Eurozone inflation and US NFP amongst market movers for the week ahead – Rabobank

Analysts at Rabobank suggest that the release of Eurozone inflation numbers and US NFP data are going to be the key economic releases for the week ahead which are going to have significant impact on the investors risk appetite.

Key Quotes

“The good news is that Eurozone inflation is likely to show some pick up in August as preliminary data for the four major countries are released on Wednesday and Thursday. However this uptick is probably driven by higher fuel prices, and the underlying trend therefore remains weak. So while the higher headline numbers may back the ECB in its timing of any tapering announcement (at least in terms of appearances), the Governing Council certainly won’t feel like they have won this match.”

“Over in the US arena, the Fed may have to take another blow to their plans for the remainder of the year. The PCE deflator, the Fed’s preferred measure of inflation, will be published on Thursday. Expectations are that the headline has remained steady, but that the core measure will fall back to 1.4%.”

“More importantly, this week’s main data release in the US is the Employment Report on Friday, featuring the nonfarm payrolls, unemployment and average hourly earnings for August. On Wednesday, the ADP employment growth figure may give us some idea of nonfarm payroll growth, although its forecasting record is not very strong. With inflation as the main impediment to a third rate hike this year, markets will again look at average hourly earnings for indications of wage pressures. So far wage growth has been lagging, despite unemployment falling below the Fed’s estimate of the NAIRU. Although the FOMC continues to think about a third rate hike before the year is over, we are still waiting for them to throw in the towel.”

“On the side-line of these inflation and jobs data there will also be a second estimate of Q2 GDP growth on Wednesday, but Q2 is increasingly becoming old news.”

“Meanwhile the sparring between North Korea and the United states continues as well. Although Kim Jong-un has so far refrained from a big uppercut –deciding not to launch any intercontinental ballistic missiles towards Guam yet– the North Korean launch of three smaller missiles on Saturday was another provocative jab at its American opponent. US Secretary of State Tillerson continues to play a defensive game, stating that he will keep “peaceful pressure” on the country. So far, Kim Jong-un remains unwilling to sit down at the negotiation table with the US and South Korea.”

“The conflict continues to hold a potential risk-off move over the markets, potentially for the next few years. If tensions worsen again, this could push EUR/USD further north. Since the conflict is taking place on the Pacific Rim, the Swiss franc and the euro are likely to be seen as safe havens for investors every time tensions between the US and North Korea –and/or China– escalate. Meanwhile, US treasuries are likely to remain safe havens for both US and non-US investors as we have learnt from history. As far as investors flee from non-dollar assets into US treasuries this will also be supportive of the US dollar.”