Five points: the next step is the wage bill in the United States and inflation in the euro zone
Aug 26 (Reuters) – The global economic malaise is deepening and the closely watched monthly jobs report in the United States and inflation indicators in Europe will arrive in the coming week at a key moment for markets and central banks.
A look at manufacturing activity in China is also expected, as the Euro threatens to drop decisively below the key $1 mark.
Here’s a look at the week ahead in the markets of Dhara Ranasinghe, Tommy Wilkes and Vincent Flasseur in London, Lewis Krauskopf in New York, Kevin Buckland in Tokyo and Sumanta Sen in Mumbai.
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1/ REGISTRATION OF JOBS
Monthly U.S. jobs data for September 2 will test the argument that the world’s largest economy is healthy and indicate whether the Federal Reserve can stage a “soft landing” even if it raises interest rates to fight inflation that has run to four-decade highs.
Those who oppose the prospect of a recession, despite two straight quarters of contraction in US gross domestic product, could point to the strength of the labor market, at least so far. Read more
In July, non-farm payrolls increased by 528,000 jobs, the largest increase since February. Early estimates for August call for an increase of 290,000, according to Reuters data. Read more
2/ INFLATABLE SHOCK
Eurozone inflation remains uncomfortably high, Wednesday’s August flash consumer price index is expected to show. This will only increase pressure on the European Central Bank to raise rates again in September, even as recession risks increase. Read more
Instead of peaking soon, as was hoped just a few weeks ago, inflation could soon reach double digits. It was at an annual rate of 8.9% in July, well above the ECB’s 2% target.
The source of the new inflation anxiety is clear: soaring gas prices, which rose again as Russia signaled another cut in European gas supplies. Read more
Gas prices rose 45% in August and 300% this year. Where they go from here remains key to when eurozone inflation finally peaks. As one economist said, we are all becoming gas watchers now.
3/ FACTORY FUNK
China’s moribund economy may continue to follow the lead of the US and Europe in signaling sluggish manufacturing over the coming week.
Official PMI data for this month is due on Wednesday, following a surprise contraction in July as COVID-19 surges fueled by the Omicron variant of the virus forced further crackdowns under the country’s draconian zero-COVID policies. China. The Caixin private investigation follows the next day and is also likely to dip into contraction territory.
Consumer and business confidence continues to be affected by the current real estate crisis. And now a scorching heat wave is also hampering production. Read more
Chinese authorities are trying to save growth this year, with the central bank slashing additional lending rates on Monday after slashing others the previous week. On Thursday, the government announced that it would take measures to strengthen the labor market, giving the stock market some courage. Read more
4/ BACK BELOW PARITY
Once again in recent days, one euro is worth less than one US dollar. The currency’s plunge to new 20-year lows near $0.99 is emblematic of the scale of the challenges facing the bloc, including an energy crisis that is hitting the euro zone harder than elsewhere.
Another dramatic jump in natural gas prices ahead of peak winter demand in a region still dependent on Russian supplies is stoking inflation fears, as well as expectations that the ECB will raise rates faster even as the economy is slipping into recession. Read more
The euro/dollar is increasingly correlated to gas prices, and investors and analysts are predicting further weakness as Russia continues to cut exports.
On a trade-weighted basis, the euro is also falling rapidly and recently hit its lowest level since February 2020, when the onset of the COVID-19 pandemic rocked global markets.
5/THE CRUELEST MONTH IN STOCKS
The U.S. stock market’s rebound has run out of steam, just as it enters what has on average been its most treacherous month.
Since 1950, the benchmark S&P 500 index (.SPX) fell an average of 0.5% in September, the index’s worst monthly performance and one of only two months to record an average decline, according to the Stock Trader’s Almanac, which notes that fund managers tend to sell underperforming positions as the end of the third quarter approaches.
In this month of September, a number of factors could put investors on edge. After the central bank symposium in Jackson Hole, Wyoming, the Fed will hold its next policy meeting on September 20-21. Ahead of that comes the latest consumer price reading which will indicate whether inflation has peaked and is likely to cause volatility wherever it lands.
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Compiled by Lewis Krauskopf; Editing by Paul Simao
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