Friday, September 3 is shaping up to be quite a busy day for the financial markets due to the upcoming release of lots of interesting fundamental data.
First and foremost, today investors are looking forward to the August non-farm payrolls and unemployment rate reports from the United States. The NFP is widely seen as the most important clue regarding how the US labor market is adjusting to stimulus and how it is coping with the coronavirus pandemic.
Previously this week, we received uplifting data on jobless claims but also a very disappointing ADP report, which means today’s NFP publication could go either way.
If the reports meet the forecasts or are better than them, we expect that the Federal Reserve will have a good reason to start preparing to taper asset purchases, perhaps as early as November. But if the data is disappointing, then the markets will have to deal with prolonged stimulus, which is going to weaken the US dollar further.
US stock indices are expected to trade moderately higher while we wait for the NFP, unemployment rate, and average earnings data. However, if the reports are too upbeat and increase the prospect of a monetary policy tightening, stock indices will suffer a sharp drop.
Other data today included lackluster retail sales and services PMI reports from Australia.
China’s services and composite PMIs for August were also disappointing. Notably, both numbers were below 50, indicating that the Chinese economy contracted last month due to the latest round of coronavirus-mandated lockdowns.
In Europe, Spain, Italy, and Germany all reported PMIs that were lower than the forecasts. As a result, the eurozone-wide composite PMI for August was also lower than expected (as was the retail sales report from the EU).
The United Kingdom also hopped on the negative bandwagon with its own composite and services PMIs for the previous month, both of them letting investors down.
Besides the busy economic calendar, today the markets will also feel some of the effects of Hurricane Ida, which has wreaked havoc on the US East Coast for a few days, killing at least 44 people. Ida has caused floods, power outages, disruptions in supply lines, and damage to American oil refineries in the Gulf of Mexico.
In other news, Japan is now becoming a new source of risk for the financial markets, as Prime Minister Yoshihide Suga announced he will step down from his post. Suga’s resignation comes in light of Japan’s most serious coronavirus outbreak, which critics of the current cabinet have related to the Prime Minister’s decision to go ahead and hold this year’s Summer Olympics, in spite of the pandemic. Political instability in Japan is likely to ensue.
