few alarm bells about hiring conditions. The Fed pays close attention to changes in average hourly earnings so another print at 0.4% m/m or above would likely be a hawkish signal for markets. Core PCE inflation data released the day before NFP will also be in focus though a relatively benign 0.2% m/m is forecast.

The eurozone releases all-important inflation data with the headline rate expected to dip from 5.3% to 5.1% y/y, while core CPI that strips out food, energy, alcohol and tobacco prices is forecast to ease from 5.5% to 5.3% y/y. Base effects will likely cause a drop in the headline figure. ECB policymakers will pay more attention to the core print which remained stubbornly high in July and may stay elevated due to the effects of government subsidies. These August numbers will be a key input into next month’s rate decision with a recent media story quoting ECB sources stating that momentum was growing for a rate pause. The euro has suffered in recent weeks with its underlying bear trend fairly entrenched. The 200-day simple moving average is a key focus and pivot point around 1.08.

Finally, we could get some clues this week about how China’s drip-fed stimulus is impacting the economy when it reports its manufacturing and non-manufacturing PMIs for August. The Caixin manufacturing PMI will follow on Friday. The Australian dollar, which is viewed as a proxy for China-related risks, has taken quite a beating lately following a series of downbeat Chinese data. It will hope for some improved data to keep AUD/USD above 0.64.