Syria will likely remain the focus of tabloids this week ahead of the G20 meeting in Russia on Thursday and Friday. With a no for now from the UK parliament for direct action, even the US have stalled somewhat, with a two week wait supposedly for lab results from the Chemical Weapons inspectors, which has put the issue on the back-burner for now. Political volatility in Germany due to elections and the UK due to a backbench rebellion regarding Syria may provide some market moving headlines to be weary of on top of the slew of major economic releases this week:
There are numerous fundamental risk events this week for the US Dollar, in particular Friday’s NFP and Unemployment Rate, with the latter being touted as critical for the decision for when to taper the Fed’s quantitative easing program. Most analysts expect the asset purchase taper to begin this month so a very poor performance will likely cause some panic selling of the dollar ahead of the FOMC announcement on the 18th. Performance from the US although generally improving is not accelerating as one might expect from a ‘proper’ recovery, rather it is merely continuing a weak but positive trend.
Tuesday Sep 3: With such strong prints last release for both manufacturing and non-manufacturing PMI, expectations are high and a continuation of strength is expected, which supports a September taper if it delivers. – ISM Manufacturing PMI (3:00pm) 54.2 forecast, 55.4 prior
Wednesday Sep 4:– Trade Balance (1:30pm) -38.6B forecast, -34.2B prior. Trend currently suggests a narrowing trade balance, which again supports the dollar if met.
Thursday Sep 5:– ADP Non-Farm Employment Change (1:15pm) although less significant than Friday’s data, this may be viewed as a leading indicator for Friday’s NFP so a print significantly below forecast of 181K may see some dollar position closing ahead of Friday’s data. – Unemployment Claims (1:30pm) a less significant and more volatile release compared to Friday’s Unemployment rate, the Unemployment claims have never the less shown reasonable correlation with the Unemployment rate. Much Like ADP, this figure may be viewed as a leading indicator for the critical Unemployment rate on Friday so anything bellow the forecast 330K may again cause concerns. This release clashes with the ECB press conference so caution is advised when making decisions about any volatility. – ISM Non-Manufacturing PMI (3:00pm ) 55.2 forecast, 56.0 prior
Friday Sep 6:– Unemployment Rate (1:30pm) is expected to be unchanged from last month at 7.4% having been on a steady downward trend since the peak of 10.2% on the 6 October 2009. Only a very poor print would likely cause problems. – Non-Farm Employment Change (1:30pm) is expected at a median forecast of 181K vs 162K prior, but anything in the region of or greater than the prior will be deemed good progress and likely meet dollar buyers in the long-run. – FOMC Member Speeches (Evans 1:00pm and George 6:30pm) nothing contentious is expected for either speech, especially so close to NFP and the Unemployment Rate data for Evans. Taper clarity will be sought from the market, although neither speaker may want to clarify fully so close to the FOMC statement.
Italian and Spanish Manufacturing PMI came in well on Monday, with Italian at 51.3 vs 50.7 forecast and Spanish at 51.1 vs 50.1 forecast. This supports the current broad based recovery from the Euro-zone nations with the trouble hit peripheral Europe often leading the way during stock rallies. Manufacturing is the cornerstone of this recovery so positive PMIs will hold significant weight.
Tuesday Sep 3:– Spanish Unemployment Change (8:00am) is expected to tail off slightly now that the summer period is ending, which is a general theme for this release, showing strength in the summer and weakness in the winter. A print of -5.2K is expected vs -64.9K prior so only a high print above expectations should be deemed bearish the Euro.
Wednesday Sep 4: Both Spanish and Italian services PMI have been improving recently and the trend is expected to continue, with both prints forecast to get close to the critical 50 figure. It is entirely possible that either release may tip above 50 which would be viewed bullish for the Euro as the first time that either release has been positive since the summer of 2011. – Spanish Services PMI (8:15am) 49.3 forecast, 48.5 prior – Italian Services PMI (8:45am) 49.2 forecast, 48.7 prior Retail sales may give a positive print also, with a forecast of 0.5% although this release is quite volatile so a good or bad print shouldn’t be given too much weight in the overall scheme of sentiment. – Retail Sales m/m (10:00am) 0.5% forecast, -0.5% prior
Thursday Sep 5:– German Factory Orders m/m (11:00am) forecast -0.7% vs 3.6% prior. Quite a volatile release also, so good or bad prints should not hold too much weight over the long run, however may provide some useful volatility in the short term. – ECB Press Conference (1:30pm) Nothing significant is expected for this press conference, and Draghi may be cautious not to derail the new-found bearish trend in the Euro. Data has been very positive from the Euro-zone of late which eases the pressure for further stimulus measures from the ECB.
