Take Five: Next up, it's U.S. payrolls and euro zone inflation
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[August 26, 2022] (Reuters)
- Global economic unease is growing and the
closely watched monthly jobs report in the United States and inflation
gauges in Europe will arrive in the coming week at a key juncture for
markets and central banks.
A look at manufacturing activity in China is also due, while the euro is
threatening to push decisively below the key $1-mark.
Here's a look at the week ahead in markets from Dhara Ranasinghe, Tommy
Wilkes and Vincent Flasseur in London, Lewis Krauskopf in New York,
Kevin Buckland in Tokyo and Sumanta Sen in Mumbai.
1/ JOBS CHECK-IN
Monthly U.S. jobs data on Sept. 2 will test the argument that the
world's biggest economy is in solid health, and indicate whether the
Federal Reserve can engineer a "soft landing" even as it hikes interest
rates to fight inflation that has been running at four-decade highs.
Those arguing against the prospect of a recession, despite two straight
quarters of shrinking U.S. gross domestic product, have been able to
point to the strong labour market, at least so far.
![](http://archives.lincolndailynews.com/2022/Aug/26/images/ads/current/maskeauction_sda_FAIR_2022.png)
In July, nonfarm payrolls increased by 528,000 jobs, the largest gain
since February. Early estimates for August are projecting an increase of
290,000, according to Reuters data.
2/ INFLATION SHOCK
Inflation in the euro area remains uncomfortably high, the flash August
consumer price index on Wednesday is likely to show. That will only pile
pressure on the European Central Bank to hike rates again in September
even as recession risks mount.
Instead of peaking soon, as hoped just a few weeks ago, inflation could
soon hit double digits. It was at an annual rate of 8.9% in July - well
above the ECB's 2% target.
The source of fresh inflation angst is clear: soaring gas prices, which
lurched higher again as Russia signalled another squeeze on European gas
supplies.
Gas prices are up 45% in August, and 300% this year. Where they go from
here remains the key to when euro zone inflation will finally peak. As
one economist put it, we're all becoming gas watchers now.
3/ FACTORY FUNK
China's moribund economy may continue the lead from the U.S. and Europe
in reporting manufacturing gloom in the coming week.
Official PMI data for this month is due on Wednesday, after a surprise
contraction in July as COVID-19 flare-ups fuelled by the Omicron variant
of the virus forced further clampdowns under China's draconian zero-COVID
policies. The Caixin private survey follows the next day, and is also at
risk of dipping into contraction territory.
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![](../images/082622PIX/busine53.jpg)
A pedestrian passes a "Help Wanted" sign
in the door of a hardware store in Cambridge, Massachusetts, U.S.,
July 8, 2022. REUTERS/Brian Snyder
![](http://archives.lincolndailynews.com/2022/Aug/26/images/ads/current/brandt_sda_FAIR_2022.png)
Consumer and business confidence continue to be hit by the ongoing property
crisis. And now a searing heat wave is also hampering production.
China's authorities are trying to salvage growth this year, with the central
bank cutting additional lending rates on Monday after slashing others the week
before. On Thursday, the government announced it would take steps to strengthen
the labour market, providing the stock market with a bit of cheer.
4/BACK BELOW PARITY
Once again in recent days, one euro became worth less than a U.S. dollar. The
currency's tumble to new 20-year lows near $0.99 is emblematic of the scale of
the challenges facing the bloc, not least an energy crisis hitting the euro zone
harder than elsewhere.
Another dramatic jump in natural gas prices ahead of peak winter demand in a
region still dependent on Russian supplies is fanning inflation fears, as well
as expectations the ECB will hike rates faster even as the economy slides
towards recession.
Euro/dollar is increasingly correlated with gas prices, and investors and
analysts predict further weakness as Russia continues curtailing its exports.
On a trade-weighted basis, the euro is falling fast too, and recently reached
its lowest level since February 2020, when the start of the COVID-19 pandemic
rattled world markets.
5/STOCKS' CRUELEST MONTH
The U.S. stock market's rebound has lost some steam, just as it is entering what
has been on average its most treacherous month.
Since 1950, the benchmark S&P 500 has fallen an average of 0.5% in September,
the worst monthly performance for the index and one of only two months to
register an average decline, according to the Stock Trader's Almanac, which
notes that fund managers tend to sell underperforming positions as the end of
the third quarter nears.
![](http://archives.lincolndailynews.com/2022/Aug/26/images/ads/current/peasley_sda_FAIR_2022.png)
This September, a number of factors could set investors on edge. Following the
Jackson Hole central banking symposium in Wyoming, the Fed will hold its next
policy meeting on Sept. 20-21. Ahead of that comes the latest reading on
consumer prices that will indicate if inflation has peaked and is likely to
cause volatility no matter where it lands.
(Compiled by Lewis Krauskopf; Editing by Paul Simao)
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