Last week the focus was on two events, the Bank of England (BoE) meeting and the US jobs data, whilst political tensions continued to rear their ugly head.
There was an element of uncertainty ahead of last week’s BoE policy meeting, especially with uncertainty over the forward guidance within the statement. Also, there were some underlying fears over employment trends, especially with the number of employees on furlough still increasing, despite restrictions loosening. Unsurprisingly, therefore, no policy changes were forthcoming at the August meeting, with both Bank Rate and the size of the Asset Purchase Programme left unchanged – at 0.10% and £745bn respectively. However, the Committee continued to signal that the door remained firmly open to further stimulus being deployed, noting a commitment to take further action if, and as, required. This may be down to how the employment numbers look when the furlough scheme ends in October; as well as the nett effect on growth due to due to the measures and social behaviours regarding COVID.
In the meantime, in the US, the focus was on the monthly job’s numbers, as well as other key data points hitting the market. Despite the rise in COVID-19 States, there was some encouraging data from the nation. The ISM manufacturing and non-manufacturing both surpassed expectations and continued to grow. The monthly US non-farm payrolls market report had been eagerly awaited as the first important indication of how a recent surge in infections that has sparked a second round of business closures has affected the economy. The report showed that the US economy added 1.8 million jobs in July, far fewer than in May and June, but more than economists had been expecting.
At the time of writing, President Donald Trump has taken executive action to provide economic aid to millions of Americans hit by the pandemic. Trump stated he was forced to do so after talks at Congress broke down. Legal challenges are likely to arise given that Congress controls federal spending, not the president
Looking to the week ahead UK and US data comes into focus. In the meantime, political developments will continue to be monitored in the UK, US and Europe for anything that could affect sentiment.
- UK BRC Like-for-like Retail Sales
The British Retail Consortium (BRC) Like-For-Like Retail Sales shows the performance of the retail sector. A high reading is seen as positive for the GBP, while a low reading is seen as negative.
- UK claimant change
- German ZEW
- US PPI
The UK’s jobs numbers are set for release today with the focus on the claimant change. A major risk to the outlook stems from the labour market and how firms deal with the winding down of the Coronavirus Job Retention Scheme. Official statistics so far still show the unemployment rate at 3.9%, but this is expected to increase to 4.2%.
The German ZEW will be watched to see how investor sentiment is currently given the recent increase in COVID-19, but also following the agreement on the Recovery Fund. Factory gate inflation is due for release from the US although in this climate may be ignored.
- UK GDP (monthly and quarterly)
- US CPI
The UK GDP figures are expected to be mixed. The quarterly number show a contraction by a massive 21%, making it the steepest quarterly decline in the post-war era. However, the monthly reading is expected to show a further pickup in activity across following the 1.8% rise in May; a monthly gain of circa 8.0% is expected.
- US Jobless claims
Following last week’s better than expected payroll and jobless claims, the market will focus on the US weekly jobless claims to see if this trend continues.
- US Retail sales
- US industrial production
- US UoM Consumer sentiment
There is a lot of economic data from the US on Friday with the retail sales taking centre stage. With uncertainty surrounding COVID and the US elections, the market will be keen to ascertain the impact on spending and sentient. Also, the industrial production numbers are due and the consumer sentiment reading.
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