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Week Ahead: Central Banks Galore and More Jobs Data!

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Fundamental analysis of Forex market

There are a host of central bank meeting this week to focus on, including the RBA on Tuesday, the BOC on Wednesday, and the ECB on Thursday!

After the markets got slapped in the face by Non-Farm Payrolls, traders and investors are less clear as to whether the Fed will taper at the end of the month during its September FOMC meeting. The August print was only 235,000 jobs added to the economy, vs and estimate of +750,000.  Watch for more fallout from the NFP print this week.  There are a host of central bank meeting this week to focus on, including the RBA on Tuesday, the BOC on Wednesday, and the ECB on Thursday!  The RBA and BOC have already begun to taper.  Will they continue? Meanwhile, the ECB will be debating whether they should cut back on their bond purchases. And the August jobs data is just beginning.  This week it’s Canada’s turn as they report their Employment Change on Friday!

Huge miss for NFP

The Non-Farm payroll report released on Friday showed that 235,000 we added to the economy vs an estimate of an additional 750,000 jobs. There was an upward revision to July’s print, from +943,000 to an astonishing 1,053,000, however that wasn’t nearly enough to make up for the large drop this month.  In addition to the headline NFP print, the Unemployment Rate fell to 5.2% from 5.4%, while Average Hourly Earnings rose by 0.6%.    As one may have expected, the US Dollar moved lower.  However, stock indices initially moved lower as well.  (Typically, one would expect stocks to move higher in this QE world we are living in).  Perhaps index traders are beginning to worry about bad data. For the next 3 weeks, traders will be pondering and positioning for the Fed meeting on September 22nd.  As the Jackson Hole Symposium, Powell noted that much ground still needs to be covered to reach maximum employment, which is a goal the Fed set to begin tapering.  Does the poor NFP data meet that criterion?  Note that Challenger Jobs cuts fell to their lows level since 1997 and Initial Jobless Claims were at their lowest level since the pandemic began last week and printed under 400,000 for the last 4 weeks!

Central Banks Bonanza

This week will bring about 3 central bank meetings, including the Reserve Bank of Australia (RBA), the Bank of Canada (BOC), and the European Central Bank (ECB).  At their meeting in July, while in the middle of lockdowns throughout the country because of the coronavirus, the RBA left their bond buying at A$5 billion per week.  However, they indicated that they would lower their bond purchasing program to A$4 billion per week at the early September meeting.  Will they follow through with that commitment, or has the virus taken too much of a toll, which may cause them to wait until the meeting?

The BOC is expected to leave their bond buying unchanged at their meeting this week.  At their July 14th meeting, the central bank tapered bond purchases from C$3 billion per week to C$2 billion per week.  Unfortunately, the August Employment Change won’t be reported until Friday, 2 days after the meeting. Their latest PPI print was negative. There are also elections on September 20th.  Will the BOC taper again, or would they rather wait for better data and until after the elections?

There will lots of discussion at the ECB meeting this week.  ECB members, both doves and hawks, hit the wires in force last week to explain their views on whether the central bank should cut back on its bond purchases. Under the ECB’s Pandemic Emergency Purchase Program (PEPP), the ECB can buy up to 1.85 trillion Euros worth of bonds, at any pace as they see fit.  Since March, the committee has been buying nearly 20 billion worth of Euros a week. At their July meeting, the ECB changed their guidance on inflation.  They changed the wording to target a “symmetrical 2%”, rather than “close to, but below 2%”.  They also noted that there could be a transitory period in which inflation is moderately above target, however, they expect it to moderate to 2% in 2022.  In addition, Christine Lagarde noted in her news conference that the ECB will not raise rates if inflation is under 2%.  The inflation rate for August released last week was 3%.

Earnings

It will be a quiet week on the earnings front as the last month of Q3 kicks off. Some of the more notable names are as follows:  ORCL, LULU, GME, AFRM, HOV, KR

Economic Data

As mentioned above, the economic data point of the week will be Canada’s Employment Change on Friday.  Expectations are for in increase of 75,000 vs 94,000 in July.  The Unemployment Rate is expected to fall from 7.5% to 7.3% as well.  Other important economic data points for this week are as follows:

Monday

  • Germany: Factory Orders (JUL)
  • EU: Construction PMI (AUG)
  • UK: New Car Sales (AUG)

Tuesday

  • Australia: Building Permits Final (JUL)
  • China: Trade Balance
  • Australia: RBA Interest Rate Decision
  • Germany: Industrial Production (JUL)
  • UK: Halifax Housing Prices Index (AUG)
  • EU: Employment Change Final (Q2)
  • EU: Growth Rate 3rd Est (Q2)
  • Germany: ZEW Economic Sentiment Index (SEP)
  • US: 3-Year Note Auction

Wednesday

  • Japan: Current Account (JUL)
  • Japan: GDP Growth Rate Final (Q2)
  • Australia: NAB Business Confidence (AUG)
  • Canada: Ivey PMI (AUG)
  • Canada: BOC Interest Rate Decision
  • US: IBD/TIPP Economic Optimism (SEP)
  • US: 10-Year Note Auction
  • Crude Inventories

Thursday

  • China: Inflation Rate (AUG)
  • Germany: Trade Balance (JUL)
  • EU: Interest Rate Decision
  • US: 30-Year Bond Auction

Friday

  • Australia: Consumer Inflation Expectations (SEP)
  • Germany: Inflation Rate Final (AUG)
  • UK: Trade Balance (JUL)
  • UK: Industrial Production (JUL)
  • UK: Manufacturing Production (JUL)
  • UK: GDP (JUL)
  • Canada: Employment Change (AUG)
  • US: PPI (AUG)

Chart of the Week:  Weekly Nikkei 225

Source: Tradingview, Stone X

Japan’s Nikkei 225 Index had been trading in an orderly, upward sloping trend since making pandemic lows in March 2000 at 15,998.  The index moved higher for nearly a year before reaching a peak of 30,724 during the week of February 15th, 2021.  It then began pulling back, ever so slightly, in a corrective sideways channel to the 23.6% Fibonacci retracement from the March 2020 low to the February 2021 high, near 27,272.  Last week, the index finally broke above the corrective channel near 29,000.  Resistance is at the February highs of 30,724.  Above there, the next resistance isn’t until the bottom trendline of the longer-term upward sloping channel near 33,150.  Support is at the top trendline of the corrective channel near 29,000 and then last week’s low at 27,600.

This week will be all about central banks and jobs.  Will there be continued fallout from the bad US Non-Farm Payroll print?  Will there be tapering from the RBA, BOC, or the ECB?  And will the Canadian Employment Change be worse than the US jobs data?  Those are the questions traders will be looking for answers to this week!

Have a great weekend!