Economic Analysis

After markets were hit hard by the non-farm payrolls, traders and investors are less clear on whether the Fed will begin tapering at the end of the month during the September FOMC meeting. August added 235,000 jobs to the economy, versus estimates of +750,000. There is a slew of central bank meetings this week to focus on, including the Reserve Bank of Australia on Tuesday, the Bank of Canada on Wednesday, and the European Central Bank on Thursday! The Reserve Bank of Australia and the Bank of Canada have already begun tapering off. Will they continue? Meanwhile, the European Central Bank will discuss whether they should scale back their bond purchases. And the August jobs data is just getting started. It's Canada's turn this week as it reports the hiring change on Friday!

non-farm payroll

Friday's Non-Farm Payroll report showed that the economy added 235,000 jobs to the economy versus an estimate of 750,000 additional jobs. There was an upward adjustment for the July release, from +943000 to 1053000, but that wasn't nearly enough to offset the significant decline this month. In addition to the headline non-farm payrolls report, the unemployment rate fell to 5.2% from 5.4%, while average hourly earnings rose 0.6%. Accordingly, the US dollar fell. However, the stock indices initially also moved lower. (Usually, one would expect stocks to rise in the quantitative easing world in which we live.) Index traders may be starting to worry about the bad data. Over the next three weeks, traders will consider and position themselves for the Federal Reserve's September 22nd meeting. As at the Jackson Hole Symposium, Powell noted that there is still a lot to do in order to reach maximum employment, which is the target set by the Fed to begin tapering off. Does bad nonfarm payroll data meet this criterion? Note that initial jobless claims have been at their lowest level since the pandemic began last week and have printed below 400,000 over the past four weeks!

Central banks under the microscope

This week will be attended by 3 central bank meetings, including the Reserve Bank of Australia, the Bank of Canada and the European Central Bank. At their meeting in July, while in the middle of nationwide lockdowns due to the coronavirus, the Reserve Bank of Australia left bond-buying at A$5 billion a week. However, they indicated that they would reduce their bond-buying program to A$4 billion per week in the early September meeting. Will they follow through on that commitment, or has the virus taken such a heavy toll, that it could prompt them to wait until the next meeting?

The Bank of Canada is expected to leave bond purchases unchanged at their meeting this week. At the July 14 meeting, the central bank cut its bond purchases from C$3 billion per week to C$2 billion per week. Unfortunately, the August hiring change won't be reported until Friday, two days after the meeting. The latest release of the Producer Price Index was negative. There is also an election on September 20th. Will the Bank of Canada Technical Options Committee backtrack again, or would it prefer to wait for better data until after the election?

There will be a lot of discussion at this week's ECB meeting. ECB members, both passive and positive, hit the reaction last week to make their views clear on whether the central bank should scale back its bond purchases. Under the European Central Bank's Pandemic Emergency Purchase Programme, the ECB can buy up to 1.85 trillion euros in bonds, at any pace it sees fit. Since March, the commission has been buying nearly €20 billion per week. At the July meeting, the European Central Bank changed its inflation guidance. They changed the wording to target "symmetric 2%", rather than "close to 2% but less than 2%". They also noted that there may be a transition period in which inflation will be moderately above target, however, they expect it to fall to 2% in 2022. In addition, Christine Lagarde indicated in her press conference that the European Central Bank will not Raises rates if inflation. less than 2%. The August inflation rate released last week was 3%.

Economic data

The main thing to look forward to this week is the aforementioned central bank meetings and important events also include business opportunities on Wednesday ahead of Fed William's speech in the US. Moreover, the weekly jobless claims are also important. Other than that, US PPI data on a monthly basis may also lead to volatility on Friday. This figure is expected to fall to 0.6% versus the previous month's reading of 1.0%.