Capital Spending printed in the green at 0.0% vs -0.2% forecast, with this release following a general trend of hovering around the 0% mark for some time, save for a few minor drifts either way. This has become a more significant release due to it’s impact on the upcoming sales tax decision, so a good print supporting the ability to increase taxes. This print may have partially accounted for Monday’s strong JPY selling and Nikkei buying.
Thursday Sep 5: Thursday’s Monetary Policy Statement and BOJ Press Conference are likely to focus on the current stimulus program and methods for implementing the much debated increase to sales tax, with numerous economists debating methods for offsetting the effect of such a hike.
Great British Pound
Seemingly unsinkable strength from the UK lately is putting pressure onto the forward guidance ambitions of governor Carney and Monday’s great Manufacturing PMI coming in at 57.2 vs 55.2 forecast will likely be a welcome thorn in his side. It seems difficult to imagine the pound significantly overpowering bullish dollar sentiment currently, however this strength will likely continue to put pressure onto the pound crosses instead.
Tuesday Sep 3:– Construction PMI (9:30am) put in a storming print last time which has pushed this months forecast much higher and may in turn allow for the possibility of a miss on expectations even if the print is very good. Forecast at 58.4 vs 57.0 prior, the market expects more fireworks, and the data seems likely to provide them.
Thursday Sep 5:– Asset Purchase Facility, Official Bank Rate and MPC Rate Statement (12.00pm) are all expected to not throw up any surprises this week, with Carney’s forward guidance in place and clearly defined. – Consumer Inflation Expectations (9:30am) With higher than desired inflation in the UK, Thursday’s Consumer Inflation Expectations is forecast to yet again print at a relatively high 3.6%, as it has for the last two month, which although not as significant as CPI, still puts pressure onto forward guidance sentiment. As such a high print may push the pound higher and the UK in the eyes of the market, closer to considering tapering asset purchases.
Friday Sep 6:– NIESR GDP Estimate (3:00pm) This release has been strong since may this year and Friday’s forecast of 0.7% shows an expectation of a continuation of strength. This again puts pressure on the BOE’s stimulus program for the long term if forecasts are exceeded.
Monday’s Building approvals impressed on Monday with a print of 10.8% vs 4.1% forecast, which took the edge off the poorer than expected Company Operating Profits at -0.8% vs 1.1%. All eyes were on the better than expected Chinese PMI data though with the official figure and the HSBC figures both impressing and giving the Aussie a boost.
Tuesday Sep 3:– Cash Rate and RBA statement (5:30am) No change is expected to the Cash rate or policy, although we expect some further talk of an overpriced Australian Dollar and further hints of future rate cuts, which could dampen the spirits of any Aussie rallies.
Wednesday Sep 4:– GDP q/q (2:30am) Expected to come in again at 0.6%, a drop lower could signal a correction back down to support and a beat may add to the bullish short term sentiment from the good Chinese PMI data.
Monday’s SVME PMI although printing well was under expectations at 54.6 vs 55.9 forecast. GDP q/q (Tue 6:45am) and CPI m/m (Fri 8:15am) are both expected to print modestly at 0.3% and 0.0% respectively. CPI came in quite poorly last month so we may see a retracement for this print, with quite volatile results for this release. GDP is expected to continue the long standing theme of steady low growth. Neither print is particularly contention in the larger scheme of things unless a very big hit or miss occurs so the Swiss Franc will likely take its lead from other market sentiment this week.
No change is expected this time around for the BOC Overnight Rate although the BOC Rate Statement (both Wed 3:00pm) is expected to continue to talk of a rate increase so there may be some CAD buying from hopeful traders expecting a surprise. The Unemployment Rate has slowly continued to improve with this theme expected to continue. 7.2% is expected.
Strong PMI releases for Monday gave the Australian dollar a boost and non-manufacturing PMI may do the same overnight at 2:00am Tuesday.