WEEK AHEAD: AUG 02

Short Description

We’ve got non-farm payrolls this Friday. But the action doesn’t stop there! There’s the Bank of England meeting as well as important PMI data to drive the forex market. Thanks! Rich.

Video Script

Hi everyone, hope you’re doing well. Unbelievably it’s August already and for financial markets that means we’ve got non-farm payrolls this Friday. But the action doesn’t stop there! There’s the Bank of England meeting as well as important PMI data to drive the forex market.

 

I’ll go chronologically through what we can expect in the week ahead and finish off with a roundup of the economic calendar.

 

The first half of the week will be dominated by PMI data from China, Europe, the UK and the USA. These PMIs could be especially relevant when fears of a growth slowdown have crept into the market. For example, last week investment bank Goldman Sachs slashed its forecasts for US economic growth in the second half of the year and now expects 6.6% GDP growth for all of 2021. They blamed a combination of weaker consumer spending and risks from the Delta variant of covid-19.

 

The way I’m thinking about these PMIs – and economic data more generally too - is that the Federal Reserve is expected to be the first of the big three central banks to taper. The other two being the ECB and BOJ. That’s been helping the US dollar rise over the past few weeks. If US and global growth is slowing, then tapering from the Fed is less certain and that should we a headwind to the dollar. We already saw a bit of that last week when the dollar dropped after the quite dovish press conference from Jerome Powell after the Fed meeting.

 

One of the top-performing currencies at the back-half of last week was Sterling. GBP/USD had touched 4-month lows but rebounded nicely thanks to the dollar weakness and as covid-19 cases in England seemed to peak. That brings us to the Bank of England.

 

The BoE is nearing the completion of its 875-billion-pound programme of British government bond purchases, the cornerstone of its COVID-19 stimulus. Policymakers seem split over the impact of rising UK inflation so for now, the consensus is that no specific timeline for tapering is given – but most expect it to start early next year. For this August meeting, unless there is some big dovish surprise, we’d expect the acknowledgement of inflation from UK central bankers to a positive for the British pound.

 

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And finally, let’s have a look at the economic calendar highlights. I should give a quick mention of the RBA meeting on Tuesday. The extended lockdowns across Australia likely mean the central bank will have to delay its planned tapering, which explains some of the Aussie dollar weakness of late.

 

The big one for the week of course is on Friday – yes that’s non-farm payrolls. 926 thousand new US jobs are expected to have been created in July, that’s up from the 850 thousand in June. The unemployment rate is expected to fall too from 5.9 percent to 5.7 percent. Data showing a strong labour market could put pressure on Jerome Powell to give more explicit details about tapering at the Jackson Hole conference for central bankers happening this month.

 

Right thanks everyone, good luck trading this week and make sure to click on subscribe so you don’t miss the next episode of the week ahead.