Title: US Non-Farm Payroll Report Dominates as RBA and BoE Decisions Await
As the Reserve Bank of Australia (RBA) and the Bank of England (BoE) prepare for their respective meetings, all eyes are on the upcoming US non-farm payroll report, which is expected to overshadow the central banks’ decisions.
RBA’s Policy Decision and Economic Forecasts Awaited
The RBA is set to meet on Tuesday to determine its policy for August, causing division among markets and economists regarding the outcome. Analysts predict a 25 basis point hike to 4.35% after a pause in rate hikes last month. However, the minutes from the July meeting alluded to a reassessment in August, making the consensus uncertain.
Though recent economic data has been mixed, with a decrease in the unemployment rate but also a fall in inflation, pessimistic indicators such as contracting manufacturing and services PMIs do not suggest an imminent rate hike. However, Australian exporters may benefit from China’s efforts to stimulate its economy, offering a glimmer of optimism for the RBA’s decision.
The BoE Slows with Waning Confidence in Hike Magnitude
On Thursday, the BoE is expected to raise rates again, but the confidence in the magnitude of the hike has diminished. Markets anticipate a 25 basis point rate increase, but some estimate a 30% chance of a 50 basis point hike. Weakening economic indicators, particularly the dismal PMI data for July, have lessened the case for consecutive rate hikes. The struggling economy, compounded by international slowdown and rising mortgage costs, reduces the likelihood of bold policy action from the BoE.
The Impact of the US Labor Market
While the Fed’s decision may not be as impactful, the upcoming US jobs report could greatly influence the market as Federal Reserve Chair Jerome Powell keeps his options open for the September meeting. The US job market has been gradually losing steam this year, leading to concerns about a wage-price spiral. With job growth declining, the Fed may finally find the justification it has been seeking.
Analysts anticipate that non-farm payrolls will have risen by 184,000 in July, down from the previous 209,000. The unemployment rate is expected to remain steady at 3.6%, with average earnings growing at a rate of just over 4%. However, any stronger-than-expected data that bolsters the case for a rate hike in September may not be welcomed by the market.
ECB’s Dovish Stance and Eurozone Economic Climate
The European Central Bank (ECB) recently turned dovish and abandoned its commitment to further rate hikes. Softer inflation data and growing signs of an approaching recession contribute to this change in stance. Consequently, the CPI data for July, set to be released on Monday, will shape expectations for future rate hikes in the eurozone. While overall inflation continues to decline, core CPI, which excludes volatile items, has proven to be more resilient. A rise in underlying inflation could reduce market bets on no rate hikes from the ECB.
Additional Data and OPEC Meeting
Other notable events this week include Switzerland’s CPI data on Thursday and New Zealand’s quarterly employment data on Wednesday. Canada will also release its employment data for July on Friday, which, if strong, may increase the likelihood of another rate hike from the Bank of Canada this year.
Furthermore, the OPEC and non-OPEC countries will meet on Thursday. Although major oil producers are not expected to make significant changes to production quotas, oil futures have been rising recently due to production cuts announced by Saudi Arabia and Russia, as well as hopes for pro-growth policies from China to boost demand.
The US non-farm payroll report is anticipated to be the highlight of the week, overshadowing the RBA and BoE decisions. As economies around the world grapple with mixed data and uncertain global conditions, central banks must tread carefully when formulating their policies.