Global Market Overview
- U.S. markets will be closed on Monday in observance of Labor Day, making it a shorter trading week.
- On Friday, U.S. stock indexes closed with a mixed performance. The Dow Jones Industrial Average increased by 0.33%. The S&P 500 Index posted a modest gain of 0.18%, while the NASDAQ Composite Index experienced a slight decline of 0.02%. Small-cap stocks, represented by the Russell 2000 Index, had a notable rise, surging by 1.10%.
- Brent crude oil prices closed the week at $88.6 per barrel, marking a 5.5% increase. This rise was driven by expectations that OPEC+ leaders’ production cuts would tighten the market.
- The S. 10-year Treasury yield ended the week at 4.18%, reflecting a 6 basis point decrease. The 2-year Treasury yield, which is more sensitive to changes in monetary policy, concluded the week at 4.88% after a 20 basis point drop.
- European indexes had mixed performance, with the STOXX Europe 600 Index down 0.01% and the FTSE 100 Index up 0.34% from the previous close.
- In Asia, stock indexes were up with Japan’s NIKKEI 225 Indexup 0.28% and China’s Shanghai Composite Index rising 0.43%.
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US Market Outlook and Economic Events
On Friday, employment market data for the U.S. was closely monitored, including non-farm payrolls, unemployment rates, and average hourly earnings for August.
Non-farm payrolls increased from 157,000 to 187,000, reaching the highest level in the past three months. However, the data for the previous month was revised downward by 30,000. This was in line with expectations of a slight slowdown in job growth from 187,000 to 170,000. While non-farm employment increased in August, it remained below the 12-month average of 257,000, with most of the growth coming from the private sector (an increase of 179,000), while the public sector saw limited growth (an increase of 8,000) and the mining sector experienced job losses.
The unemployment rate unexpectedly rose from 3.5% to 3.8% in August, marking the highest level since February 2022. The number of unemployed individuals increased by 514,000 to 6.36 million, while the number of employed individuals rose by 222,000 to 161.5 million.
The labor force participation rate also increased from 62.6% to 62.8%, the highest level since February 2020.
In terms of inflation, average hourly earnings, reflecting wage growth, decreased from a monthly rate of 0.4% to 0.2% in August, lower than the expected 0.3%. This marked the lowest level since February 2022, with the annual growth rate dropping from 4.4% to 4.3%. These data indicate a partial slowdown in wage-related inflationary pressures.
When assessing the economic prospects of the United States, analysts delved into August data, which encompassed the conclusive S&P Global Manufacturing PMI and the ISM Manufacturing Index.
The manufacturing PMI increased slightly from 47 to 47.9, indicating a slowdown in the rate of contraction in the manufacturing sector. However, factors like declining new orders and production continued to keep the sector in contraction for the fourth consecutive month.
The ISM manufacturing index increased from 46.4 to 47.6, suggesting a slight deceleration in the manufacturing industry’s contraction. Weak demand and a drop in new orders, however, kept the sector in contraction for the tenth consecutive month.
US Economic Calendar Highlights for the Week Ahead
Service Sector PMI and Non-Manufacturing Index
Looking at the U.S. data calendar for this week, data that will provide signals regarding the recent economic activity will be followed on Wednesday. This includes the final August S&P Global services sector PMI and ISM non-manufacturing index.
According to preliminary data, the service sector PMI declined from 52.3 to 51 in August, surpassing expectations, indicating a slowdown in the service sector’s growth. However, it has remained in the growth zone for the past seven months, albeit showing the weakest growth since February. Despite staying in the growth zone in August, service sector firms reported the slowest increase in activities in the past six months. Notably, this slowdown was attributed to rising interest rates and inflationary pressures putting pressure on consumer spending, with the fastest decline observed in newly acquired business since the beginning of the year.
ISM Non-Manufacturing Index
In July, the ISM non-manufacturing index declined from 53.9 to 52.7, exceeding expectations, suggesting a slowdown in non-manufacturing sectors. However, it continued to show growth for the seventh consecutive month.
Durable Goods Orders and Factory Orders
On Tuesday, the final data for durable goods orders and factory orders for July will be observed. Durable goods orders, after recording a strong monthly increase of 4.4% in June, extended their rise into the fourth month. However, according to preliminary data, they fell by a higher-than-expected 5.2% on a monthly basis in July. Looking into details, a significant drop in orders for non-defense aircraft and parts (a decrease of 46.6%) played a crucial role in the significant drop in durable goods orders, while orders for non-defense capital goods excluding aircraft, a gauge of business investment, showed a monthly increase of 0.1% in July.
Factory orders, after increasing by 2.3% on a monthly basis in June, in line with expectations, extending their rise into the fourth month, are expected to show a 2.5% monthly decline in July.
Trade balance data for July will be released on Wednesday. In June, reflecting weakening global demand, exports fell by 0.1%, declining to $247.5 billion, marking the fourth consecutive month of decline and maintaining the lowest levels since March 2022. Imports, on the other hand, fell by 1% on a monthly basis in July due to high inflation and rising interest rates negatively impacting domestic demand, dropping to $313 billion, the lowest level since November 2021. Consequently, with the monthly decline in n outweighing the decline in exports, the monthly trade deficit decreased from $68.3 billion to $65.5 billion. In July, it is expected that the monthly trade deficit will increase to $68 billion.
