August is finally over and many investors will be glad to see the back of it. Poor US economic data at the start of the month fuelled fears of an upcoming recession, leading to massive selloffs across the board. Perhaps even more worryingly, the Bank of Japan chose the same moment to raise interest rates, threatening an end to the Japanese carry trade. Despite the collapse in asset prices early on, most major indices around the world ended August in the black, with several even boasting new record highs. Quite the roller-coaster ride.
As rates on the Japanese Yen begin to rise after more than a decade at rock bottom, rates on the Dollar are now expected to start coming down, perhaps as early as this month. There is a Federal Reserve decision scheduled for the 17-18th of September and many market participants are betting the time is right for a rate cut. The terrible economic data released at the start of August has since been eclipsed by much more optimistic figures. Most recently, last Friday’s PCE price index showed that the rate of inflation continued to decline in line with estimates, the core year-on-year figure even beating expectations.
We are not out of the woods just yet however. Besides inflation, the other remit of central banks is of course the labour market. The coming week offers a sizeable insight into US employment, firstly on Thursday with the jobless claims figures, then on Friday with non-farm payrolls. The data points are the final hurdle before the September rate decision so many investors will be hoping the numbers don’t rock the boat.
Taking a step back, there is a slightly worrying trend emerging on the world stage in the form of declining manufacturing PMIs. This morning Australia revealed a manufacturing PMI of just 48.5; yesterday China’s national bureau of statistics published a figure of 49.1, although today’s Caixin figure was significantly better at 50.4. By Wednesday, many parts of the world will have published their respective manufacturing figures, most of which are predicted to be firmly in contraction. The decline in manufacturing falls in line with many groups predicting a global slowdown in industrial activity, which continues to weigh on oil prices.
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