A look at the day ahead in European and global markets from Wayne Cole.
The month has started quietly, as holidays in the United States and Canada have sapped liquidity ahead of a deluge of data culminating in U.S. payrolls on Friday. Wall Street and European stock futures were little changed.
Asian PMIs for August were decent, with China's Caixin index rising to 50.4, above expectations of 50.0, although they also showed the first drop in new export orders in eight months. However, Chinese stocks fell, led by losses in the property sector.
Japan's PMI also improved to 49.8, while business investment gained momentum in the second quarter. Markets are still betting that the Bank of Japan will hold off on raising rates in October, although the meeting is at the end of the month and there will be plenty more data by then. As long as the Nikkei doesn't plummet, they may want to get back on track towards policy normalisation.
For the Fed, markets are betting that the size of its September rate cut could depend on the payrolls report, given that Chairman Powell stated flatly that they did not want to see further weakness in the labor market.
A forecast-aligned result of +165,000 and 4.2% would likely push the 50bp chance back even further, though it would take an extraordinarily strong report to push markets back 25bp.
Forecasts range from +100,000 to +208,000 and from 4.1% to 4.4%, and anything close to the latter will reignite recession talk and send investors clamoring for a half-point rate cut. Futures are at 100% for 25 basis points and 31% for 50 basis points.
Federal Reserve Governor Christopher Waller and New York Fed President John Williams spoke after the jobs data, giving the market an almost instant reaction.
Also important this week will be the ISM surveys, JOLTS and ADP job openings, trade and the Fed Beige Book.
The Bank of Canada is widely expected to cut rates on Wednesday, with markets pricing in a 22% chance of a 50-basis-point cut given signs the economy stalled in July.
In currencies, the euro was not helped by the victories of far-right parties in German state elections, which added a new layer of political uncertainty surrounding the fate of the EU. The euro is anchored at $1.1050, with support at $1.0948. The dollar is down slightly at 146.00 yen, after touching an early high of 146.60 yen.
Key events that could influence markets on Monday:
– S&P Global PMIs for Germany, France, UK and EU
– Introductory statement by ECB banking supervisor Claudia Buch at the hearing of the European Parliament's Committee on Economic and Monetary Affairs
(Reporting by Wayne Cole; editing by Jacqueline Wong)