It’s the start of the second half and first week of a new month which means Friday’s US non-farm payrolls will be the marquee event for markets. While domestic politics will grip the euro and sterling, the dollar is enjoying a fourth straight week of gains. That is essentially down to political uncertainty trumping (pardon the pun) easing US inflation data. A slowdown in consumer spending and the housing markets are also bolstering the odds of a Fed September rate cut, even though some officials are seemingly not yet that convinced.
The ongoing tightness in the jobs markets has a lot to do with this, so next week’s NFP data will be keenly watched to see if the disconnect between payrolls and household employment, which is much weaker, can continue. A solid headline print is expected with stable wage growth keeping policymakers still cautious of pulling the rate cut trigger too soon. There will be the usual forerunners to NFP released earlier in the week like JOLTs and ADP. ISM figures for manufacturing and services will be of interest as leading indicators to kick off the week.
It could be a volatile time in Europe with French elections casting a shadow over all markets, while eurozone inflation data might be a mixed bag after the country prints for Spain, France and Belgium provided a cloudy picture. The first round of Sunday voting in France is likely to prove inconclusive, with much depending on the alliances formed between the two rounds. 289 seats are needed to obtain an absolute majority in the National Assembly but currently, it seems no party will get to that point. Moderate comments from party leaders have calmed some markets, but the situation remains uncertain and should continue to pressurise the euro.
Finally, there will be continued speculation about Japanese authorities intervening in FX markets, after they spent over $60 billion in April and May when prices spiked in USD/JPY above 160. April saw a 10 yen move from 150 to 160 in less than a month, but we’ve not seen a move like that so far. Japan’s top currency diplomat Kanda recently warned on excessive currency moves saying authorities were “seriously concerned and on high alert”. Unilateral intervention has historically struggled to markedly turn the trend. Only US monetary policy and rate cuts would change the broad direction of travel, with BoJ hiking rates also needed to help narrow interest rate differentials.
