Under normal market conditions, the sell-off on Thursday would be hardly worth mentioning. But in light of U.S. stocks’ seemingly unstoppable upward climb, headlines with words like “rout” and “crushed” to describe the modest decline are indicative of the concern among investors that they have overstayed their welcome. Next week’s September employment report, scheduled for release on Friday, stands to rile more nerves over the possibility of U.S. Federal Reserve starting monetary tightening earlier than expected. It appears that market participants have not yet decided when exactly to adjust their risk exposures amid the evolving global macroeconomic environment.
Monday, September 29: Multiple key consumer data points are scheduled for release in Europe, including August consumer credit in the U.K., retail sales in Spain, euro zone September consumer confidence index levels and the September German consumer price index. Also on deck for the start of the work week are the European Commission indexes for business climate and economic sentiment. In the U.S. August personal consumption expenditures (PCE) data will lend similar insight, with forecasts for a marginal uptick in personal income and a rebound from a month-over-month contraction in household spending in July.
Tuesday, September 30: In Japan, analysts will parse carefully August industrial production and employment data for any signal that the recent slump in activity is on the mend. There will be a particular focus, however, on retail trade data, for any hint of a rebound from the tax hike this spring. August Japanese vehicle production data will be released later in the day. On the macro agenda in China is the second release of September HSBC data, with any contraction from the disappointing initial measures likely to reverberate across base-metal markets. In Europe, eyes will be on French consumer spending for July and German employment for September, as well as euro zone aggregate CPI. In the U.S., Conference Board consumer confidence index levels for September stand to be the day’s primary economic release of note. U.S. retailer Walgreens will report fiscal fourth-quarter 2014 results on Tuesday. The Deerfield, Illinois–based firm’s stock is down by nearly 20 percent so far in the second half as it continues to digest its merger with U.K. pharmacy chain Alliance Boots.
Wednesday, October 1: Markit released September manufacturing PMI data for primary European Union economies. In the U.S. Institute for Supply Management (ISM) will announce manufacturing data for September. Wednesday is also the start of a three-day market holiday in China.
Thursday, October 2: Investors will be scrutinizing August Australian trade balance data for August for trends in Chinese demand for raw materials, notably base metal ore. August euro zone producer price index (PPI) data will be released ahead of the ECB rate decision on Thursday, with consensus forecasts calling for a month-over-month contraction in prices at the factory gate, continuing the euro zone’s deflationary trend. Weekly initial jobless claims in the U.S. are to be released at 8:30 am. Last week’s slight negative surprise on this data point did not disrupt the long-term average positive trend.
Friday, October 3: Markit will release September manufacturing PMI data for primary EU economies, with overall grim forecasts. The biggest macro data point for global markets will arrive on Friday morning with the U.S. Department of Labor employment report. Expectations are for a rebound in nonfarm payrolls from August levels, the lowest level of the year. Any surprise is likely to ripple through the bond and equity markets.
Portfolio Perspective: U.S. Employment Data Takes Center Stage — Derek Holt, Scotiabank
Was the August nonfarm payrolls report of 142,000 more jobs just an aberration on a solid, long-run trend or was it the feared harbinger of a false start happening all over again? That will be the question of the week — one that will take until Friday to answer. The outcome may go a long way toward determining whether the Fed reconciles its dot-plot chart for rate hikes starting next year; keeping the guidance that rates hikes will commence a “considerable time” after ending the bond purchase program by dropping those two words from its statement language. That could happen as soon as the October 29 Federal Open Markets Committee meeting. But we think a stronger case can be made for the December 17 FOMC, depending on the near-term data flow. If “considerable time” gets cut, then we’d likely see mitigating steps like heightened data dependency and some alternate wording on which markets can wait with bated Shakespearean breath. Oh, and as for our call, we think September nonfarm payroll growth will be at about the 240,000 mark. We caution that the 90 percent confidence interval on nonfarm is about 95,000 so just as random noise might have explained the slowdown in job growth, it could also explain a bounce back up next week — even if markets couldn’t care less about this perspective. So far the Fed’s bias to look through the July jobs print has merit but another disappointment might call that into further question.
Derek Holt is a vice president in capital markets research at Scotia Economics, part of Scotiabank, in Toronto.
