Weekly Market Outlook
This week marks the resumption of EU/UK trade talks on Monday. The most recent developments give grounds for concern about further postponement of the deadline for the agreement. On Wednesday, markets are expecting to see the fresh EU flash CPI numbers, against a background of limited monetary action from the ECB. One more highlight for the day is the UK’s final GDP for Q2. Global manufacturing PMIs are due Thursday. Friday draws investors’ attention to the most important data for the entire week: the US unemployment report. Some analysts see a marginal decrease in unemployment rate. This, of course, is far from certain, so surprises in these figures could result in high volatility.
EU/UK Trade Talks (Monday)
The future of the EU/UK relationship is uncertain, with the UK government looking prone not to abide by international law. October used to be the deadline for the ratification of the agreement between the European Union and the United Kingdom, but with talks still in progress the deadline is likely to be shifted further towards the end of the year.
EU September Flash CPIs (Wednesday)
The lack of inflation in the eurozone continues to be a serious issue for the European Central Bank. The euro’s rally in the last few months has made it even harder for the central bank to hit its 2% inflation target. While at the ECB’s recent meeting President Christine Lagarde did not explicitly address the strength of the common currency, the bank’s Chief Economist Philip Lane went as far as saying that the EUR/USD would better be kept below 1.20.
The August annualised inflation data showed a -0.2% decline. Inflation is challenging to the utmost for all central banks, and that is obvious. EU policymakers do not respond in concert, so it is becoming apparent that the boundaries of the ECB’s monetary policy actions are rather limited. On Wednesday, the September flash data could indicate a further decline in prices, although the record low of -0.6% logged in 2015 still looks distant.
UK Final Q2 GDP (Wednesday)
Wednesday will reveal the complete extent of the second quarter’s economic damage, following the impact of the stringent lockdown in April to June. The last figures released indicated a -20.4% decrease in the gross domestic product, to which April contributed the most. In the next two months, May and June, the economy struggled to resume activity, and data showed a slight shift upwards to -20%. The anticipation is for Q3 to offset about half of the losses, and the concern is whether this could be sustained during the last quarter of the year.
Global September Manufacturing PMIs (Thursday)
The economic rebound in Germany and France is apparently heading towards grinding to a halt. That was reinforced by the flash PMI data last week, in which services accounted for most of the weakness. The August PMIs for Germany showed a slowdown of services to 52.5, after the strong July data. The situation in France was similar: there was a decrease from 57.3 to 51.5.
Last week’s flash PMIs indicate that although manufacturing is resilient and going on strong, services have already lost steam. In the arduous situation across Europe about which the WHO has warned, and with the contractions in flash PMI figures for September for both France and German, Europe is heading into a long and difficult winter. With higher infection rates, and with colder weather on the horizon, increasingly tighter restrictions are hitting.
US September Employment Report (Friday)
As the payrolls report for August showed, the recovery taking place in the US labor market is slow. After the lockdown started, the unemployment rate spiked to 14.7% in April, but then fell to 8.4%. Certainly, the unemployment rate cannot be a true guide to the overall situation currently developing in the US. That was marked by Fed chairman Jerome Powell at the recent press conference: as he said, the Federal Reserve was not certain about the real level of unemployment. Furthermore, Powell said that, having in mind the data volatility, the actual rate could be 3% higher, if the numbers of people having dropped out of work and of underemployment are factored in. There are expectations for some new 865K jobs to be added in September, and unemployment is likely to continue to fall, to 8.2%.