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Week Ahead: NFP Over-analysis, US CPI, and Emerging Market Central Banks

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Fundamental analysis of Forex market

US Non-Farm Payrolls culminated last week with a whopping +935,000 jobs for July.  In addition, the unemployment rate fell from 5.9% in June to 5.4%!  This week will be filled with speculation as to whether this is enough substantial further progress to warrant a taper announcement at the Jackson Hole Symposium at the end of August.  In addition, both the RBA and the BOE met last week.  The two central banks appear to be on different paths, with the RBA ready to taper despite an increase in coronavirus cases, and the BOE preparing the markets for a rate increase down the road as coronavirus cases decrease.  This week, the CBRT and Banxico will meet:  Monetary Policy may be a little different in emerging market countries.  UK Prel Q2 GDP, Australian Employment, and US inflation also will be watched!

Non-Farm Payrolls

The US added 935,000 Non-Farm jobs to the economy in July. The unemployment rate fell to 5.4% from 5.9%,  Average Hourly Earnings increase by 0.4% MoM, bringing the YoY print to 4%! These are the numbers the Fed wants to see. Recall that the Fed said at their last FOMC meeting that progress has been made towards goals for tapering. However, Powell, along with other FOMC speakers as of late, have said they want to see jobs data.  This indicates that one Non-Farm Payroll print may not be enough information for the FOMC to determine if “substantial further progress” has been made. Markets will be debating this for the next few weeks as we approach the end of August and the Jackson Hole Symposium, where Fed Governors have been known to makes changes to monetary policy in the past.  Until then, we may enter the “Summer Doldrums”, as traders position themselves ahead of the event.

Central Banks

Speaking of Central Banks, the RBA and the BOE met last week.  To the surprise of many market participants, the RBA did not reverse course and increase asset purchases, although they said they stand ready to do so.  The RBA had been in tapering mode, however with the increase in coronavirus cases, the RBA remains confident that the lockdowns will be temporary and is looking ahead to the fall.  The BOE was also more hawkish than expected, albeit slightly.  The most notable takeaway from the meeting was that the central bank said they will begin to unload their stock of bonds when rates rise to 0.5%. Previously, they had stated it wouldn’t be until rates were at 1.5%, however Governor Baily wanted to project a clearer path towards elimination of QE.

More Central Banks

If markets are slow this week and you are looking for some possible volatility, turn no further than the Turkish Lira and the Mexican Peso. Both the Central Bank of Turkey (CBRT) and the Central Bank of Mexico (Banxico) meet this week.  Turkey’s inflation for July was 18.95%, just a few bps under the CBRTs current key interest rate at 19.00%. The Central Bank has previously said that “the policy rate will continue to be determined at a level above inflation, in order to maintain a strong disinflationary effect.”.  This would imply tightening.  However, Turkish President Erdogan wants rates lower, and even went as far as firing the last Central Bank Governor in March for raising rates.  Will current Governor Kavcioglu cave to the pressure, or will he maintain or increase rates?  Watch this meeting on Thursday for volatility in the Turkish Lira.

The Central Bank of Mexico also meets this week.  At their last meeting on June 24th,  Banxico hiked rated to 4.25%.   The Central Bank has said that expect inflation and inflation expectations to rise and remain at stable levels above their target level of 3% in the medium and long term.  Mexico will release inflation for July on Monday.  Expectations are for 5.76% YoY vs 5.88% in June. Will Banxico surprise the markets again with a hike?  The Mexican Peso has potential for a good deal of volatility this week!

Earnings

Earnings season will begin to wind down this week.  But there are some notable expectations that traders will be watching, including AMC, COIN, and EBAY.  Other major earnings releases are as follows: AMC, BNTX, COIN, SNEX, COKE, EBAY, BIDU, DIS, AMAT, ABNB, PLTR, BRK.A

Economic Data

The week after Non-Farm Payrolls tends to be light on the economic data front, and this month is no exception.  US CPI will be the main headline number the media will be focused on.  However, traders may be looking past this number.  Whether you believe CPI to be transitory or not doesn’t really matter…it’s what the Fed thinks that matters, and Powell says its transitory. Therefore, the CPI data this month may not be so important (unless it is way off its expectations of 4.4% YoY).  German ZEW, UK Prel GDP for Q2 and Australia’s employment change will be watch.  Other important economic data releases are as follows:

Saturday

  • China: Trade Balance (JUL)

Monday

  • China: Inflation Rate (JUL)
  • China: PPI (JUL)
  • Germany: Trade Balance (JUN)

Tuesday

  • Australia: HIA New Homes Sales (JUL)
  • Australia: NAB Business Confidence (JUL)
  • Australia: Building Permits Final (JUN)
  • Germany: ZEW Economic Sentiment Index (AUG)
  • US: Unit Labor Costs Prel (Q2)
  • US: Nonfarm Productivity Prel (Q2)
  • US: 3-Year Note Auction

Wednesday

  • Australia: Westpac Consumer Confidence Change (AUG)
  • Germany: Inflation Rate Final (JUL)
  • US: CPI (JUL)
  • US: 10-Year Note Auction
  • Crude Inventories

Thursday

  • Japan: PPI
  • Australia: Wage Price Increase (Q2)
  • China: Vehicle Sales (JUL)
  • UK: Trade Balance (JUN)
  • UK: GDP Growth Rate Prel (Q2)
  • UK: Industrial Production (JUN)
  • UK: Manufacturing Production (JUN)
  • EU: Industrial Production (JUN)
  • Turkey: Interest Rate Decision
  • US: PPI (JUL)
  • US: Initial Jobless Claims (week ending Aug 7th)
  • US: 30-Year Note Auction
  • Mexico: Interest Rate Decision

Friday

  • Australia: Consumer Inflation Expectations (AUG)
  • Australia: Employment Change (JUL)
  • EU: Trade Balance (JUN)
  • Canada: PPI Prel (JUL)
  • US: Michigan Consumer Sentiment Prel (AUG)

Chart of the Week: 60 Minute Robinhood Markets ($HOOD)

Source: Tradingview, Stone X

The ultimate name involved in meme trading has been memed! The stock first began trading on Thursday, July 29th, and opened near its IPO price of $38.  The stock price traded as low as $33.29.  On Tuesday, August 3rd, HOOD slowly began moving higher and closed at new highs, reaching as high as $48.59!  However, when the stock opened on Wednesday, it was off to the races, gapping from 46.70 to 56.82.  Price traded as high as 84.98 on Wednesday, up over 100% from its opening price on July 28th.  However, within that first hour of trade, price pulled back and closed the 1-hour candlestick chart at 62.00.  Since then, price has oscillated around the 62.00 level, as high as 73.44 and as low as 50.49, near the 61.8% Fibonacci level from the lows of July 30th to the highs of August 4th.  Its difficult to find support and resistance with such little data thus far, however horizontal resistance is at 73.44, ahead of the August 4th highs at 84.98.  Support is at the August 5th lows of 50.49, ahead of horizontal support at 48.59 and the gap fill at 46.70.  It will be important to see watch the price action in this chart to see if HOOD continues to get “memed”!

With Non-Farm Payrolls in the rearview mirror, things may begin to quiet down for August, as traders begin to set up for a possible “Jackson Hole Trade”.  However, over-analysis and speculation of what the Fed may do will run rampant.  If it turns out to be slower than usual, just turn to the Turkish Lira and the Mexican Peso for possible volatility, as each country’s central bank meets this week!

Have a great weekend!