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Weekly Fundamental Bulletin: RBA Meeting & ECB/Fed Minutes

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Last week’s highlights

China manufacturing sector continues to rise

Manufacturing activity in China showed a strong increase in September after the economy ended lockdown measures a few months ago. This was according to the data from IHS Markit.

However, the regional Caixin manufacturing PMI saw a slower pace as the index fell to 53 in September from 53.1 in August. But the official data showed an increase to 51.5, up from 50 in August.

New orders rose the most since 201, largely due to external demand. The export business also grew at the fastest pace since August 2017.

Japan’s quarterly Tankan surveys improve

Manufacturing sector sentiment in Japan showed the first improvement in three years, data from the Bank of Japan showed last week.

The headline Tankan survey tracking large manufacturers came in at -27, improving by seven points from the previous month.

Manufacturing sentiment rose from an 11-year low in the second quarter. Meanwhile, sentiment among non-manufacturers rose by five points to -12

Eurozone manufacturing sector rises in September

The final manufacturing PMI data from the eurozone showed a faster than forecast increase in activity. The rise came mostly on an increase in manufacturing activity in Germany.

On a seasonally adjusted basis, eurozone manufacturing PMI rose to 53.7, up from 51.7 in August.

The data from IHS Markit confirmed the previous flash estimates. The increase in September marks a three-month rise in the manufacturing sector for the eurozone. It is also the strongest expansion in two years.

ISM manufacturing PMI slows in September

The monthly manufacturing activity in the United States, as measured by the Institute of Supply Management saw a slower pace of increase in September.

Official data showed that the purchasing manager index dropped to 55.4 in September, compared to a 56.0 increase in August.

Economists forecast an increase to 56.3. The slower pace of activity comes amid a slump in new orders which fell to 60.2, following an increase to 67.6 in August.

The production index was also down to 62 in September, from 63.3 a month ago.

US unemployment rate falls to 7.9%

The monthly jobs report for September was a mixed bag. The unemployment rate continued to fall, while the number of payrolls started to slow.

The unemployment rate fell to 7.9% in September, from 8.4% previously. However, payrolls rose just by 661,000 during the month.

Average hourly earnings also slowed, rising just 0.1%. Revisions to the previous month saw August payrolls rising by 1.49 million.

However, for September, the report missed the estimates on both the payrolls as well as the hourly earnings.

Upcoming Economic Events

RBA likely to keep rates unchanged this week

The Reserve Bank of Australia will be meeting this week to decide on monetary policy. According to a general poll, the central bank is forecast to keep rates steady at a record low of 0.25%.

However, expectations are that the RBA could be making plans for a rate cut in November this year. The central bank lowered rates to the current level back in March this year.

Still, the expectations for November remain mixed, with some economists noting that the rate cut could happen only next year.

This comes as the central bank and its officials repeatedly flagged the possibility of further easing.

Fed meeting minutes due on Wednesday

The US Federal Reserve will be releasing its monetary policy meeting minutes from September.

The meeting minutes are unlikely to show any major changes with more of the status quo. However, investors will get to read between the lines after the Fed moved towards letting inflation overshoot the target 2%.

The economic projects from the September meeting also showed that interest rates will remain unchanged well into 2021.

This comes as various officials have noted that further stimulus from the central bank is unlikely.

ECB meeting minutes due on Thursday

The European Central Bank will be releasing the September monetary policy meeting minutes on Thursday.

The ECB disappointed without making any major references to the strength of the euro currency. However, in recent weeks, there has been speculation that the ECB could be shifting to a policy similar to the Fed.

With inflation in the eurozone stubbornly below 2% for a prolonged period of time, an ‘inflation overshoot’ is the likely outcome.

Investors will get to see the central bank’s thinking in order to decipher any clues on forward-guidance.

UK GDP and construction, manufacturing data on tap

A busy Thursday is in store with a lot of data coming out of the UK.

Firstly, the monthly GDP report for August is forecast to show an increase of 4.6%. This marks a slower pace of increase compared to the 6.6% gains in the month before.

Later, the industrial, construction and manufacturing output data are forecast to show expansion. However, the pace of increase in activity is set to slow.

Investors will likely brush aside the data in light of the latest second wave pandemic hitting the UK.

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