After the fun of Jackson Hole, the Federal Reserve faces a key week of data. Labour market, inflation and GDP numbers will dictate how the market views the likely course of monetary policy over the coming months.

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Nonfarm Payrolls

The US labour market is centre on Friday with the monthly nonfarm employment change. Despite clear evidence that the tight labour market is not leading to a significant upturn in inflation, the headline nonfarm payrolls numbers remains one of the most closely-watched data releases for the markets and the US dollar in particular.

In July the US economy added 209,000 jobs, ahead of forecasts, while unemployment fell to 4.3%, the lowest since March 2001. Markets are again braced for a strong number but the marginal effect seems to be lesser now that the Fed has shown caution on its assessment of how the labour market strength is translating into inflation. In this light the average earnings number contained in the release continues to have extra significance.

PCE Inflation

Sticking with the Fed, its preferred measure of US inflation, the personal consumption expenditures (PCE) index, is due on Thursday. This has shown meagre growth this year. The previous release showed the core PCE index was up just 0.1% month-on-month in June, down from 0.2% in May.

GDP Reading

The second estimate of GDP growth in the second quarter is likely to be another release that has an impact on the dollar. The initial reading showed growth accelerated to 2.6% in the April-June period, more than twice the 1.2% pace registered in Q1. However, despite the rise in consumer spending and business investment, wage growth and inflation retreated.

Eurozone Inflation

Away from the US, the big data event is the Eurozone CPI inflation figures. The equation remains pretty much as it has been all year – robust core inflation would boost the case for the ECB to taper sooner and quicker, while another month of lacklustre price growth will have the bears circle the single currency. Inflation in July was steady at 1.3%, still some way short of the ECB’s 2% target.

 

Source: ETX Capital

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