Weekly Market Outlook: Fed, Payrolls and ISM

USD to stay active as major economic reports lined up for the week

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The markets will see somewhat of a short trading week once again with most of the European markets closed due to the Labor day bank holiday. The week ahead will be dominated by data from the United States which includes high impact reports covering inflation, jobs, and manufacturing.

The week starts off with the US PCE price index. We will also get to see the FOMC meeting which will culminate into Friday’s payrolls report. We can expect the USD to remain active over the week.

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Elsewhere, Canada will be reporting on its monthly GDP numbers. Following the surprise uptick in the previous monthly GDP figures, focus will turn to whether Canada was able to sustain the same pace of growth.

The Bank of England will be holding its meeting on Thursday this week. No changes are expected to the interest rates which remain steady at 0.75%. Investors will be looking to the BoE’s forward guidance as the risks of a hard Brexit diminishes.

Here’s a quick recap of what’s to come in the currency markets this week.

What’s Keeping the USD Busy this Week?

The Core PCE price index data, the Fed’s preferred gauge of inflation will be out on Monday. Expectations are for the PCE price index to rise 0.2% on the month in February and 0.1% on the month in March. Consumer spending reports are also due for the months of February and March.

The Institute of Supply Management (ISM) will be releasing the monthly manufacturing PMI data. Economists forecast that the manufacturing activity might have slipped to 55.0, following a surprise rebound to 55.4 in March.

Later in the day, the Federal Reserve will be holding its monetary policy meeting. No changes are expected to interest rates at this week’s meeting. Given that the Fed will have the inflation figures and the preliminary GDP report, focus will turn to the policy guidance.

The central bank had previously pledged to keep rates unchanged for the rest of the year. However, the uptick in the GDP and the stable inflation, although lower than the Fed’s 2% inflation target rate could keep investors on the edge.

The data from the US culminates with Friday’s payrolls report. Forecasts show that the US unemployment rate will be steady at 3.8% in April. Wages could rise at a pace of 0.3% from 0.1% previously. The economy is forecast to add 181k jobs for April, which marks a slightly slower pace compared to 196k jobs added in March.

Will New Zealand’s Labor Market Rebound in Q1 2019?

The quarterly labor market report from New Zealand will be coming out this week on Wednesday. The forecasts, heading into the event point to a hawkish expectation reflecting a rebound in the labor market after a disappointing last quarter in 2018.

According to economists polled, New Zealand’s unemployment rate is forecast to fall to 4.2%. This follows a modest decline from 4.3% in the previous quarter. The quarterly employment change is forecast to rise by 0.5% during the first three months of the year. This marks a solid rebound following a 0.1% increase from Q4 of 2018.

The report comes ahead of the RBNZ meeting due in the next few weeks. A pick up in the unemployment report could no doubt bring some cheer to policymakers.

Will the BoE Set Off on a Hawkish Note?

The Bank of England will be taking center stage later on Thursday. We can expect no changes in interest rates from the BoE which remain at 0.75% currently. Following the decision to extend Brexit to October this year, investors will be looking to the Bank of England for further clues on monetary policy.

The question remains on whether the central bank will be turning hawkish and set the stage for a rate hike later this year.

With inflation staying close to the central bank’s 2% inflation target rate but growth showing mixed signals, the BoE’s monetary policy could once again be the highlight. Ahead of the BoE meeting, Markit will be releasing the manufacturing, construction, and services PMI for April.

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