Weekly Market Outlook

The week ahead is relatively poor in terms of economic data figures. This time, we start on Tuesday with the RBA rate meeting. Then on Thursday, the interest is drawn on Global Services PMIs for August. On the same day the US will release on their weekly jobless claims. The entire week’s focus will be on the key US non-farm payrolls report due on Friday.

Reserve Bank of Australia Rate Meeting (Tuesday)

Further quantitative easing is likely on part of the RBA, with interest rates having plummeted to a record low of 0.25%. There have been some negative factors brought by rising infection rates in Victoria state and lockdowns owing to the virus spreading. But even after factoring in some slowdown in the services sector in July, the general situation in Australia has not been grim. The unemployment rate was affected slightly and climbed up to 7.5%, its highest since 1999. By the year end, further deterioration is expected in this respect.

The unemployment increase is the sole indicator on the basis of which further easing is anticipated. On the other hand, the weaker US dollar has dragged up the Australian dollar, which rose substantially and is already over 20% off the lows registered in March. Whether some of the Aussie gains would be reversed is something that remains to be seen fairly soon.

Global August Services PMIs (Thursday)

Judging from the recent flash PMIs for Germany and France, August data for the services sector could show a plateau throughout Europe. That is a reason for concern, especially for typically tourist countries like Spain and Italy, which primarily depend on tourism in the summer season. Quarantines and other coronavirus related restrictions have been recently resumed, so August figures for the economies are expected to show an end to their recent recoveries. On the other hand, there have been improvements in the services sector in countries like the UK and the US, and China has also kept up good data.

The slowing down of business activity in Europe is obvious. In Spain and Italy expectations point toward a steep slowdown, following the slump in flash PMIs in Germany and France. As for the UK, expectations are a little more optimistic, although in terms of recovery the country is a bit behind Europe. The median forecast for the UK is 60.1. A slowdown is expected for France and Germany: 51.9 and 50.8, respectively. For Spain and Italy, the numbers are likely to hover around their previous values of 51.9 and 51.6.

US Weekly Jobless Claims (Thursday)

As in the end of July the unemployment benefits rose to $600 a week, there was a concern that weekly jobless claims could rise as a result. It is already starting to appear that such a concern is justified.  A few weeks ago, weekly claims shot up sharply by 130K, soaring from 963K to 1.1 million. In the past week, the data stabilized to around 1m. But if no new fiscal measures are adopted by US politicians, the unemployment claims will probably keep on rising. The labour market is facing risks to which politicians appear to be oblivious, plunged into the ongoing presidential election campaign.

US Non-Farm Payrolls (Friday)

The July payrolls report showed the US labour market recovering at a bit more robust rate than initially anticipated. More than 1.7 million jobs were added in a situation of concern over rising infection rates which delayed the reopening of businesses in a host of US states. The highlight in the July recovery was the data of jobs rejoining in retail and restaurants, sectors that bore the heaviest burden of pandemic related measures.

This time, the unemployment rate is the item of the August report which most of the attention will be focused on. The resuming of work has comprised 9.2 million jobs so far, following the record plummeting in April, when 20.7 million jobs were lost. Further recovery if firmly, on the table may be anticipated until the US economy rebounds to reach a level of sustainable economic activity.