Weekly Initial Jobless Claims
Furthermore, on Thursday, data regarding weekly initial jobless claims, a key labor market indicator, will be monitored. The latest weekly initial jobless claims, despite expectations of a slight increase, fell from 232,000 to 228,000, remaining below historical averages and indicating continued tightness in the labor market.
Federal Reserve’s Beige Book Report
On Wednesday, the Federal Reserve’s Beige Book report, compiled from economic data from its 12 regional districts, will be published. The report will provide current assessments of the U.S. economy and expectations for the future. Throughout the week, speeches by Federal Reserve members will also be closely monitored for potential signals regarding monetary policy.
Bank of Canada’s Meeting
Additionally, the Bank of Canada’s meeting will be observed on Wednesday. In its July meeting, the bank increased the policy rate by 25 basis points, in line with expectations, to the highest level since 2001, at 5%. In this week’s meeting, it is expected that the policy rate will remain unchanged at 5%.
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European Economic Outlook and Economic Events
Manufacturing Sector PMI Data
In August, final PMI data for the manufacturing sector (HCOB) across Europe provided insights into the recent economic situation. Manufacturing PMIs in the region continued to contract below the 50 threshold due to tightening financial conditions and weakening demand, influenced by the European Central Bank’s (ECB) ongoing interest rate hikes. In this context, manufacturing PMIs in August remained at 39.1 in Germany, in line with preliminary data, indicating a sustained contraction in the manufacturing sector. Meanwhile, in the Eurozone, PMI decreased from 43.7 to 43.5, and in France, it dropped from 46.4 to 46, signaling a slight increase in the pace of contraction in the manufacturing sector. However, in the UK, it was revised slightly upward from 42.5 to 43, indicating a slight slowdown in the pace of contraction.
Upcoming Service Sector PMI Data
Final PMI data for the service sector (HCOB) in August will be followed on Tuesday.
Service Sector PMI Data
According to preliminary data, in August, service sector PMIs signaled a transition from growth to contraction in the service sector in most regions, except France. Specifically, in France, the service sector continued to contract, with PMI declining from 47.1 to 46.7, while in other regions, including Germany (47.3 from 52.3), the Eurozone (48.3 from 50.9), and the UK (48.7 from 51.5), PMIs decreased, indicating a contraction in the service sector. Additionally, Germany’s July foreign trade data, which will provide signals regarding the global trade outlook, will be released on Monday.
German Foreign Trade Data
In June, Germany’s exports recorded a limited increase of 0.4% on a monthly basis, while imports decreased by 3.2%. For July, a 1.5% monthly decline in exports and a limited 0.5% increase in imports are expected.
Investor Confidence in Eurozone
Furthermore, the Sentix investor confidence data for September in the Eurozone will be published on Monday. In August, the investor confidence data in the region increased from -22.5 to -18.9, showing a partial recovery after a decline that had persisted since April. However, due to expectations that the ECB will continue interest rate hikes to combat above-target inflation, it is expected that investor confidence will remain weak in September, with a decline to -20.
German Production Data
Data regarding German production will be monitored on Wednesday with the release of factory orders for July and industrial production data for July on Thursday. Factory orders in Germany showed significant increases in May and June, contributing positively to the production outlook. However, it is expected that factory orders will decline by 4% on a monthly basis in July, and industrial production will decrease by 0.5%.
German Inflation Data
On Friday, the final Consumer Price Index (CPI) data for August in Germany will be released, which will also impact the ECB’s monetary policy decisions. Preliminary data indicated that headline CPI in Germany increased by 0.3% in August, consistent with expectations, following 0.3% increases in both June and July. The year-on-year rate decreased slightly from 6.2% to 6.1%.
Core CPI in August remained at 5.5%, similar to the previous month.
Eurozone Retail Sales Data
Moreover, retail sales data for July in the Eurozone, providing insights into the trend of domestic demand, will be observed on Wednesday. Retail sales in the Eurozone showed a slight decline of 0.3% on a monthly basis in June following a 0.6% increase in May. It is expected that retail sales will remain under pressure in the upcoming period due to tightened financial conditions resulting from ECB interest rate hikes.
Eurozone GDP Growth Data
Finally, the final Gross Domestic Product (GDP) growth data for the second quarter of this year in the Eurozone will be released on Thursday. Following a contraction of 0.1% in the final quarter of last year, the Eurozone economy showed no growth in the first quarter of this year, effectively exiting the recession. Revised data showed a quarter-on-quarter growth rate of 0.3% in the second quarter, in line with preliminary data. However, the year-on-year growth rate in the second quarter slowed from 1.1% to 0.6%, marking the weakest growth since the pandemic years of 2020-21.
