September 1 2013

Sept. 1, 2013 ( – Although shortened by the Labor Day holiday, the week ahead promises to deliver a busy start to the month of September as traders watch the monetary policy decisions by five major central banks and dissect the results of the U.S. Non-Farm Payrolls report to gauge the odds of a taper announcement at the Fed’s upcoming September 17-18 meeting.

In preparation for the new trading week, here is the outlook for the Top 10 spotlight economic events that will move the markets around the globe.

1.    AUD- Reserve Bank of Australia Interest Rate Announcement, Tues., Sept. 3, 12:30 am, ET.

After reducing the benchmark rate by 25 bps last month, the Reserve Bank of Australia will not be in a hurry to cut rates again in September. But this doesn’t mean that the central bank is completely done with the rate cuts going forward, especially if the “two-speed” Australian economy continues to underperform because of slowing demand from China and other big trading partners. If this is the case in the months ahead, the Reserve Bank of Australia could be forced to announce another 25 bps rate cut by the end of the year. The Aussie dollar has fallen significantly in recent months and could stay under pressure if the central bank makes it clear that policy makers are keeping the door open to further monetary policy easing.

2.    USD- U.S. ISM Manufacturing Index, a leading indicator of economic conditions measuring activity in the manufacturing sector, Tues., Sept. 3, 10:00 am, ET.

Manufacturing activity in the U.S. has regained traction after the index unexpectedly dropped in contraction territory with a reading of 49.0 in May, but we could see a small pullback to 54.2 in August from 55.4 in July.

3.    EUR- Euro-zone GDP- Gross Domestic Product, the main measure of economic activity and growth, Wed., Sept. 4, 5:00 am, ET.

In the second quarter of the year, the euro-zone economy finally ended the six quarters long recession. The revised estimate is expected to confirm that the economy returned to growth and expanded by 0.3% q/q in Q2 after contracting by 0.2% q/q in the first quarter. The end of the recessionary period and the expansion of the manufacturing and services sectors have managed to instill optimism that the economy might be turning a corner. The EUR could continue to benefit from such expectations until the Fed begins to reduce the size of its monthly asset purchases.

4.    CAD- Bank of Canada Interest Rate Announcement, Wed., Sept. 4, 10:00 am, ET.

The Bank of Canada will not be an exception from all other major central banks that are not in a rush to call the end of the easy monetary policy cycle. Policy makers will be likely to leave the benchmark rate at the current 1.0% level. Compared with the rest of the major central banks, the Bank of Canada and the Reserve Bank of New Zealand still remain as the most likely candidates to hike rates. However, such decisions would probably be pushed further into 2014, maybe even 2015.

5.    JPY- Bank of Japan Interest Rate Announcement, Thurs., Sept. 5, around 12:00 am, ET.

Economic conditions have improved and inflationary pressures have risen in the last couple of months, creating an environment in which the Bank of Japan wouldn’t need to get more aggressive for the time being. However, the central bank will be likely to reaffirm its commitment to open-ended QE until the 2% inflation target is in sight. As the monetary policies of the Fed and the Bank of Japan diverge in the months ahead, the U.S. dollar should be able to resume its bullish trend against the yen.

6.    GBP- Bank of England Interest Rate Announcement, Thurs., Sept. 5, 7:00 am, ET.

With the U.K. economy and its largest trading partner the euro-zone improving, the Bank of England has no urgency to ease monetary policy further and will maintain the benchmark rate and the size of the Asset Purchase Program unchanged in September and maybe into the final quarter of the year. The bank’s forward guidance will keep the pound’s future direction closely linked to the results of upcoming economic data, with the GBP strengthening on good reports and facing weakness if the data disappoints.

7.    EUR- European Central Bank Interest Rate Announcement, Thurs., Sept. 5, 7:45 am, ET.

Activity in the euro-area has been picking up, ending the chronic contraction in euro-zone’s manufacturing and services sectors. But the 17-nation economy is still struggling with record high unemployment and such economic backdrop will not be supportive of the European Central Bank tightening monetary policy anytime soon. The USD should be able to regain its strength against the EUR as the Fed gets ready to take the first step towards monetary policy tightening while the European Central Bank remains stuck in an easing mode.

8.    USD- U.S. ADP Employment Report, a measure of job creation in the private sector of the U.S. economy, Thurs., Sept. 5, 8:15 am, ET.

Following the increase to 200K in July, job creation in the U.S. private sector is forecast to slow to 180K in August. A better than expected data should set an optimistic mood going into the non-farm payrolls report on Friday and could give the USD a boost.

9.    USD- U.S. ISM Non-Manufacturing Index, a leading indicator of economic conditions measuring activity in the services sector, Thurs., Sept. 5, 10:00 am, ET.

A sequence of softer ISM reports throughout the week could continue with a retreat in the Non-Manufacturing Index to 55.2 in August compared with a reading of 56.0 in July.

10.    USD- U.S. Non-Farm Payrolls and Employment Situation, the main indicator of U.S. economic health measuring job creation and unemployment, Fri., Sept. 6, 8:30 am, ET.

After a weaker than expected reading for July and the downward revisions for May and June, we could see stronger job creation in August with the economy forecast to add up to 180K jobs compared with 162K in the previous month, while the unemployment rate stays at 7.4%. An upbeat NFP report could trigger a U.S. dollar rally on expectations that tapering of monthly asset purchases may be announced right after the Fed’s two-day meeting on September 17-18.