The first week of the month is always full of tier one data. There are two major central banks and a host of services PMIs to look for. However, the US labor market is foremost in the minds of traders. For Lat Am countries, the focus is on inflation.
- US – ISM services, ADP, Weekly Jobless Claims, Nonfarm Payrolls
- Europe & Asia – OPEC+ meeting; RBA & RBNZ meetings; Final PMIs for Eurozone & UK
- LatAm – Brazilian industrial production; inflation for Colombia, Chile and Brazil
- US ISM Services (Tuesday 5th October, 1400GMT) slip dip to 61.3 (from 61.7 in August)
- US ADP Employment (Wednesday 6th October, 1215GMT) improvement to 475,000 (from 374,000 in August)
- US Weekly Jobless Claims (Thursday 7th October, 1230GMT)
- US Nonfarm Payrolls (Friday 8th October, 1230GMT) improvement to 500,000 (up from 235,000 in August)
Economic growth, the labor market and inflation are all key factors in Fed monetary policy. There are elements of all to consider this week. The ISM Services data for September is expected to only slip slightly from the August reading, with a drop to 61.3 from 61.7. However, the sharp declines in the flash European services PMIs will keep traders on their toes for a negative surprise. We are also watching the Prices Paid and Employment components of the ISM data to reflect the outlook for inflation and labor market too. Employment is marginally above 50, so is in the mild expansion (a positive) but Prices Paid are well above 70 and any increase will further fuel concerns of price pressures on consumers.
The labor market becomes the focus for the rest of the week. Last months surprise fall in ADP was a signal for a worse than expected payrolls report, so traders will again be on the lookout. This month is expected to see ADP recovering and a similar improvement in the headline Nonfarm Payrolls number to 500,000 (from 235,000 last month). We also look for the unemployment rate dropping to 5.1% (from 5.2%) and average hourly earnings.
- USD will see elevated volatility around the ISM data on Tuesday
- With Nonfarm Payrolls increasingly fluctuating, surprises are frequent and volatility around the announcement has been greater in recent months. Expect this to continue.
Europe & Asia:
- OPEC+ meeting (Monday 4th October, all day)
- Eurozone Sentix Investor Confidence (Monday 4th October, 0830GMT)
- Reserve Bank of Australia (Tuesday 5th October, 0330GMT) no change expected
- Eurozone final PMIs (Tuesday 5th October, 0800GMT)
- UK final PMIs (Tuesday 5th October, 0830GMT)
- Reserve Bank of New Zealand (Wednesday 6th October, 0100GMT) +25 basis points to +0.50% expected
- ECB meeting minutes (Thursday 7th October, 1130GMT)
OPEC+ has its monthly meeting to discuss production levels on Monday. Suggestions are that there might be a consideration to releasing more oil onto the market, thus increasing supplies. If this is seen then it would be negative for Brent Crude.
The Reserve Bank of Australia has been dovish and Governor Lowe recently pushed back on the prospect of rate hikes before 2024. The Aussie still has a massively stretched net short positioning on AUD futures contracts. Subsequently, any hint or sign of a less dovish stance might induce a technical rally for AUD forex crosses. The Reserve Bank of New Zealand could be on course to increase rates this week. A +25 basis points increase to 0.50% could be seen as the RBNZ looks to normalize rates.
Final PMIs for the services sector and composite data for the Eurozone and UK are released on Tuesday. They are not expected to show any revisions to the flash PMIs a week ago which showed a marked deterioration in the growth outlook. Any downside revision could send market sentiment tailing lower once more.
- Brent Crude oil reacting to news of OPEC+ oil supplies
- AUD and NZD volatility around RBA and RBNZ meetings respectively
- EUR & GBP will react to any significant revisions to final PMIs
- Brazil industrial production (Tuesday 5th October, 1100GMT)
- Colombia inflation (Tuesday 5th October, 2300GMT)
- Brazil inflation (Friday 8th October, 1100GMT)
- Chile inflation (Friday 8th October, n/a)
Soaring inflation is a significant problem across Latin America. Brazilian inflation is above 10% now year on year. This is driving the central bank to hike interest rates in an attempt to get to tackle the problem. However, despite 425 basis points (an increase of +4.25%) since March, but so far this is still failing to curb rising inflation. Any sign that inflation continues to soar will drive the expectation of further rate increases, which are already coming at +100 basis points per meeting.
According to a poll conducted by Reuters, Colombian inflation is expected to have increased by +0.37% in September with the year on year increase at +4.5% (from +4.45% in August). The Colombian central bank increased the interest rate to +2.00% last Thursday (from +1.75%) but if inflation continues to climb, there will be the potential for further rate hikes to combat the problem.
- Higher than expected inflation for any of Brazil, Colombia or Chile will increase volatility around BRL, COP and CLP respectively