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Asian Economic Outlook and Economic Events
Caixin Services Sector PMI Data
In Asia, the Caixin Services Sector PMI data for August, which will provide signals regarding the performance of small and medium-sized enterprises, will be observed on Tuesday. In China, the Caixin Services Sector PMI for July slightly exceeded expectations by increasing from 53.9 to 54.1, indicating a slight acceleration in growth in the service sector. This marked the seventh consecutive month of growth in the service sector. Notably, in July, during the summer travel season, there was the fastest increase in new orders in the last four months. However, the optimism index for the service sector, providing signals for the future, reached its lowest level in eight months, suggesting that the service sector will face pressures in the upcoming period. Therefore, it is expected that the Caixin Services Sector PMI for August will decrease from 54.1 to 53.7.
Chinese Trade Data
China’s foreign trade data for August will be followed on Thursday. In July, the year-on-year rate of decline in Chinese exports increased from 12.4% to 14.5%, exceeding expectations and indicating the sharpest decline since February 2020. Conversely, the decline in imports increased from 6.8% to 12.4%, also surpassing expectations and marking the sharpest decline since January. These data pointed to a slowdown in global economic activity and an acceleration of the slowdown in the Chinese economy. In August, it is expected that the year-on-year decline in exports will partially slow down to 9.8%, and the decline in imports will ease to 9%.
Japanese GDP Growth Data
On Friday, final Gross Domestic Product (GDP) growth data for the second quarter of this year for the Japanese economy will be monitored. According to preliminary data, the Japanese economy recorded quarterly growth of 1.5% in the second quarter, exceeding expectations (0.7% growth), and marking the fastest growth since the final quarter of 2020. The annualized quarterly growth rate also increased significantly from 3.7% to 6%, indicating the strongest growth since the fourth quarter of 2020.
Reserve Bank of Australia (RBA) Meeting
On Tuesday, the Reserve Bank of Australia (RBA) will hold its meeting. In the previous month’s meeting, the RBA kept the policy interest rate at 4.10%, marking the second consecutive meeting with no changes after starting to raise rates in May last year. Expectations for this meeting also suggest that the policy interest rate will remain unchanged at 4.10%.
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The US Market Outlook and Economic Events
- Non-farm payrolls increased from 157,000 to 187,000 in August, the highest in the past three months, but with a 30,000 downward revision for the previous month.
- Unemployment unexpectedly rose from 3.5% to 3.8% in August, marking the highest level since February 2022.
- Labor force participation rate increased to 62.8%, the highest since February 2020.
- Average hourly earnings decreased from 0.4% to 0.2% in August, marking the lowest level since February 2022.
- S&P Global Manufacturing PMI increased slightly to 47.9, indicating a slowdown in the rate of contraction.
- ISM Manufacturing Index increased to 47.6, suggesting a slight deceleration in the manufacturing industry’s contraction.
- Services sector PMI and ISM non-manufacturing index data will be crucial for assessing recent economic activity.
- Final August S&P Global services sector PMI and ISM non-manufacturing index data to be released on Wednesday.
- Durable goods orders and factory orders data for July will be observed on Tuesday.
- Trade balance data for July to be released on Wednesday.
- Weekly initial jobless claims data, Federal Reserve’s Beige Book report, and Bank of Canada’s meeting on Wednesday to provide insights into the labor market and monetary policy.
The European Economic Outlook and Economic Events
- Manufacturing PMIs in Europe remained below 50, indicating contraction, due to tightening financial conditions and weakening demand caused by ECB interest rate hikes.
- Preliminary data for service sector PMIs in August indicated a transition from growth to contraction in most regions, except for France.
- In June, Germany’s exports increased by 0.4% on a monthly basis, while imports decreased by 3.2%. For July, a 1.5% decline in exports and a 0.5% increase in imports are expected.
- Sentix investor confidence data for September in the Eurozone increased from -22.5 to -18.9 in August, partially recovering from a prolonged decline. However, it is expected to decline to -20 due to expectations of ECB interest rate hikes.
- Factory orders in Germany are expected to decline by 4% on a monthly basis in July, and industrial production is expected to decrease by 0.5%.
- Final CPI data for August in Germany is expected to show a 0.3% increase, with a year-on-year rate of 6.1%. Core CPI remains at 5.5%.
- Retail sales data for July in the Eurozone is expected to remain under pressure due to tightened financial conditions resulting from ECB interest rate hikes.
- The final GDP growth data for Q2 2023 in the Eurozone showed a quarter-on-quarter growth rate of 0.3%, with a year-on-year rate of 0.6%, marking the weakest growth since the pandemic years of 2020-21.
The Asia’s Economic Indicators
- In July, China’s Caixin Services Sector PMI exceeded expectations by increasing from 53.9 to 54.1, indicating slight growth acceleration in the service sector for the seventh consecutive month.
- It’s expected that the Caixin Services Sector PMI for August will decrease from 54.1 to 53.7.
- In July, Chinese exports recorded a year-on-year decline of 14.5%, the sharpest drop since February 2020, and imports declined by 12.4%, the most significant decrease since January.
- In August, it’s expected that the year-on-year decline in exports will partially slow down to 9.8%, and imports will ease to a 9% decline.
- Expectations for Reserve Bank of Australia (RBA)’s meeting suggest that the policy interest rate will remain unchanged at 4.10%.