News & Analysis

Week Ahead – Central Banks and Non-Farm payrolls

June 3, 2019

By Deepta Bolaky
 @DeeptaGOMarkets

Market Overview

It was a bad month for investors with the threats of tariffs roaring in the financial markets. The European and US stock markets fell further in the red on Friday after President Trump announced a surprise 5% tariff on Mexican goods to curb immigration.

The Canadian dollar and the Mexican Peso extended declines as the tariffs could potentially derail the new North American trade agreement.

Week Ahead

There is no doubt that attention will remain on trade tariffs headlines, but as we start a new month, the focus will be switched to high-impact economic data releases scheduled across the week and major central bank statements/decisions.

Reserve Bank of Australia

An interest rate cut from 1.50% to 1.25% is widely expected this Tuesday which would mark the first rate cut in three years. The Australian economy is faltering amid heightened global headwinds, which may force the RBA to cut rates in an attempt to stimulate the economy.

To get inflation anywhere near close to the target, a single 25 basis-point cut may have little effect on the economy. Market participants are trying to gauge how deep the RBA has to cut interest rates to stimulate the economy keeping in mind that Australians are heavily indebted and that we have an already overvalued housing market despite the recent fall in house prices.

JP Morgan issued the most dovish prediction last week with four interest rate cuts to 0.50% by 2020 due to the current global headwinds and a faltering economy.

The Australian Dollar will be in the limelight as alongside the RBA interest rate decision, there will be a series of economic data releases across the week that will help to signal the number of further rate cuts in the future:

  • Tuesday: Retail Sales
  • Wednesday: Gross Domestic Product
  • Thursday: Exports and Trade Balance
  • Friday: AiG Performance of Construction Index and Home Loans

The local currency might face some selling pressures this week, but the extent of the downside will depend on data and predictions of future interest rate cuts. 

Purchasing Managers Index (PMI)

We will have PMI figures across the globe- China, Germany, Eurozone, Canada UK, and the US. Caixin Manufacturing in China will kick-in on Monday and is expected to drop from 50.2 to 50 – closer to contractionary level.

The Markit Manufacturing and Construction PMI in the UK on Monday and Tuesday respectively will also be crucial in determining the effects of Brexit chaos on the local economy. While Sterling traders are gearing up for the election of the next leader, PMI figures will be closely monitored.

European Central Bank (ECB) 

It will be a busy week for the Eurozone area on the calendar front:

  • Tuesday: Unemployment Rate and CPI
  • Wednesday: Markit PMI and Retail Sales
  • Thursday: GDP and ECB Interest rate Decision and Monetary Policy Statement

The ECB is expected to keep interest rate unchanged, but investors will look for the extent of dovishness towards growth and inflation. The focus will be on the TLTROs as the central bank is expected to give banks fresh long-term loans to keep credit flowing to eurozone companies.

US Non-Farm Payrolls 

The release of the non-farm payrolls is generally a key driver for the US dollar, but the figures may be overshadowed by trade tensions. May jobs report is expected to remain solid with a forecasted print of 190K, but attention will likely be on the wage growth.

Traders will look for wage inflation to anticipate the Fed’s stance towards interest rates. Wage growth will be a critical input to see whether inflation is on course to its target range at 2%.

Trade Tariffs and Brexit 

President Trump sent the markets in a spin with the announcement of tariffs on Mexican goods. There is no immediate end in sight for trade tensions, and we expect trade tensions to dominate headlines in the near future. The trade war is taking unpredictable directions, which are putting investors on edge.

The President is planned to visit the UK this week at a time where the country is tied in a deadlock. However, the first state visit is coming with a few dramas already as the President was critical of the Brexit negotiations in an interview.

“If he were in the UK’s position, he “wouldn’t pay” the $50 billion Brexit divorce bill, adding “it’s a tremendous number.” 

“The UK should sue the EU, … put on the table the mistakes made by the EU that cost the UK a lot of money and a lot of harm.”

 

Tuesday, 04 June 2019
Indicative Index Dividends
Dividends are in Points
ASX200 WS30 US500 US2000 NDX100 CAC40 STOXX50
0.082 0 0.14 0.042 0 3.573 1.143
ESP35 ITA40 FTSE100 DAX30 HK50 JP225 INDIA50
0.845 0 0 0 0 0 4.691

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