Weekly Market Preview

Back to a focus on economic factors this week, following a predominantly geopolitical week just gone. Russian sanctions and progression of the Gaza conflict remain an underlying threat to markets, yet much of this seems to now be factored in. From an economic standpoint, the release of the US jobs report means that markets will be on guard for substantial volatility as we progress. In the UK, the manufacturing PMI figure dominates what is a pretty quiet week in stark contrast to the action in the US. The eurozone focus will almost certainly be placed upon the release of the latest CPI figures early on Thursday as Mario Draghi watches on.

In Asia the Chinese manufacturing PMI will be viewed as a potential market booster following strong readings coming out of the region, while Japanese consumption data will shed yet more light on the impact the April sales tax had upon spending.

US

By far and away the busiest nation of all those in view, the US is braced for a handful of market moving releases in the form of the FOMC monetary policy decision, along with GDP and jobs data. This is joined by the pending home sales data, a consumer confidence survey and the manufacturing PMI figure which add up to an all-round interesting week.

On Wednesday, the first of the jobs data is released, with the ADP non-farm payroll figure expected to provide an insight into the potential direction of employment trends in July. On one side, it is well known that as a indicator of Friday's headline figure, this may not be too reliable. That being said, the two measures have become more consistent in recent months, with the June release coming within 7k of the headline 288k figure. Thus with many people still relying on this as a key gauge of the jobs market health, we have seen substantial volatility in the past. As such, watch out for this figure where any major release wide of expectations could bring some notable price action. Expectations point towards a pullback to 241k from the bumper 281k figure seen last month.

Only 15 minutes after the ADP figure, the release of US advance GDP gives us the first insight into possible growth seen throughout Q2. After a particularly poor weather driven Q1, the markets are expecting to see a marked pick-up in growth in the second quarter of the year. Much like the UK, signs are pointing towards a particularly strong past few months in the US, where employment conditions have picked up to accompany growing business revenues and consumption. The strength of the US shale boom has meant that they are now the world largest exporter of oil and whilst that has been showing in the export figures, we should finally be able to see this strength reflected fully in the growth data again. Market expectations point towards a reversal from -2.9% to 2.9% on the annualised figure.

The third major event to happen on an action packed Wednesday will be the latest decision from the FOMC regarding monetary policy. Now unlike previous occasions, this seems somewhat of a foregone conclusion owing to the fact that the Fed have already notified the markets that the path of tapering is set to end asset purchases in October with a final cut of $15 billion. However, with that knowledge the focus is now upon interest rates and understanding what type of timeline Janet is going to have for the first hike. Previous testimony has pointed towards there being a considerable time. However, with jobs data improving faster than expected, there is the possibility that we could see rates rise earlier than expected. Thus markets will be expecting to see a $10 billion taper and more importantly, traders will be looking out for any timeline for interest rate hikes. That being said, given that this meeting occurs prior Friday's jobs report, there isn't too much additional data to go on after the last time we heard from Yellen in Washington. Thus there is a risk that we may hear much of the same.

On Friday, the jobs report is expected to bring about the usual volatility back to the markets. In what has been a particularly slow period in the markets, the US jobs report is one of very few releases which are a reliable source of volatility and price action. With Janet Yellen stalling on providing any sort of concrete guidelines for when interest rates are set to hike, the feeling is that this will be largely determined by how quickly the employment conditions improve. Thus should we see another particularly strong report like last month's I would expect the markets to start pricing in an earlier rate hike. Expectations point towards a more steady month from an unemployment standpoint, remaining at 6.1%. However, the non-farm payrolls figure is where the volatility is likely to come from, with expectations pointing towards a major fall back to 230k from 288k in June. That being said, in my mind this sets the markets up nicely for a beat and strong reading. The past three months have seen an average reading of 264k and thus there is certainly a good chance of a higher figure than 230k. However, much of the time the initial figure is revised higher at the following month's announcement and thus even if we did see a lower number, watch out for revisions to the previous month's reading.

UK

In stark contrast to the US, the UK has a very quiet week from an economic standpoint, looking for the manufacturing PMI to provide some form of interest later in the week. Typically joined by the construction and services figures, this time the releases are split out across separate weeks. The manufacturing sector is certainly not the mainstay that it is in the likes of the US or Germany. However it has been performing particularly well throughout the past year, as manufacturers take advantage of a low interest rate environment. Orders both domestically and particularly internationally have been strong despite the existence of a strong pound. However, markets are expecting to see this reading move lower with the median forecasts coming in at 57.2 from the 57.5 seen last month.

Eurozone

The week also looks a little thin on the ground for the eurozone where the most important release to watch out for will be the CPI figure on Thursday. However, this is released in tandem with the unemployment figure which is expected to raise some interest.

The eurozone CPI measure of inflation is always one of the biggest releases of the month given the fact that Mario Draghi has effectively been forced into an expansive monetary policy off the back of a persistent disinflationary environment. Despite cuts to the headline interest rate, price stability remained elusive and as a result Draghi has implemented a whole raft of measures such as TLTRO's, the end of sterilisation of bond purchases and negative deposit rates. However, these measures have to start making an impact to inflation, and soon. Otherwise the potential of an asset purchases scheme for the whole eurozone could become very real. At 0.5%, the inflation rate is at the lowest rate since late 2009 and any further fall could be a shock to the system for those at the ECB who expect to see the measure gradually move to the upside in the coming months. I would expect to see strength in the euro should the CPI figure move higher, or conversely a poor figure would likely weaken the euro owing to the expectations of a potential move towards QE at the ECB down the line. Markets are expecting no move in the figure from the current 0.5%.

Eurozone unemployment is a key gauge of exactly how the single currency region is faring following such a protracted downturn. However, signs are pointing towards a gradual strengthening with even the Spanish unemployment rate providing a positive surprise recently. The eurozone figure has been faring better than many expected with the past five figures beating market forecasts. As such, I wouldn't be surprised to see another beat this month with markets looking for the rate to remain 11.6%. That being said, with pretty much all the other major economies looking at figures closer to 6%, the eurozone clearly still has a long way to go before we can look at it with any confidence in terms of a solid recovery.

Asia & Oceania

The main event of the week within Asia is likely to be the manufacturing PMI figure out of China, following on from some increasingly positive releases out of the region. Meanwhile, the Japanese consumer habits come back into focus this week when the household spending and retail sales figures are released on Tuesday.

Friday's manufacturing PMI from China is likely to raise substantial global attention given the importance of the Asian powerhouse. Recent strength in both the headline and HSBC manufacturing PMI figures have given greater confidence that the region is starting to pick up and following yet another strong HSBC figure, we expect to see more of the same this week. The headline figure focuses more on the larger and state backed firms, which are expected to fare better than their smaller counterparts. However, it is crucial that they do fare well given the impact any weakness can have upon the economy. Market estimates point towards a rise from 51.0 to 51.4.

Finally, the Japanese consumers come back into focus this week where retail sales and household spending figures seek to provide clarity over the longevity of the after-effects of April's sales tax. Initial signs have pointed towards a moderate pullback in spending which has led some within Japan to cite a potential second hike which will be discussed in December. Such a move closer to 10% would require solid consumer figures well ahead of December. Looking at the market forecasts, the story looks mixed, with retail sales expected to remain at -0.4% while household spending is expected to trim back from -8% to -3.8%. Generally we are just looking for signs of improvement as we go forward to show that the negative effect of the sales tax is only temporary. Should that be the case, there is a strong case for further tax hikes down the line given the huge debt to GDP ratio that needs to be addressed.