Market Outlook for the Week of August 29- 2 September
On Tuesday, for the Euro we have the German
preliminary CPI m/m and for the U.S. the CB consumer confidence and JOLTS job
openings.
This will be
followed by the ADP non-farm employment change on Wednesday, ISM manufacturing
PMI on Thursday and the NFP, average hourly earnings m/m and unemployment rate
on Friday. The Swiss CPI m/m will land on Thursday.
Aside from these
events, some Fed members are also expected to deliver their remarks this week.
These include Barkin, Mester, Williams and Bostic.
Fed Chair Jerome
Powell delivered a direct and hawkish message Friday at the Jackson Hole
Symposium and highlighted that the Fed’s primary goal is to bring inflation
back to its 2% target. He suggested that it might be necessary to keep the rate
higher for an extended period of time in order to ensure this.
A lot of important
data for the eurozone will be released this week with August inflation taking
the spotlight on Wednesday and the unemployment rate on Thursday. Inflation is
expected to run hot again and this will be on everyone’s minds as the next ECB
meeting is approaching.
At the Jackson Hole
Symposium Isabel Schnabel warned that a larger “sacrifice” and
tighter policy is required to keep inflation under control and not risk runaway
price growth. She and François Villeroy de Galhau stressed that the European
monetary policy would also have to remain tight for an extended period of
time.
The BOJ Governor,
Haruhiko Kuroda, pointed out why Japan will not tighten its monetary policy
aggressively. “We have no choice other than continue monetary easing until
wages and prices rise in a stable and sustainable manner,” he said,
estimating that inflation in Japan will approach 3% this year but will decrease
back towards 1.5% next year. The situation is a bit different in Japan compared
to other developed countries, as inflation is not rising at the same
aggressive pace.
For
the U.S., the ADP Employment report will be back on August 31st after a change
of methodology that aims to provide a more robust view of the labour market and
economic growth trajectory.
The
Swiss inflation data is eagerly awaited as it can provide clues about what
might happen at the next SNB meeting. SNB Chairman Thomas Jordan spoke Saturday
at the Jackson Hole Symposium and reiterated that changing the definition of
price stability from the current “rise in consumer prices of less than 2%
per year” is not needed.
Last
week the Swiss GDP showed an increase by 0.5% q/q for Q1, and analysts believe
a similar growth in Q2 is possible. It is also likely that the Eurozone
recession will limit Switzerland’s near-term prospect for economic
growth.
For the U.S., the
ISM manufacturing index has lately been signalling an economic slowdown. The
Fed is trying to slow the economy just enough until the inflation returns to
normal territory, so according to Wells Fargo, the perfect scenario this week
would be another decline in the ISM’s prices paid component, while new orders, production and employment components
are expected to show some resilience.
After
a favourable NFP last month traders will be watching this week’s print with a
lot of interest. A rise by 295K is the consensus for August. The NFP along with
next week’s inflation data could determine whether we’ll have a rate hike of 50
bps or 75 bps at the next FOMC meeting.
The unemployment
rate is expected to remain unchanged at 3.5%, but if the NFP prints much higher
than expected and the wage number also sees a consecutive 0.5% m/m increase, or
higher, a rate hike of 75 bps becomes more likely.
GBP/CHF expectations
Last week the pair
was in a consolidation phase until Friday when the CHF showed some strength.
The inflation data is a key aspect to watch this week. On the H1 chart the pair
closed the week near the 1.1315 level of support. At this point the trajectory
of GBP/CHF is a bit uncertain, but it still has room to depreciate until the
end of the month targeting 1.1165 — the March 2020 low. On the upside the next
level of resistance is at 1.1415 and if that level doesn’t hold the next one is
at 1.1480.
CHF/JPY expectations
The pair looks good
for buying opportunities as we have a divergent monetary policy between the SNB and
the BOJ. On the H1 chart a correction is expected until 142.00 which is the
next level of support. If rejected, the pair could test the resistance at
143.60 or even 144.00.
On the downside the
next level of support is at 140.75. Bear in mind that the CHF inflation data
could be a risk for this trade, so keep an eye on it.
This article
was written by Gina Constantin.