IMPORTANT POINTS:
- The Fed will likely keep interest rates unchanged, supported by the latest US jobs report.
- Economic data from China suggests a fragile recovery, affected by weak export demand and the housing crisis.
- Oil prices rise on supply concerns while the Reserve Bank of Australia is likely to hold on to current rates.
After Friday’s jobs report solidified expectations that the Fed will keep interest rates on hold later this month, the economic calendar will be lighter in the holiday-shortened week. Stocks start September posting solid weekly gains, while data from China is likely to add to concerns about the outlook for the world’s second-largest economy. On the other hand, the Reserve Bank of Australia is likely to maintain its stance for the third time in a row, and supply concerns appear to be supporting oil prices.
US economic data and Fed statements
Friday’s jobs report was the latest in a series of economic data indicating the economy is headed for a so-called soft landing, adding to the view that the Fed is nearing the end of its rate hike cycle. Data next week will likely not significantly alter this outlook.
On Wednesday, the Institute for Supply Management will release data for August on service sector activity, and economists expect it to soften slightly. That same day, the Fed will publish its Beige Book, a survey of economic activity in the 12 bank districts.
In addition, investors will have the opportunity to hear from several Fed speakers throughout the week, including Dallas Fed President Lorie Logan, followed by appearances from New York Fed President John Williams, Governor Michelle Bowman, Governor Michael Barr and Chicago Fed President Austan Goolsbee.
Beginning of September for actions
The Dow and Nasdaq rose 1.4% and 3.2% last week, respectively, posting their best weekly returns since July. The S&P 500 gained 2.5% for its best week since June.
However, Friday’s jobs report reinforced expectations that the Fed will pause rate hikes at its meeting this month. Keith Buchanan, a portfolio manager at GLOBALT Investments in Atlanta, told Reuters:
“The data argues for the Fed to get more dovish as we head into the fall. If the end of the tightening comes sooner than expected, that could lead to a big rally in stocks.”
Interest rate futures suggest that traders now see a 94% chance that the US central bank will keep interest rates unchanged at its meeting on September 19-20.
It should be noted that the US stock market will be closed on Monday for the Labor Day holiday.
Chinese data
Economic data due out of China next week will likely indicate that the economic recovery in the world’s second-largest economy remains fragile due to weak demand. in major export markets and a domestic housing crisis have added downward pressure. about growth.
The August Caixin Services PMI, due to be released on Tuesday, is expected to show that expansion in the services sector slowed slightly last month.
However, trade data on Thursday is expected to show that exports and imports contracted again in August from a year earlier, albeit at a slower pace than in July.
In addition, market watchers will also be watching August CPI data on Saturday, expecting consumer prices to rise. after entering deflationary territory in July.
Despite the fact that the Chinese authorities have implemented a series of measures aimed at revitalizing the faltering economy, many analysts see only a slim chance of more drastic stimulus due to concerns about rising debt risks.
Oil rises on supply concerns
Oil prices rose to their highest level in more than seven months on Friday, snapping two weeks of losses on concerns about the tightening supply outlook.
During the week, Brent rose close to 4.8%, the biggest weekly increase since late July. WTI Crude Oil Futures advanced 7.2 %, its biggest weekly gain since March.
Saudi Arabia is widely expected to extend a voluntary production cut of 1 million barrels a day through October, prolonging supply restrictions designed by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, to support prices. “There is a realization that the economy is not going down, and signs that demand is near all-time highs,” said Phil Flynn, an analyst with the Price Futures Group.
In addition, the US demand outlook remains strong, with commercial crude inventories declining in five of the past six weeks, according to data from the US Energy Information Administration.
Reserve Bank of Australia Decision
The RBA is expected to hold rates steady for a third meeting in a row on Tuesday, after recent data points to a faster-than-anticipated cooling in inflation.
Rates are at an 11-year high of 4.1% after rising 400 basis points since May 2022. Traders expect that to be the peak, after inflation unexpectedly eased to 4.9% yoy in July, the lowest rate since it peaked last December at 8.4%.
Furthermore, the most recent employment report showed the unemployment rate rising to 3.7% in July from 3.5% in the previous month, strengthening expectations that the RBA will hold firm.
