A Look At Global Events In The Upcoming Week
From Goldman's Mark Tan
Week in Review
Dollar weakness continues to be the theme in FX markets as market participants mull over the probability of additional QE by the Fed. Meanwhile, stocks had a more mixed week, with SPX ending slightly down for the week. The FX moves have been most notably reflected in EUR/$, now approaching 1.38. AUD also made new cycle highs this week. The rapid moves in EUR/$ over the past few weeks resulted in us getting stopped out of 2 of our tactical trade recommendations on Friday—short EUR/CHF and short EUR/AUD. This rally in the EUR has come about despite continued concerns in the Euro-periphery (though as we have argued, the pressure has been more idiosyncratic than it was earlier in the year) and in the face of softening Eurozone growth momentum. Essentially, the market has moved more quickly to focus on the relative weakness of the US, something that has always been central to our longer-term FX views.
Global cyclical momentum update The past week also saw the usual round of global PMIs across the globe. China PMI did come in better than expected, providing a bit of a boost to risk sentiment. Our China economists expect activity ahead to be supported by loosening financial conditions. In the US, the ISM came in not too far off from expectations, but the guts of the report (new orders-inventories gap) were far weaker and hints of further deceleration in industrial activity ahead. In other parts of the world, the PMIs mostly signaled further slowing, in particular the larger European countries but also Australia.
Nonfarm payrolls and QE2 The key event will be nonfarm payrolls on Friday as it will likely have a big influence on the ongoing debate over the likelihood of additional QE by the Fed. Our forecast is for additional job losses on the headline figure (-50k vs consensus of flat) while we only expect slight private sector job gains (+25k vs consensus of +77k). We expect the unemployment rate to tick up another 0.1 point to 9.7%, in line with consensus. Our US economists’ more cautious labour market outlook is consistent with their expectations of additional QE, probably at the November meeting.
Central bank meetings—RBA, BOJ,BOE, ECB, Philippines and Indonesia. The focus is likely to be on the RBA and BoJ, with no change expected for the rest. For the RBA, our Australia economists continue to hold on to their call of a 25bps hike, which is now also consensus expectations. This will have implications for our 5Y AUD swaps trade recommendation (which we had put on when little hikes was priced by the markets). For the BoJ, markets will be watching closely for how aggressively the BoJ eases.
We believe that additional easing is very likely in October and beyond and we think the likely choice would be an expansion of measures that are already in place, including expansion of the existing funding facilities.
European industrial production We will get the the first hard data for August in the Eurozone in the form of IP data. The business surveys suggest that the pace of the recovery slowed from its well-above-trend growth rates across the Euro-zone. We expect this to be reflected in the country-level data, starting with Spain on Wednesday, where we think IP grew only +0.2%mom. Similar softness is likely in the German figure on Thursday where we expect +0.3%mom.
US factory orders (Aug) We are expecting a decline of -0.5%mom slightly below consensus of -0.4% and previous of +0.1%.
RBA meeting Our Australia economists continue to expect a 25bps hike at this meeting, which is also now the expectation by consensus.
Indonesia central bank meeting We expect the central bank to remain on hold, in-line with consensus. We expect the central bank to only begin hiking the policy rate in December, and expect only one 25-bp rate hike for the year. Indonesia was one of the first Asian countries to have allowed tighter financial conditions through FX appreciation.
BoJ meeting Our Japan economists think additional easing is likely in October and also expect further moves in 4Q or in 1Q 2011. The options listed in order of probability, are (1) expansion of the three- or six-month funding facility (2) an increase in lending targeted at strengthening the foundations for economic growth (3) asset purchases (4) a cut in the policy rate (5) an increase in outright purchases of JGBs (6) the introduction of, or commitment to, an inflation target.
US ISM non-manufacturing (Sep) Following last month’s sharp decline we expect no meaningful change in this index. We are expecting a slight rise to 52.0, in-line with consensus from 51.5 previously.
Spain industrial production (Aug) where we estimate that IP rebounded slightly to +0.2%mom after the -1.1% decline last month.
German manufacturing orders (Aug) We expect a rebound to +0.5% mom after -2,2% previously.
US ADP employment (Sep) Consensus is looking for a rise of +23k following -10k previously.
Australia employment (Sep) Consensus expects a gain of +20k following last month’s gain of +30.9k.
Taiwan Trade (Sep) The latest export orders data, which lead customs exports data by one to two months, posted a small rebound in sequential growth in August. This points to the possibility of a slight improvement in the sequential momentum of the customs exports data.
Philippines central bank meeting We expect the central bank to remain on hold. We currently expect a total of 50 bp in rate hikes for the remainder of this year.
Germany industrial production (Aug) IP rose a mere 0.1%mom in July and we expect August to have brought only a slightly greater gain of +0.3%.
ECB Meeting We expect no change in rates and no major announcements. The Governing Council will likely acknowledge that the data has come in better than it had expected and reaffirm the need for more fiscal and structural adjustment among member states.
Bank of England meeting We expect no changes at this meeting. Our UK economists have also recently changed their policy rate forecasts, moving back the timing of the first interest rate hike 2011Q1 to 2011Q4. They also continue to think that additional QE in the UK is unlikely.
US jobless claims Consensus expects a small decline to 450k from 453k previously in initial claims
US nonfarm payrolls (sep) Private-sector payrolls likely rose only slightly in September, as claims remained high, the employment component of the ISM manufacturing survey weakened and the labor differential of the Conference Board consumer confidence survey widened. Our forecast is for -50k on headline payrolls vs consensus of flat. We expect private sector payrolls at +25k, below consensus of +77k. We expect the unemployment rate to tick up another 0.1 point to 9.7%,in line with consensus.
Canada employment (Sep) Consensus expects a gain of +10k, following previous of +35.8k. The unemployment rate is expected to be unchanged at 8.1%