Week ahead: Trade talks, Fed, US jobs, Apple

Week ahead: Trade talks, Fed, US jobs, Apple

The news cycle will not let up next week as investors gear up for updates on trade talks, the US job market, monetary policy from a handful of central banks including the Federal Reserve, and another deluge of US earnings including Apple.

Here’s what to watch in the coming days.

Trade

Trade talks are set to resume next week when US trade representative Robert Lighthizer and Treasury secretary Steven Mnuchin head to Shanghai to begin negotiations on Tuesday. Vice Premier Liu He is expected to lead the talks for China.

Previous discussions collapsed in May when the US accused Beijing of backpedalling on its commitments and resulted in President Donald Trump raising levies on $200bn of Chinese imports to 25 per cent from 10 per cent, along with a threat to slap 25 per cent tariffs on a further $300bn worth of products.

Federal Reserve decision

The Fed is widely expected to lower interest rates by 25 basis points when it delivers its latest monetary policy decision on Wednesday. A slowdown in economic growth in the second quarter lent some support to such a move.

The central bank has faced repeated attacks from US president Donald Trump for tightening monetary policy that he said poses a risk to the economic expansion.

“We see a possibility for a few hawkish dissents including [Eric] Rosengren (very likely), [Esther] George (likely) and [Randal] Quarles (possible),” said economists at Bank of America. “It could also be that [Charles] Evans gives a dovish dissent in favour of more aggressive easing, although that is not particularly likely.”

They added that chairman Jay Powell would want to counter the hawkish message from policymakers who dissent. “We therefore think it will leave Powell to be even more dovish in the press conference. This would show that he is leading the Committee and will press on with accommodative policy even in the face of dissents.”

Central banks

Amid a shift to a more dovish stance by central banks world over, the Fed isn’t the only one investors will be watching next week.

The Bank of England is expected to leave rates unchanged as policymakers await clarity on Brexit under new prime minister Boris Johnson. “Since markets don’t believe that the BoE’s next move in rates is up, they’ll be looking for any excuse to price in further easing, which we think [Mark] Carney will be able to deliver, given the weaker global backdrop,” said strategists at TD Securities.

Brazil’s central bank is widely expected to cut the Selic rate by 25 basis points when it meets next week as Latin America’s largest economy faces the threat of a new recession.

Elsewhere, the Bank of Japan delivers its policy decision and is expected to hold steady, with governor Haruhiko Kuroda scheduled to hold a press conference after.

Euro area GDP

Temporary factors — like private consumption in Germany and a boost in exports to the UK ahead of the original Brexit deadline in March — were believed to have pushed up growth in the euro area to 0.4 per cent in the first three months of the year. Economists expect GDP to have cooled to 0.2 per cent in the second quarter.

“The data we have to hand so far for Q2 suggests that industrial production will drag slightly on growth this quarter, with the construction sector set to do likewise after having made an outsized contribution last quarter,” said strategists at TD Securities.

US jobs

Non-farm payrolls grabs the spotlight in a busy week for economic data. Hiring in the US is expected to have cooled in July, with Wall Street projecting the US economy created 170,000 jobs down from 224,000 in June. The unemployment rate is expected to hold steady at 3.7 per cent, while average hourly earnings are projected to rise 0.2 per cent month-on-month and 3.2 per cent year-on-year.

Investors also get updates on the health of the manufacturing sector, the US consumer and trade next week.

While the bulk of the data follow the Fed’s decision on Wednesday investors will parse this closely as they try to gauge the magnitude and pace of rate cuts by the central bank this year.

Earnings

US earnings season continues apace with 170 companies listed on the S&P 500 scheduled to report results next week, including Eli Lilly, Merck, Pfizer, ConocoPhillips, Apple, General Electric, Spotify, Qualcomm, Verizon, General Motors and ExxonMobil among others.

The iPhone maker in particular will garner a ton of attention as investors tune in to see if handset sales have improved, particularly in China. The company’s services business, which has helped drive profits will also be closely watched.

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