Week Ahead for FX, Bonds : U.S. Jobs Data, Canada Rate Decision in Focus

Below are the most important global events likely to affect FX and bond markets in the coming week starting Sept. 2.

As investors increasingly anticipate that the Federal Reserve will start cutting interest rates at its September meeting, focus will center on key U.S. monthly jobs data, while in Canada the central bank looks set for a third consecutive rate cut.

In Asia, purchasing managers’ surveys and inflation data are in focus as investors look for more assurance that the region’s manufacturers are recovering, and that price pressures are converging on central banks’ targets. Australia’s second-quarter growth data is also in the spotlight, alongside an interest-rate decision from Malaysia.

U.S.

Federal Reserve Chair Jerome Powell’s recent comment at the Jackson Hole symposium that the “time has come for policy to adjust” leaves an interest-rate cut at the Fed’s next meeting on Sept. 18 looking highly likely. What remains uncertain is whether rates will be cut by 25 basis points or a larger 50 basis points.

Powell stressed that the Fed doesn’t want to see further cooling in the labor market, which means Friday’s non-farm payrolls data for August could be crucial in determining Fed rate expectations. Very weak data could make a 50 basis-point rate cut more likely, and on the other hand strong data could rule out a bigger cut.

“Even though Powell refused to comment on whether the door could be open to a 50 basis-point [rate] cut in September, we do suspect that a further clear deterioration in the labor market could steer the FOMC into more aggressive easing,” said Investec economist Lottie Gosling in a note.

JOLTS job openings data for July on Wednesday and ADP private payrolls figures for August on Thursday, as well as Thursday’s weekly jobless claims figures, could give advance clues on the health of the jobs market.

ISM purchasing managers’ data for August on the manufacturing sector on Tuesday and the services sector on Thursday will also be watched closely after particularly weak figures the previous month as investors assess the severity of the U.S. economic slowdown.

“Markets will particularly be watching for a recovery in the manufacturing sector after the index slipped unexpectedly to 46.8 last month, igniting the recession fears,” Investec’s Gosling said.

U.S. markets are closed on Monday for the Labor Day holiday.

CANADA

The Bank of Canada announces a decision on Wednesday, where most expect a third consecutive 25 basis-point cut in the key policy rate, taking it to 4.25%.

“Growth remains weak, the unemployment rate keeps increasing and inflation is firmly on a downward trend,” Bank of America rates analysts said in a note.

“In our view, all these indicators point to a cut in September and at every remaining meeting this year, with the rate at 3.75% by year-end and at 3.0% by end-2025.”

There is a risk that the central bank could accelerate the pace of rate cuts, but Bank of America expects the bar for a 50 basis-point cut will be “quite high” unless there is evidence of a hard landing in the U.S. or “rapidly deteriorating activity” in Canada.

After that decision, Canadian jobs data for August on Friday will be watched closely for an indication of whether the labor market is continuing to deteriorate or whether it is starting to show signs of improvement. The latter could help quell prospects of a deeper 50 basis-point rate cut, Bank of America said.

Canadian trade data for July are also due on Wednesday.

EUROZONE

With recent data revealing that eurozone inflation is falling ever closer to the European Central Bank’s target while the economy shows increasing signs of weakness, a further interest-rate cut at the central bank’s next meeting on Sept. 12 looks increasingly likely.

Focus will now switch back to data on the economy, with final purchasing managers’ data on French, German and eurozone manufacturing activity due on Monday and on services activity on Wednesday. German manufacturing orders and industrial production data for July are due on Thursday and Friday, respectively, while French July industrial production figures are scheduled for Friday.

Eurozone producer-price inflation data for July are due on Wednesday and will provide an indication of the extent of pipeline inflationary pressures.

Government bond supply will accelerate as the European holiday season ends. Germany will auction 2026-dated treasury notes on Tuesday and 2038- and 2041-dated Bunds on Wednesday, while Austria will conduct an auction for 2034- and 2086-dated bonds on Tuesday. Spain and France will have auctions on Thursday.

U.K.

In a relatively quiet week for U.K. data, investors will watch final August purchasing managers’ data on manufacturing activity on Monday and on services activity on Wednesday, as well as house-price data from Halifax on Friday and the British Retail Consortium’s retail sales monitor on Tuesday, both for August.

