Next week could be rather hectic for major markets. Markets will still be trading with elevated volatility from Fed Chair Powell’s Jackson Hole speech. However, then looking forward there is a particularly busy economic calendar, with PMIs and Nonfarm Payrolls the highlights.

Watch for:

  • US – Consumer Confidence, ISM Manufacturing & Services, Nonfarm Payrolls
  • Europe & Asia – Eurozone flash inflation, PMIs for China, Eurozone & UK, OPEC+ meeting
  • LatAm – central bank interest rates for Colombia and Chile, Brazil unemployment, GDP and PMIs

After Jackson Hole

The initial focus will be dealing with the fallout from Fed Chair Powell’s speech at Jackson Hole. If Powell is decisive in laying out a timeline for tapering asset purchases (with a possible start in October rather than December) then we expect a continuation of USD strength, with a likely correction in risk assets such as indices.

Any guidance towards the taper to begin in December is our expectation and would probably be the least volatility as it is on balance around where markets are pricing. However the most surprising would be for Powell to brush past any taper talk at all. This would cue a sharp USD correction lower, gold spiking higher and risk assets also gaining.

US data:

  • Consumer Confidence (Tue 30th August 1400GMT) down to 124.0 exp (129.1 in July).
  • ISM Manufacturing (Wed 1st September 1400GMT) a slip to 59.1 exp (59.5 in July)
  • Nonfarm Payrolls (Fri 3rd September 1230GMT) lower at 763,000 exp (943,000 in July)
  • ISM Services (Fri 3rd September 1400GMT) a mild drop to 63.0 exp (64.1 in July)

For US data, there are tier one events throughout the week. Consumer Confidence is expected to drop back to 124.0 which would be the first decline since December. The ISM data is expected to show declines in both Manufacturing (lowest since Jan) and Services (just rolling back from record highs in July).

Friday’s US Employment Situation will be the key data event of the week. After July’s extremely strong report, it will be interesting to see the August follow-up, given the rising prevalence of the delta COVID variant. Headline Nonfarm Payrolls are expected to be 180,000 lower but still at a strong 763,000. The Federal Reserve will be looking for a continued reduction in unemployment (5.2% exp) and ideally an increase in the participation rate too.

Market Reaction:

Volatility on USD throughout the week. Positioning from Jackson Hole continues and added interest around key data points, especially on Friday’s payrolls report.

Europe & Asia:

  • China Manufacturing PMI (Tue 31st August, 0100GMT)
  • Eurozone flash HICP (Tue 31st August, 0900GMT) headline increase to +2.5% exp (2.2% in July)
  • Eurozone final Manufacturing PMI (Wed 1st September, 0800GMT)
  • UK final Manufacturing PMI (Wed 1st September, 0830GMT)
  • OPEC + meeting (Wed 1st September)
  • Eurozone final Manufacturing PMI (Fri 3rd September, 0800GMT)
  • UK final Services PMI (Fri 3rd September, 0830GMT)

For the Eurozone and EUR, the main event is undoubtedly flash HICP inflation on Tuesday. Eurozone inflation has been slow to rise but is expected to have continued higher in August. Headline inflation is forecast to have increased to +2.5% but the slide back in the core inflation has been the real bane for the ECB. Inflation is not even close to where the ECB needs it to be to exit from the emergency asset purchases and negative deposit rates.

For the UK, the final PMIs for both Manufacturing and Services are expected to show little change on the flash readings a week ago. Market impact on GBP is likely to be limited.

Asian markets will be looking out for a series of PMI data. The Chinese PMIs are always closely watched and tend to have a gauge on risk appetite. However, with so much happening in the US to impact on risk, the impact may be a little reduced this time. China has been suffering from declining data trends recently. The Official Manufacturing PMI falling below 50 (into contraction) would be a worry.

Market Reaction:

EUR is to be driven off Tuesday’s inflation, but broadly assets remain focused on the US right now.

Latin America:

  • Colombia interest rates (Tue 31st August, 2000GMT)
  • Brazil Unemployment (Tue 31st August, 1200GMT)
  • Chile interest rates (Wed 1st September, n/a)
  • Brazil GDP (Wed 1st September, 1200GMT) Q2 GDP of 1.0% exp
  • Brazil Manufacturing PMI (Wed 1st September, 1300GMT)

It is a busy week for traders in South America, with two central bank interest rate decisions and a batch of tier-one Brazilian data.

The Colombia Central Bank held rates steady at 1.75% in July but there were hawkish signs that have increased potential for an increase to come. With two of seven board members voting for a 25 basis point hike in July, an upward revision to the 2021 GDP forecast and inflation pressures building, there is growing potential for a rate hike in the coming meetings. COVID risk seems to always be the caveat to this though.

Chile’s central bank increased rates by a quarter of a per cent to +0.75% in July in a move to counter the rising inflation pressures. It will be interesting to see if this is now a wait and see meeting, or whether a more aggressive monetary policy is needed.

In Brazil, there is a stack of data to drive the Brazilian real. Starting with Unemployment on Tuesday, Wednesday growth numbers are expected to show Q2 growth at +1.0% after Q1 saw +1.2% growth. The HSBC PMI will also be key for building a picture of how Q3 is shaping up.

Market Reaction

COP to move on the Colombian central bank rates decision, especially if there is a hike

CLP to move on Chilean central bank rates decision

BRL volatility will be elevated with the key data on Tue and Wed