The first week of the month is always jam-packed with key tier one economic data. The week starts as ever with the final Manufacturing PMIs (and ISM) for July with the Services PMIs on Wednesday. Aussie and sterling traders will be watching out for monetary policy updates from the Reserve Bank of Australia and the Bank of England. However, for US dollar traders and the Fed alike, there will be a key focus on the US labor market this week culminating in Friday’s Non-farm Payrolls report. 

  • A deluge of US data will see traders and the Federal Reserve focusing on how well the US labor market can improve
  • With final PMIs little more than confirmations of what we already know, the European focus is on the Bank of England 
  • Asian announcements focus on the RBA and China services PMI data


US: Non-farms the highlight amidst a deluge of data


The latest FOMC meeting showed that the Fed continues to look upon improvements in the labor market as a pre-requisite for moving ahead with tapering asset purchases. So this week there are several key announcements to watch out for:

  • ADP Employment (Wed 1315BST) – the private payrolls data that can indicate Friday’s payrolls report. 
  • Weekly Jobless Claims (Thu 1330BST) – continued improvement is expected but last week’s negative surprise and upward revision shows that progress in recovery is still relatively slow
  • ISM Employment component data – the employment components for both Services and Manufacturing went marginally below 50 last month (which shows slight contraction). This needs to be watched, as any further deteriorations will be concerning.

Non-farm Payrolls is undoubtedly the main focus for the week. Consensus is looking for the US economy adding another 895,000 jobs which would leave still it over 5 million jobs down from the pre-pandemic peak. The Unemployment rate is expected to have improved to 5.7% in July (from 5.9% for June). 

However, there is still considerable uncertainty over how many people may have permanently left the labor force due to early retirement. With the improved unemployment benefits being scales back and child care of the summer holidays, we and more importantly, the Fed, will know more in the next couple of months.

Market Reaction: USD volatility elevated throughout the week and especially around labor market data announcements


Europe: Bank of England dissenters in focus


With markets tending to position far more on the flash PMIs of a week ago, European final PMIs tend to be little more than confirmatory data now. The focus will be far more on the Bank of England decision.

With the BoE’s arch-hawk Andy Haldane having left the Monetary Policy Committee the voters are now down to eight. However, there is an expectation that there may still be two dissenting voices, Michael Saunders and Dave Ramsden, leaving a 6-2 split. In a recent speech, Ramsden recently cited rising inflation risks. It is also worth keeping an eye out for the GDP and CPI projections which are certainly open to upward revisions.

However, amidst all this, the UK is still in the grips of elevated COVID cases and uncertainty over what the implications are for the country. This may see a degree of caution on the MPC voters even if GDP and CPI forecasts are revised higher 

Market reaction: GBP volatility elevated on Thursday, with upside risk if a 6-2 split is seen


Asia: RBA set to pull the reins on taper prospects


COVID concerns are even greater in Australia, with Sydney and Brisbane big cities in lockdown. The Reserve Bank of Australia will likely remain cautious on policy despite higher than expected inflation data recently. As a result, the committee is likely to defer its potential tapering of asset purchases.

Market Reaction: AUD could see downside risk on RBA caution

After the negative surprise from the manufacturing sector, China’s Caixin Services PMI will be watched on Wednesday. Chinese PMIs have slipped back to only marginally above 50 (the merest of expansion) in recent months. Expectations are for marginal expansion once more, but if the service sector deteriorated below 50 this would be a jolt to a broader appetite for risk, at least during the early part of Thursday’s session.