· The final US Nonfarm payrolls report before the September FOMC rate decision takes centre stage this week after developments in China last week dampened expectations for a Fed rate lift off
· The ECB rate decision and press conference is this week’s main event in Europe, with some analysts forecasting an extension to QE by the end of the year
Friday sees the US nonfarm payroll report, with the report holding extra significance this month as the most notable data point left prior to the `data dependent` Fed’s September rate decision. The September FOMC meeting has long been considered of crucial importance and a possible time for a Fed rate lift off and as such, plenty of attention has been given to what the final jobs report before the meeting will show. However events over the past week have added an element of uncertainty to the meeting. As a reminder, the beginning of last week saw `black Monday`, where recent concerns surrounding China came to a head and saw substantial volatility in global markets, including that of the US . While much of the initial moves had pared by the end of the week after the PBoC cut rates, many concerns about China have not subsided, with the Fed also noting concerns of a slowdown in China in their previous meeting. As such, expectations surrounding a September rate hike have dampened, however comments from the likes of Fed’s Mester, Bullard, George and Fischer at the Jackson Hole Symposium suggest that a September rate hike is not out of the question. With this in mind, participants will be keeping a close eye on the employment report this week, with last month’s report printing 215k, which saw strength in USD and weakness in T-Notes despite coming in lower than expected, due it being larger than the 200k threshold considered important to the Fed. This month will see markets once again look as to whether change in nonfarm payrolls prints above 200K as well above the Exp. 220K and also look out for any indication of a significant pick up in wage growth from average hourly earnings.
Across the Atlantic, this week’s European highlight comes in the form of the ECB rate decision and accompanying press conference . Few expect to see any changes in terms of the rate decision itself from the European Central Bank , however markets will be focussing on the accompanying press conference and rhetoric from President Draghi. The recent volatility stemming from China has seen strength in the EUR, which has combined with low oil prices to dampen inflation expectations. As such, some have suggested that an extension in terms of either size or duration of the central bank’s QE program is not out the realms of possibility, despite ECB’s Constancio stating on Tuesday that the ECB will not be pushed into a knee-jerk reaction. Analysts at Barclays suggest that any change in policy is unlikely this week, with October or December a more likely time frame, however suggest a change in rhetoric is a significant possibility , while Goldman Sachs analysts also suggest that Draghi may strike a dovish tone, however note that he will likely be vague in terms as to what new easing measures would look like.