Week of SEPT 4

After a week of light trading led by a narrative of a cooling US labour market and Fed holding rates, market attention is turning past an extended holiday for US labour day to the RBA's rate decision and China trade balance.

The Week in Review

Motions of a softening economy in the US dominated the first part of the week. JOLTS job openings were much lower than anticipated, and Q2 GDP growth was revised lower to an annual rate of 2.1% from 2.4% prior. In addition, ADP job numbers came in below expectations, reversing the initial feeling of hawkishness in the aftermath of the Jackson Hole Symposium, with traders now increasingly expecting the Fed to hold rates at the current level.

European Inflation figures were above expectations on the headline, with France, Germany and Spain reporting an increase in the pace of prices rising, driven in part by higher energy costs. Core inflation came down as expected, but the pressure remains on the ECB to do something, even with Lagarde trying to avoid the subject in her appearance at the Jackson Hole Symposium. 

China offered a series of stimulus measures to stimulate the market, including lowering margin requirements and stamp duty on trades, reducing mortgage costs, and bringing the big guns with a commitment to cut FX RRR later this month.

A series of BOJ officials affirmed the line by Governor Kazuo Ueda that now is not the time to give up on easing, suggesting that the economy would continue to grow, but deflationary pressures were still entrenched.

In Geopolitics, US Trade Secretary Gina Raimondo visited China but said they did not manage any specific agreements. 

Biggest Market Movers 

WTI rose on expectations that supply would underperform demand, with a massive drawdown in inventories and production shut in due to a hurricane in the Gulf of Mexico. It extended as much as 5% on Friday at writing, comfortably above the $80 barrel handle.

The dollar trended lower through the week on falling yields as better data supported the narrative that the Fed might be done with hiking. It reached a loss of 1.20% but eventually found support at 103, closing the week less dramatically.

Gold spiked to $1950 an ounce through the early part of the week as global yields remained under pressure, ending with a single-digit gain of over 1% and recording a 2-week streak.

Top Events in the Week Ahead

The coming week is seen as relatively light on the data front, with the US and Canada out for a holiday on Monday. 

RBA Kicks CB Policy Cycle Off

The RBA is set to start the September cycle of interest rate decisions among major central banks, with an overwhelming majority of economists expecting a pause in the first meeting to be helmed by new Governor Michelle Bullock. There is a strong consensus that rates will remain unchanged for the rest of the year, with the RBA likely to signal that it will be data-dependent.

Australia will report its Q2 GDP growth rate a day after, with quarterly economic expansion expected to remain at 0.2%. 

Despite rising nearly 2% and past $0.65, AUD/USD dropped under the 65-cent handle, opening up $0.6429 and the low of $0.6364. If bulls can reclaim $0.6522, there may be an attempt at $0.6555.

Trade Data Back in Focus

China will announce its August trade balance later in the week, with a forecast for its surplus to increase marginally to $81.0B from $80.6B in July. Both imports and exports are seen contracting once again. Meanwhile, the US' August trade deficit is expected to expand to -$68.1B from -$65.5B in July, as imports are expected to grow faster than exports. 

USD/CNY had been on a freefall until 7.24 rejected bears, increasing the chances of upward respites towards 7.31.

Australia is expected to report a slight drop in its trade surplus. In contrast, Germany's trade surplus is expected to expand, and France's contract, with EUR/USD likely impacted by the release. Upbeat data may see the pair soar towards $1.098 and eventually the $1.10 handle, while bearish action could see a revisit of the $1.0765 support.

Other events, earnings

Tuesday sees the final Services PMI reading from several major economies. Wednesday has US ISM Services PMI. Thursday includes final EU Q2 GDP figures and German industrial production for August. Friday has the final Japan Q2 GDP growth figures and the current account. 

Earnings are expected to be light, with reports from GitLab, DS Smith, Curry's, UiPath, Copart, Toro and Kroger.