- A hint for you to start the week: US equity markets were hammered by Fed Chair, Jerome Powell’s greater-than-expected hawkish rhetoric at Jackson Hole Symposium last Friday. The Fed’s reiteration to keep rates “higher for longer” has thrown cold water to the recent bets for a “Fed pivot”. And the selloff might have been overdone considering there is still not a clear clue about September’s rate decision, which “will depend on the incoming data and evolving outlook”. While high volatility is expected this week, a further crash is unlikely.
- Markets performance: The US stock markets underperformed the major world indices this week, while Chinese equities rebounded strongly amid China’s steps to allow US regulators to audit the US-listed Chinese companies, which offered relief to delisting risks. Growing risk appetite towards Chinese markets may rotate funds to the APAC region from its US-EU peers.
World major indices performances as of 28, August 2022Source: investing.com
- A Highlight for the week: Since the Fed’s decision is now reliant upon the upcoming economic data, the US non-farm payroll report for August will steer risk sentiment this week. However, the data will be out again on the last trading day after Asian markets close for the week.
What are we watching?
- Crude oil ticks up: The crude futures rebounded from the recent lows on OPEC+’s hint of an output cut to retain oil prices. Traders’ focus will shift back to the supply-demand factor, with US-Iran nuclear negotiation in progress. Check on crude oil prices
- The Eurodollar is under a parity level: The deteriorated economic outlook in the Eurozone is most likely to keep the single currency under the parity level, while the US dollar’s uptrend is strengthened by Powell’s hawkish reiteration about rate hikes. Trade EUR/USD now
- Gold shapes down: The base metal may continue under pressure due to a strong US dollar and a jump in US short-dated Treasury yield. See gold movements
- Ethereum’s protocol change: Though the second largest market-cap cryptocurrency fell for the second week, the progress in the replacement of “Proof of Work (PoW)” with “Proof of Stake (PoS)” may offer optimism, which will make the digital coin more environmentally friendly by reducing intense power consumption in mining. Trade Ethereum
Economic Calendar (27 August – 2 September)
US – Fed members’ speech, CB consumer confidence, ISM manufacturing PMI, non-farm payroll (Aug)
The Fed’s influential members, including the Vice Chair, Lael Brainard, and the New York Fed President, John Williams will share their views on monetary policy and economic outlooks this week, offering more clues on the Fed’s rate hike path.
US CB consumer confidence for August is expected to improve to 97.5 from the prior month of 95.7, though it will be still the lowest since March 2021. But improved data may suggest a drop in gasoline prices and inflation expectations provide a better outlook for household spending.
The ISM manufacturing PMI for August is forecasted at 52.0, a decline from the previous data of 52.8, which is also the lowest number since June 2020.
It is expected 285,000 new jobs have been added in August versus a surprisingly beaten number of 528,000 in July. After several blown-out US non-farm payroll data for the last few months, another stronger-than-expected labor market will further strengthen the odds for a 75-rate hike in September, which may not be positive news for the markets.
China – Manufacturing and Non-manufacturing PMIs (Aug)
Both China’s official manufacturing and non-manufacturing PMI data will be reported this Wednesday. While the manufacturing PMI is expected to stay contracted at 49.3, the non-manufacturing PMI is forecasted at 52.3, which is also a slowdown from the prior month of 53.8. The Caixin manufacturing PMI is forecasted at 50.2, down from 50.4 in July. The recent data indicates a sharp recovery in economic activities from April when China had its two-month hard covid lockdowns.
Australia – retail sales (July), building approvals (July), and Q2 private business capital expenditure
Retail sales are forecasted to grow 0.3% in July from 0.2% the prior month. And building approvals for July may continue to decline, with a forecast of -3.1% after a 0.7% drop in June, suggesting that rising interest rates may have restrained its housing markets.
Australia’s second-quarter capital expenditure is expected to grow 1.1% quarterly from -0.3% in the first quarter. Despite an expected improvement, the data is still the slowest growth since the June quarter of 2021.
New Zealand – ANZ business confidence (Aug)
New Zealand’s business confidence index stayed negative since May 2021, with the lowest read of -62.6 in May, which was the worst figure since 2008, except for the data during the pandemic period. The data was slightly improved to -56.7 in July.
Europe Week Ahead
- EU Flash CPI (August)
- UK Consumer Credit (July)