Upcoming Week’s Economic Outlook: Fed’s Rate Stance, China’s Data, and Oil Prices
The recent jobs report has solidified the belief that the Federal Reserve will maintain interest rates in the upcoming weeks. As we enter September, stocks have experienced strong gains, and there is anticipation regarding China’s economic data, which may raise concerns about the global economy. The Reserve Bank of Australia is expected to keep rates unchanged, while oil prices are likely to be influenced by supply worries.
The jobs report from Friday is just one of many indicators suggesting a soft landing for the economy, further supporting the idea that the Fed is nearing the end of its rate hiking cycle. The upcoming week’s data is not anticipated to significantly alter this perspective. On Wednesday, the Institute for Supply Management will release data on service sector activity, which economists expect to show a slight softening. Additionally, the Fed will publish its Beige Book, providing insights into economic activity across all 12 districts.
Last week, the Dow and Nasdaq saw increases of 1.4% and 3.2% respectively, marking their strongest weekly performances since July. Meanwhile, the S&P 500 gained 2.5%, its best week since June. The jobs report on Friday further reinforced expectations of a potential pause in rate hikes during the Fed’s upcoming meeting. Please note that the U.S. stock market will be closed on Monday to observe the Labor Day holiday.
The upcoming economic data from China suggests that the country’s economic recovery is still delicate due to weak demand in important export markets and a worsening domestic property crisis, which is putting pressure on growth. On Tuesday, the Caixin services PMI for August is expected to show a slight slowdown in the expansion of the service sector compared to the previous month. Trade data on Thursday is likely to reveal that both exports and imports contracted in August but at a slower pace than in July. On Saturday, market observers will be interested in the August CPI data, which is expected to show a slight increase in consumer prices after experiencing deflation in July. While Chinese authorities have implemented various measures to stimulate the economy, analysts remain cautious about the possibility of more drastic stimulus due to concerns about rising debt risks.
Switching gears, let’s talk about oil prices. On Friday, oil prices experienced a significant surge, reaching their highest level in over seven months, breaking a two-week period of losses. The cause for this increase is the growing concerns about the tightening supply outlook. In terms of numbers, Brent rose by approximately 4.8% for the week, marking its most substantial weekly increase since late July. Similarly, Crude Oil WTI Futures saw a gain of 7.2%, which represents its largest weekly growth since March.
It is widely anticipated that Saudi Arabia will extend its voluntary 1 million barrels per day oil production cut into October. This extension aims to support prices by continuing the supply curbs created by OPEC and its allies, collectively known as OPEC+. Meanwhile, the U.S. demand outlook remains strong, with commercial crude inventories declining in five out of the last six weeks, according to data from the U.S. Energy Information Administration.
On Tuesday, the Reserve Bank of Australia (RBA) is expected to maintain interest rates for the third consecutive meeting. Recent data suggests a faster-than-expected slowdown in inflation, which has prompted this decision. Interest rates are currently at an 11-year high of 4.1%, following a 400 basis point increase since May 2022. Traders believe this is the peak, given that inflation unexpectedly eased to 4.9% year-on-year in July, the lowest rate since it reached its highest point last December at 8.4%. Additionally, the latest jobs report revealed an increase in the unemployment rate from 3.5% to 3.7% in July, further reinforcing the expectations for the RBA to maintain its current stance.