Weekly Market Outlook

This week will offer some important economic data figures and central bank meetings. In the period from Monday to Wednesday, the focus will be on Chinese trade, CPI and PPI for August. Оn Wednesday, the Bank of Canada is not expected to announce any changes on its interest rate meeting. On Thursday, the ECB rate decision will be keenly awaited by investors. On the same day, the US weekly jobless claims are in the focus. On Friday, the UK GDP figure for July is of high interest. The highlights in the last working day will wrap up with the US CPI for August.

Bank of Canada Rate Meeting (Wednesday)

With interest rates effectively at 0.25% and weekly government bond purchases at CAD$ 5bn, no imminent change in policy is anticipated. The country’s economy has fared well in the months of the pandemic. After having jumped to 13.7% in May, the unemployment rate has been going down. The same trend is observed with average wages, which is probably due to lower income workers reentering the market. In the current situation, this development is positive for the Canadian economy. For May and for June, the retail sales grew considerably, especially in June, to 23.7%. In the period before the pandemic, the Bank of Canada followed the US Fed with interest rates. Now it is likely to do the same, so no major changes seem to be in the making. The oil industry’s keeping at a five-month high in August is also a positive factor, as this industry has a huge impact on the country’s economy.

China August Trade, CPI & PPI Figures (Monday to Wednesday)

The recovery of Chinese imports has been slower lately. Although the exports data have been good, that is probably due to the large share of protective equipment demand prompted by the global pandemic. Perhaps demand outside the country is much lower than the figures indicate. After the CPI inflation rate held over 5% in the beginning of the year, indicating large internal demand, the subsequent lockdown took its toll. Lately, with the pickup in domestic demand, the CPI rate started climbing. An increase in demand has also been reported by companies operating in China, like BMW and Burberry. The retail data progress has also been good. As for the PPI, it was not to be termed positive at year start, and afterwards it slumped to -3.7% in May. Afterwards, it has slowly been climbing. Oil and metal prices have also been on the rise in the recent month, which has helped the PPI to keep on increasing.

ECB Rate Decision (Thursday)

With the refinancing rate at 0% and the deposit rate at -0.5%, the European Central Bank is likely to continue keeping its monetary policy loose. One of the focuses is on the pandemic emergency purchase programme (PEPP): it is expected to be kept at €1.35tn, after it was increased by €600bn in June, and the period for the scheme was extended until mid June next year. July’s session of the ECB did not yield surprises. The only interesting data was related to the slight reduction in the rate of bond purchases.

Late in July, the EU member countries reached a deal about the coronavirus rescue fund distribution. The fund amounts to €750bn. Divisions between the countries in the block started to re-emerge: southern states like Italy and Spain, demanded the predominant amount of the fund in the form of grants. Northern states, comprising Austria, the Netherlands, Finland, insisted on the distribution of a higher percentage of loans. An agreement was reached to allot €390bn as grants, somewhat lower than the initially proposed €500bn. As for the amount for low-interest loans, it was agreed at €360bn. The compromise was reached that countries of the group known as ‘frugal’, including states like the Netherlands, will be granted higher rebates.

US Weekly Jobless Claims (Thursday)

To conform to seasonal adjustments, the US labour department changed the manner of the metric measurement. The data last week showed the lowest jobless claims figure since the lockdown set in: 881,000. The total number of claims slumped from 14.49 million to 13.25 million. The improvement in the labour market is evident, though it is slow. The latest ISM manufacturing and non-manufacturing reports indicated a slight rise in employment components, but still the numbers persist in the low range.

UK July GDP (Friday)

Because the UK government did not promptly introduce economic lockdown, the first clear impact was felt in April, the first full month in the health crisis. Then, the economy suffered a contraction of 20%, which was the largest negative reading recorded ever. Afterwards, the reopening of the economy brought some improvement. The figures for May and June came out at 1.8% and 8.7% respectively. July brought a reopening of a host of restaurants, hairdressers, barbers, so business activity should mark a substantial increase. The services sector accounts for 80% of the UK’s economic output. The services PMI July report showed 60.1, which was the fastest growth recorded in years, but still starting from a low base. There has been a surge in the property market recently as well, with annual house prices increasing by 1.6% in July.

US August CPI (Friday)

After the June figure of 0.6%, and expectations of 0.8% for July, the actual increase by 1% was a surprise. There was also a rise in the core level, to 1.6%, which indicated a strong underlying demand. The Fed chairman Jerome Powell announced at the Jackson Hole Symposium that the bank has made a change in its inflation policy: from a fixed 2% target, it was altered to an average 2% target. As Mr. Powell indicated, the Fed would strive to maintain the 2% inflation for a certain time, but no specific period was pointed. So the Fed could change their policy at some point. They seem to expect higher inflation in the near future, and perhaps they will keep interest rates around zero for the next few years.