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Week Ahead – US Jobs Report and ISM PMIs Eyed as Dollar Rallies Again; RBA Meets

The US dollar just had its most positive week of 2017, driven by firming expectations of a December rate hike. Data out of the US next week will therefore be watched very carefully for further evidence supporting this view. Also coming under the limelight next week is the Reserve Bank of Australia, which meets for a scheduled monetary policy meeting, while Canadian employment figures, ECB meeting minutes, UK PMIs and the Bank of Japan’s Tankan survey will too be watched by traders.

RBA expected to hold rates unchanged

The RBA last cut rates back in August 2016 to 1.50% where they’ve stood since. After some concerns about the strength of the economy in the early part of this year, growth rebounded sharply in the second quarter and all the indications are that this trend continued into the third quarter as the labour market improved and consumption accelerated. However, the RBA has been cautious in signalling that a rate hike may be nearing out of worries that it would trigger a rally in the Australian dollar, which is already up almost 9% against the greenback so far this year. The central bank will likely hold rates and maintain its neutral bias when it meets on Tuesday, while sounding upbeat about the country’s growth prospects. Data releases out of Australia next week will also be in focus, including building approvals on Tuesday, and retail sales and trade figures on Thursday, all for August.

Bank of Japan Tankan survey stands out in quiet week for Asian markets

It will be a relatively quiet trading week in Asia in the coming seven days, as the Chinese market will be closed for the entire week for National Day celebrations, while South Korean and Hong Kong markets will also be closed for more than one day next week. This leaves the Bank of Japan’s Tankan survey as the main data release out of Asia next week. The Tankan survey for the third quarter is forecast to show improving outlook for large manufacturing and non-manufacturing companies, but business sentiment for smaller firms will likely remain unchanged from the second quarter. Third quarter estimates for capital expenditure are forecast to show slightly higher growth in spending by large firms (from 8% to 8.3%) and a much lesser reduction in spending by smaller firmer than in the previous estimate (from -20.6% to -13.8%).

ECB meeting minutes eyed as QE exit plan still unclear

Economic data out of the Eurozone next week will include the euro area’s unemployment rate on Monday, producer prices on Tuesday, retail sales on Wednesday and German industrial orders on Friday. The final September PMI readings for the region by IHS Markit are also due next week but the main focus will likely be on the European Central Bank’s account of the September policy meeting. Although the ECB has strongly signalled an announcement on tighter policy at its upcoming October meeting, it has also indicated it is not ready to completely pull the plug on its stimulus program. The September meeting minutes should help provide some additional clarity on policymakers’ thinking and what to expect at the next meeting on October 26.

Canadian jobs report awaited amid data-dependent BoC

After not-so-hawkish comments by the Bank of Canada’s governor, Stephen Poloz this week, as well as disappointing monthly GPD data, expectations of a third rate by the BoC this year have been somewhat dampened. Next week’s Canadian data will likely be scrutinized for further clues as to the timing of the next rate rise. The September employment report is due on Friday and will be followed by the Ivey PMI, also for September. Before that, trade figures will be watched on Thursday. In the meantime, the Canadian dollar has been languishing at one-month lows against its US counterpart, as it catches its breadth from the strong rally seen since May.

UK PMIs unlikely to alter outlook on economy

As the Bank of England prepares to raise interest rates for the first time in a decade, the British economy remains stuck in low gear. The Bank may take little notice of next week’s PMI reports from IHS Markit, as it’s more concerned about the inflation overshoot and rising household debt. However, they could still have an impact on sterling as they should be a good indication to how the economy performed at the end of the third quarter. The manufacturing PMI, out on Monday, is forecast to ease from 56.9 to 56.4 in September. The construction PMI will follow on Tuesday and is expected to decline from 51.1 to 50.8, while the services PMI, due on Wednesday, is forecast to remain unchanged at 53.2.

Nonfarm payrolls and ISM PMIs to dominate

It will be another packed week for US data, dominated of course by the latest jobs report and the all-important ISM PMIs. The ISM’s manufacturing PMI is up first on Monday and is expected to moderate from 58.8 to 57.5 in September. On Wednesday, the ADP’s private employment report should provide a glimpse as to what to expect from Friday’s official report. Also out on Wednesday is the ISM non-manufacturing PMI, which is forecast to decline from August’s 57.5 to 55.8 in September. However, both the manufacturing and non-manufacturing PMI’s remain comfortably above the 50-expansion level, suggesting the US economy ended the third quarter on solid footing. August factory orders will follow on Thursday, along with trade data.

On Friday, all eyes will be on the nonfarm payrolls report as investors reassess their positions on the greenback, following the dramatic shift in sentiment for the US currency after the September 19-20 FOMC meeting. Nonfarm payrolls are forecast to rise by just 130k in September as the hurricanes hitting the US east coast likely slowed job creation during the period. The jobless rate is expected to remain steady at 4.4% in September, while average earnings are forecast to pick up pace slightly, from 2.5% to 2.6% year-on-year.

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