These will help build up a picture of the current health of the U.K. economy, which has recently looked slightly rosier than that of the eurozone or the U.S.

The U.K. Debt Management Office plans to launch a new January 2040 gilt via syndication in the week commencing on Sept. 2 and the sale of a July 2029 gilt via an auction on Thursday.

POLAND

Poland’s central bank announces an interest-rate decision on Wednesday and is widely expected to keep interest rates on hold, with recent data showing headline inflation edged up in August.

Analysts at ING expect that the central bank won’t cut interest rates until next year, with a first 25 basis-point reduction in the second quarter of 2025.

“We believe that the second half of next year should bring a clear decline in headline inflation, which should create space to start a monetary easing cycle,” they said in a note.

SCANDINAVIA

Denmark and Norway will hold government-bond auctions on Wednesday, while Sweden will sell inflation-linked bonds on Thursday.

SWITZERLAND

Swiss inflation data for August and second-quarter gross domestic product data are due on Tuesday.

Swiss inflation is low but for the Swiss National Bank this could be somewhat offset by a strong Swiss franc, said MUFG head of research Derek Halpenny in a note.

“Investors are rightly anticipating policy rates globally falling by more than in Switzerland and this could be providing the franc with support,” he said.

AUSTRALIA & NEW ZEALAND

In Australia, a speech by the governor of the Reserve Bank of Australia, Michele Bullock, on Thursday will be the highlight.

The speech to the Anika Foundation, a charity funded by money market participants, is normally a significant event in the calendar of RBA governors.

With the flow of economic data over the week expected to underscore anemic economic growth in the second quarter, Bullock will probably reflect on the soft numbers, but highlight her bigger concern that inflation remains elevated, while stressing that there is no urgency for the RBA to cut interest rates.

Bullock will also be asked about how other central banks are now cutting, putting pressure on the RBA to follow.

But increasingly, it looks as if the RBA will be among the last of the G10 central banks to lower interest rates, with cuts more likely next year.

Economists expect the RBA will want to see two more quarterly inflation prints before feeling comfortable about cutting interest rates.

Still, money markets are happy to bet that the RBA will be wrong, with traders pricing a strong chance a cut could come in December.

Second-quarter GDP data is due on Wednesday.

CHINA

A private gauge of China’s manufacturing and services activity in August is the main event in an otherwise sparse data calendar.

The Caixin PMI readings on Monday and Wednesday come on the heels of official measures of sector activity. Analysts will be looking to see if the recent decline in manufacturing is turning a corner, and if the sluggish services sector has picked up.

MALAYSIA

Malaysia’s central bank announces its rate decision on Thursday, when it is widely expected to keep policy settings steady even as some of its peers signal that rate-cuts are imminent or have already kicked off their easing cycles.

Better-than-expected economic growth in the second quarter, a stronger ringgit and steady inflation despite government subsidy cuts suggest that Bank Negara is in no need of policy settings adjustments.

Markets will be watching to see if the bank makes any changes to its economic outlook, particularly tied to the potential inflationary impact of subsidy cuts for items like fuel.

Risks to inflation continue to be on the upside, according to Goldman Sachs economists, who said they think the central bank will keep the policy rate unchanged for the rest of the year.

JAPAN

A relatively light week for Japan features a services PMI reading on Wednesday and wage data on Thursday, followed by household spending data for August on Friday.

Observers will look at the Labor Ministry release for signs of sustained pay growth after real wages turned positive for the first time in more than two years in June. More evidence that wages are growing in line with the Bank of Japan’s expectations could further cement the case for policy normalization.

Market participants will likely monitor Bank of Japan policy committee member Hajime Takata’s meeting with local leaders in Ishikawa, Japan, on Thursday for further clues on the central bank’s monetary policy outlook. BOJ is slated to hold its next monetary policy meeting on Sept. 19-20.

The Finance Ministry is scheduled to auction 2.6 trillion yen of 10-year JGBs on Tuesday and 900 billion yen of 30-year JGBs on Thursday. The auctions may garner interest from Japanese bond investors, particularly pension funds and life insurers that typically invest in longer-term government securities.

SOUTH KOREA

Inflation data will be in focus in South Korea, as traders digest the latest trade print from the export powerhouse.

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08-30-24 1042ET