Weekly Market Preview

A fairly busy week ahead in the markets, where a particularly interesting week for the US gives way to a more UK and global focus. As such, the US will only have the likes of the trade balance figure to look forward to. Conversely, the UK markets will be having a wide range of economic announcements in sight, where the services PMI could make up the most interesting of these. European focus will likely look towards the ECB press conference on Thursday where Mario Draghi could bring yet more volatility to the markets.

In Asia, Friday marks the day to be watching out for, where Chinese trade data is joined by the latest monetary policy from the Bank of Japan. Finally, a massive week for Australia sees the jobs report take centre stage amid multiple notable releases.

US

A somewhat less interesting week ahead in terms of economic releases in the US, where the impact of the recent FOMC announcement and jobs report data is just as likely to continue impacting the market as the upcoming new data is. The two major releases I will be looking out for are Wednesday’s trade balance data and the release of labour market data on Friday.

The trade data has become more and more important to gauge exactly how much the US export market is growing in response to the boom in shale oil and gas. This made a profound effect upon the value to outward trade in 2013 where the trade balance peaked at -$34.54 billion, coming off sub -$60 billion levels back in 2009. However, this has come back somewhat and there is an expectations that the figure will fall moderately to -$44.70 from -$44.39. Be aware of any major miss on this headline figure and also be aware of the full breakdown of imports and exports to gauge how domestic businesses are faring.

Later in the week, the release of preliminary non-farm productivity and unit labour costs provide a belated look at some of the alternate measures of labour market slack. The Fed and BoE alike are very keen on alternate measures such as part time work, the participation rate and alike. Given their new form of forward guidance, alternate measures of labour slack are almost as keenly followed as the headline payrolls and unemployment figures. Subsequently, they are certainly worth watching out for. In general, the link is that strong labour costs and strong productivity growth would be deemed conducive to an earlier move on rates, whereas poor figures would likely confirm a longer and more accommodative stance at the Fed. Markets are expecting them to both post a positive figure, yet with poor numbers arising at Fridays jobs report, I believe any surprises could be to the downside.

UK

The UK looks alot more busy this week, where last week’s manufacturing PMI figure on Friday means that we have the remaining construction and services releases in the early part of this week. This is joined by the BoE monetary policy decision which is due on Thursday where Mark Carney is expected to keep rates and asset purchases constant.

The release of PMI figures is going to dominate the early part of the week, where the construction and service sectors are back in the spotlight. As usual, the more important of these two releases will be the services PMI which provides a gauge of how purchasing managers view the sector in terms of employment, demand, supply and alike. In general, we expect to see the strongest market response from this figure owing to the fact that the services sector makes up more than two thirds of total UK output. Subsequently, whilst manufacturing and construction is important, if the services sector isn’t optimistic, it is a massive cause for concern. However, this month looks a positive one, where the market expectations point towards a figure around 58.1 from 57.7.

Whilst the services PMI is the most important, this does not mean you should necessarily completely discount the remaining releases and I will be watching the construction PMI figure closely at a time when the sector is both booming but at risk of cooling down significantly. Mark Carney’s insistence that the housing market remains as the biggest risk to the UK recovery means that people are becoming weary of a BoE induced slowdown. Recent measures that have been introduced are unlikely to significantly quell the market, however with higher rates around the corner, mortgage providers are likely to start factoring this into rates and thus many will begin to find the market unaffordable. This potential weakening of the construction sector is expected to be reflected in the PMI figure, where expectations point towards a fall from 62.6 to 62.1.

Finally, the BoE monetary policy decision on Thursday is expected to bring more of the same from Mark Carney, where asset purchases and interest rates are likely to remain steady. For this reason, there is a high possibility that this is somewhat of a non-event. However, be on the look out for any signs of a more accurate timeline on interest rates when the statement is released. This is likely to be the only possible driver of volatility for the event.

Eurozone

The eurozone focus is likely to be dominated by Thursday’s ECB announcement, where Mario Draghi once again takes the stand once more. Draghi’s discussion will be predominantly focused upon how eurozone monetary policy is shaping up in response to a ongoing threat of deflation. I do not expect to see any more policy changes from the ECB this month and thus Draghi’s testimony will be absolutely key. With inflation having fallen to 0.4% recently, there is certainly a threat as we progress, but I believe the consensus is that the ECB will wait for another quarter to see if any of the recent measures introduced will make a positive effect upon inflation. As such, I will be looking out for the press conference to give clues as to at what point Draghi sees it fit to give up on the recent measures and instead embark upon a round of asset purchases as a means to push up prices.

Asia & Oceania

A somewhat quiet week in China sees the release of trade data make up the most notable of all releases. However, it is a little more interesting in Japan, where the BoJ’s monetary policy stance comes back to the fore.

On Friday, the Chinese trade balance is expected to bring about further clarity over exactly how the Chinese export market is developing at a time when manufacturing appears to be picking up again. It is typically the case that people are watching for the actual trade balance figure to get an idea of how the Country’s exporters and importers are faring. However, by looking at the actual progression of separate exports and imports, you can get a much more clear understanding of where the economy has been growing or shrinking in terms of trade. The headline trade balance is expected to fall from $31.6 billion to $26 billion. However, look out for the exports (7.2% last month) and imports too (5.5% last month).

In Japan, the latest BoJ monetary policy announcement is due on Friday, with expectations pointing towards little change from last month. The feeling is that data points show stronger than expected consumer activity following the April sales tax hike and this has been one of the major threats to the economic recovery for Japan. Thus with that out the way, I think the major threats that could push the BoJ towards further easing in the future would be a strong yen and too low inflation. However, there seems to be confidence on both matters that fears within the markets are overdone somewhat and thus there is unlikely to be any action in the near future. However, look out for any hints that the BoJ would be willing to act should any of these factors become more of an issue than is currently the case.

Finally, in Australia there is a major week ahead with the release of jobs data, monetary policy decisions and trade data to look out for. The most important of these is likely to be the jobs report on Thursday, given the unexpected rise to 6% unemployment last month. The government and RBA have been gearing the economy more towards domestic consumption and less towards export markets in the past year. However, this was always likely to be difficult given the strength and size of the Australian commodity and mining business. The recovery in the Australian dollar throughout 2014 recognises the confidence that has been coming back into this market and thus there is a belief that Australia is going to have a strong H2 with a resurgent China also coming into play. However, this needs to be reflected in jobs and for that reason Thursday’s release is absolutely key. Market estimates point towards the main unemployment rate remaining at 6%, while the employment change figure is expected to fall back from 15.9k to 13.5k.

The RBA rate decision on Friday is very likely to be somewhat of a non-event after last month’s very clear outline of a stable outlook for Australian monetary policy going forward. I am sure that the RBA would like to be able to push their dollar lower by enacting a looser monetary policy. However, much like the UK, Australia has clear threats from a booming housing market and thus I do not see them moving in any direction for the remainder of 2015.