Data and Central Banks Dominate This Week

A very big week lies ahead for the markets with huge amounts of data being released alongside a number of key central bank monetary policy decisions. The Bank of England’s decision on Thursday will also be accompanied by the release of its quarterly inflation report.

Things got off to a ropey start over the weekend as Chinese PMI readings offered further worrying insight into its struggling manufacturing industry. China’s official PMI fell to 50 – a five month low – indicating no growth in the sector while the Caixin measure, which focuses more on small and medium sized firms, fell to 47.8 – a two year low. The overall output component of the Caixin reading fell to its lowest in more than three and a half years while new export orders also declined.

None of this bodes well for a country in which the central bank has been extremely active this year, apparently to little avail. Aside from just trying to support the economy, the central bank has recently had to ease monetary conditions further to try and stop the rut in equity markets. It seems to be having a miserable time on both fronts, with the Shanghai Composite still down more than 30% and falling, and the economy struggling to hit the 7% growth target set by the government.

The Athens stock exchange will finally reopen today following a five-week closure that was imposed as part of emergency measures that included banks closing and capital controls being put in place. The Greek stock market is likely to suffer significant losses today, led by the banks which have been hit considerably by the events of this year and now need to be recapitalized at the very least.

A number of manufacturing PMI readings for July will be released this morning, with the likes of Spain and Italy seen leading the way. Spain is expected to ease off slightly to 54.2, still a very good reading, while Italy is expected to edge back up to 54.6. Meanwhile, the French manufacturing sector is expected to remain in contraction territory, having managed to record a growth reading only once in the last 14 months. U.K. manufacturing continues to suffer as a result of the strong pound which is particularly hurting exporters as their goods become more expensive making them less competitive.

The U.S. session will be equally busy today, with important inflation, income and spending figures all being released ahead of the open, followed by both the official and ISM manufacturing PMIs. The chance of a September rate hike was dealt a significant blow last week as the employment cost index showed the cost of hiring rising by only 0.2%, the lowest since 1982. This suggests that both wages and prices are unlikely to experience much growth which could deter the Fed from raising rates. We should get more insight from today’s data.

The rest of the week doesn’t ease up in the slightest. The BoE announcement on Thursday followed by the inflation report should be very interesting given the new hawkish stance that the central bank has suddenly adopted. The U.S. jobs report on Friday will also be key, with the Federal Reserve keen to see evidence that at least the labour market remains in a strong position going into year-end.

The FTSE is expected to open 17 points lower, the CAC 2 points lower and the DAX unchanged.

For a look at all of today’s economic events, check out our economic calendar.

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