Weekly Market Outlook 2018-10-01

Investors will be looking to a busy week ahead as a new trading month kicks off. The economic data will cover the reports for September. This means that investors will be curious to see how the respective economies have performed.

With various central banks on a tightening spree and with rumors of a possible slowdown in the economy, the data for September will mark a full quarter. As a result, the data will play a significant role in shaping the expectations of the future path of interest rates across many economies.

The data from the U.S. will be packed, ranging from the ISM’s manufacturing and non-manufacturing PMI’s to Friday’s payrolls report.

Meanwhile, the Reserve Bank of Australia will be holding its monetary policy meeting. No changes are expected at this week’s monetary policy meeting. Interest rates are expected to remain steady.

Canada will also be releasing its jobs report on Friday alongside the labor market data from the U.S.

Data from Japan will see the release of the quarterly Tankan manufacturing and non-manufacturing index reports. This could shed light on the firm’s sentiment about the current global economic conditions.

Here’s a quick recap of the leading economic events due this week.

Busy week for the USD with payrolls in focus

Amid the ongoing trade struggle with China, investors will get a glimpse of the preliminary data from the U.S. for September. The week starts off with ISM’s manufacturing PMI coming out on Monday.

The data for August showed that manufacturing activity advanced strongly, rising to 61.3. This was the highest level the manufacturing activity gauge hit in nearly seven years. It is but reasonable to expect the index to ease back from the highs. However, another month of increase in the manufacturing sector could shift focus to a faster pace of rate hikes.

The data along with the ISM’s non-manufacturing PMI due later in the week could potentially reinforce expectations of the U.S. economy’s GDP performance as well. The second quarter GDP was seen at 4.2%, and the current data indicates a 4.4% average increase in the third quarter.

The jobs report will also play a crucial role this week amid signs of inflation turning flat. Wage growth will once again come under focus. The average hourly earnings were seen rising 0.4% in August. The data showed a two consecutive month of increase in wages.

However, questions remain on whether wage growth will be able to hold the trend. On an annualized basis, the average hourly earnings increased 2.9% on the year, accelerating from 2.7% in July. Although earnings are still below the 3% threshold, a continued improvement could potentially boost prospects of further tightening of U.S. interest rates.

This could also potentially overshadow the threat of trade wars and its consequences on U.S. economic growth.

RBA to keep rates steady, once again

The Reserve Bank of Australia will be holding its monetary policy meeting this week. The central bank is expected to keep the interest rates unchanged at 1.50% once again. This would make it the longest stretch of interest rates staying unchanged.

The RBA is likely to maintain its tone about the underlying factors developing initial signs of strength, but could easily justify that the current policy was required to help the economy.

Besides the RBA’s meeting this week, there are also other economic indicators that will be released.

The retail sales report is due on Friday. The monthly retail sales report will cover the month of August. In July, retail sales remained flat on a month over month basis. This came after retail sales increased 0.4% in June. Household and personal sectors led the decline.

With wage growth staying muted, the decline in retail sales could potentially signal the same as before, meaning that the RBA is likely to wait patiently until the economy turns the corner.