Weekly Market Outlook

Here are the highlights for the new week, August 3-7. Doubtless, the US employment report will rivet the attention on Friday. Investors and speculators alike will be keenly awaiting to see how the labor market of the world’s biggest economy has been doing recently. Prior to this crucial report, there are other important data pieces to consider. Monday is bringing the global manufacturing PMIs for July. The Reserve bank of Australia is holding its rate meeting on Tuesday. Global PMIs for the services sector are coming out on Wednesday. On the next day, the Bank of England rate meeting is scheduled to take place.

Global July Manufacturing PMIs (Monday)

Monday kicks off with the attention focused on the global manufacturing PMIs. Job losses as well as cutbacks in the recent tumultuous period induced by the global lockdown have had their impact. The expectations are for a rebound, with sales of backlogs of diverse products, before manufacturing pace is resumed. The recent data from key countries like the US, the UK, Germany and France suggest improvements compared to June levels.

Reserve Bank of Australia Rate Meeting (Tuesday)

Further quantitative easing is anticipated if the economy continues to slump, given the record lows at which interest rates currently are. The increasing infection rate throughout the state of Victoria lends a high probability of that. The unemployment rate, having reached a peak unparalleled since 1999, is likely to soar further by the end of the year. Despite the grim picture, RBA does not seem to grant further support to the economy. The next few days may bring a change.

Global July Services PMIs (Wednesday)

The services sector is likely to continue its recovery. At least this is what the latest PMI data from the US, Europe and Asia imply. Countries like Spain and Italy, greatly reliant on tourism in the services sector, are rushing to resume the pace of their economies. However, the quarantine measures on Spain taken by the UK, France and Norway pose risks and could take a toll in August. Overall, flash PMIs for Germany, France, the UK, and to a lesser degree for Spain and Italy, are continuing to improve.

Bank of England Rate Meeting (Thursday)

urther rate cuts are a subject of speculation, as indicated by some BoE policymakers’ words. In reality though, the likelihood of announcing such cuts in September is higher. The potential impact to the UK financial sector would be deleterious, and the stakes are quite high, considering how important the former is for the country’s economy. Continuing cuts by central bankers is not a sign of efforts to take material measures, as practice has shown the impact is negligible at best. The UK economy does not seem to need extra support. In the event of such support, consumers are not likely to take on extra liabilities in the prevailing uncertainty, already having repaid £16bn consumer credit in the past four months alone, which exceeds the amount for the entire 2019.

US Employment Report (Friday)

The US labor market, which hit a record of 20.7m jobs lost in April alone, has staged a recovery, as 7.5m jobs have been brought back in the next two months. The main reason for this was the return of furloughed workers. As a result, the unemployment rate decreased by over 3%, from 14.7% to 11.1%.

The non-farm payrolls report for July is likely to show more workers coming back, making the overall prospect good. However, in the last couple of weeks lockdown measures were reintroduced by a raft of US states. Such measures are inevitably impacting the jobless claims pace which is resuming its upward course. After a low of 1.3m two weeks ago, unemployment claims are currently climbing to over 17m. The interest is not that much on whether the jobs rebound will go on. What is more important is the impact of secondary spikes in the past weeks, and whether they will cause the payrolls numbers to stall. This we will see in September though, when the August data is to be announced.