Weekly Fundamental Bulletin: Final Q2 GDP & September Payrolls

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Last Week’s Highlights

RBNZ keeps rates steady but further easing likely

The Reserve Bank of New Zealand held its monetary policy meeting last week.

As widely expected, the central bank left its key interest rates steady at 0.25%. The RBNZ also left its asset purchases unchanged at NZD100 billion.

The central bank did, however, signal that it was ready to provide additional stimulus in the near term.

Policymakers assessed that further stimulus might be needed, affirming that the Funding for Lending program, negative interest rates, and foreign asset purchases are some of the tools it is considering.

Eurozone private sector growth stalls in September

The latest flash PMI’s for the month of September for the eurozone shows that growth is stalling. This comes after a resurgence in coronavirus infection rates.

While growth was registered at a faster pace in manufacturing, it was not the same in the services sector.

The flash composite PMI for the eurozone showed that the index fell to 50.1 in September from 51.9 in August. Economists forecast a decline to 51.7.

The stagnant growth comes after the composite PMI jumped in July and August on the back of the decline in the previous months.

PBoC keeps interest rates steady

The central bank of China held its monetary policy meeting last week.

The bank left interest rates steady for the fifth consecutive month. This comes as the Chinese economy continues to log a steady recovery after the downturn earlier this year.

The PBoC’s one-year prime rate was steady at 3.85% while the five-year loan prime rate was steady at 4.65%.

With the Chinese economy making a steady recovery, there is speculation that the PBoC could be looking at tightening monetary policy as early as next year.

UK private sector growth stalls in September

The private sector growth in the UK came to a halt in September due to the disruptions caused by the pandemic.

Flash PMI figures from IHS/Markit released last week showed that the composite PMI fell to 55.7 in September from 59.1 in August. The decline was more than the forecasts.

The slowdown showed weaker activity in both the manufacturing and services sectors. It comes as the UK battles a second coronavirus wave which is threatening to derail the already fragile economy.

US durable goods orders rise by 0.4%

Monthly durable goods orders rose for the fourth consecutive month in August. This signals a continued recovery in the manufacturing sector.

New orders for durable goods rose by 0.4% in August on a monthly basis. However, the pace of increase was slower than in the previous months.

New orders for non-defense capital goods excluding aircraft rose 1.8%.

Meanwhile, the core durable goods orders rose by 0.4%. On both counts, the data missed estimates of a 1% increase respectively.

Upcoming Economic Events

UK final revised Q2 GDP to fall 20.4%

The UK’s final revised GDP for the second quarter is set to show a 20.4% decline. This marks an unchanged print from the initial estimates.

The report comes as the UK battles another wave of the pandemic. Forecasts suggest that business and economic activity will be sharply hit in the third quarter as well.

The declines in the GDP also come at a time when the UK is in the midst of Brexit talks which aren’t going too well.

Combined, the economic data could weigh on the GBP this coming week.

Japan quarterly Tankan surveys on tap

Japan will be releasing the quarterly Tankan surveys on Thursday. Forecasts show a modest rebound in activity.

The Tankan manufacturing index is set to rise from -34 in the second quarter to -24 in the third quarter. Meanwhile, the non-manufacturing index is set to improve from -17 to -9.

If the data matches or beats the estimate, it could provide some positive signs as Japan is also in a recession. A broad improvement could also ease pressure on the Bank of Japan.

US Q2 final revised GDP to remain unchanged

The final revised estimates for the second quarter GDP numbers for the US are forecast to show no changes.

As such, the Q2 GDP is forecast to show a -31.7% decline. The data is unlikely to move the markets much amid a very busy week for the US.

Pending home sales and Chicago PMI figures along with the core PCE price index numbers will all weigh heavily on the US dollar this week.

Furthermore, a number of Fed members will also be speaking over the course of the week.

Nonfarm payrolls to rise at a slower pace

The monthly payrolls report will be out this Friday. Forecasts show that the US economy will add 900k jobs in September. This marks a slower pace of payrolls increase.

In August, payrolls rose by 1.37 million. But given the close proximity to the month’s end, October’s report is sure to see an upside revision.

The US unemployment rate is set to fall to 8.2%, marking a slight improvement from 8.4% a month ago.

Hourly earnings continue to rise, with economists forecasting a 0.5% increase on the month, compared to a 0.4% increase previously.

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