Markets Braced for Latest Round of Interest Rate Cuts and Employment Data

Financial markets are preparing themselves for a wealth of economic data this week with central bank interest rate cuts and employment data in focus.

This Week
With high volatility events expected everyday this week there will be no shortage of market action. We start on Monday with the UK’s Manufacturing PMI. The index is firmly set in a state of contraction with a reading of 41.5 for October likely to worsen to 39.8 in November.

At 13:30 Canadian monthly GDP will be released. This release will reference the month of September with 0.2% monthly growth expected after a 0.3% contraction in August.

Manufacturing data is also due from the US on Monday with the release of the ISM Manufacturing PMI. Similarly to the UK, US manufacturing is in a period of contraction. The reading for November is expected to come in at 37.2, worse than the 38.9 seen in October.

Ben Bernanke will speak at the Greater Austin Chamber of Commerce on Monday with his speech expected to draw heavy interest and subsequent volatility. He will be the keynote speaker at the Annual Economic Forecast event organised by the Austin Chamber.

On Tuesday we will see high volatility concentrated in the overnight session with key data due from Australia. At 00:30 UK time the Retail Sales Trend figure for October is to be released. Economists are expecting 0.1% MoM growth after Septembers 0.2% increase.

We will be staying in Australia for the week’s first central bank interest rate announcement. The RBA Interest Rate Statement is expected to confirm expectations of a 0.75% cut in the Cash Rate from 5.25% to 4.50%.

On Wednesday we will see more high volatility from Australia with the quarterly GDP release. Data for the third quarter is expected to show a 0.2% growth in GDP after the 0.3% reported in Q2.

At 09:30 we will see information from another of the UK’s key industry sectors. The Services PMI for November is likely to have deteriorated to 41.2 from 42.4 in October.

This week’s key North American events are undoubtedly the employment data releases. The first of which comes from the US on Wednesday in the shape of ADP Non-Farm Employment Change. Traders are using this number as a guide to official Non-Farm Payrolls due later in the week so high volatility can be anticipated. It is expected that the US economy lost 200K jobs in November after losing 157K in October, according to ADP.

Next up for the US will be the ISM Non-Manufacturing PMI at 15:00. Like its manufacturing counterpart the index is inside the contraction zone with a reading of 42.5 expected after October’s 44.4.

Wednesday will play host to more monetary policy relaxation, this time from the RBNZ. The RBNZ Interest Rate Statement and the accompanying press conference are both regarded as high volatility events. The RBNZ is expected to reduce the Official Cash Rate from 6.50 to 5.00 percent, a full one and a half point cut.

Thursday will see economic data coming thick and fast beginning in Australia. At 00:30 Building Approvals and Trade Balance are due. Building Approvals likely recovered 0.2% in October after a 7.2% slump in September. Trade Surplus is likely to remain relatively unchanged at 1.45 AUD after 1.46 AUD in September.

The Halifax House Price Index is due at 08:00 on Thursday. This index is the first to be released from the UK on the latest month’s housing market with a reading of -1.0% expected for November. In October house prices fell by 2.2% according to the Halifax Bank of Scotland.

At 12:00 we will see the BOE Interest Rate Statement. The MPC is expected to vote for a 1.00% Official Bank Rate cut to 2.00% as they look to manage the UK’s economic downturn.

Speculation is rife that the ECB will cut rates heavily on Thursday after the Flash CPI Report showed that consumer inflation had fallen to just above the ECB’s 2.0% target. Expectations are for a 0.75% cut in the Minimum Bid Rate to 2.75% when the ECB Interest Rate Announcement hits news wires at 12:45.

At 13:30 we will see high volatility announcements from three different economies. The ECB Press Conference will be closely watched as traders look for clues to future monetary policy shifts from the ECB. At the same time traders will be watching Initial Jobless Claims as a figure above 500K is expected once again. Canadian Building Permits are also due with a 6 percent decline anticipated for October.

The Canadian Ivey PMI is due at 15:00 on Thursday. The Index has managed to hold its head above the expansion/ contraction line at 50.0 until this point with economists expecting a reading of 50 dead this time around.

Further high volatility is expected with Fed Chairman Bernanke’s involvement with the President’s Conference on Homeownership and Mortgage Initiative in Washington DC at 16:15.

Friday will be dominated by employment data from North America. At 12:00 Canada will release its Employment Change and Unemployment Rate numbers for November. Employment Change is expected to show -21.0K compared to 9.5K jobs added in October. The Unemployment Rate in Canada is likely to increase to 6.4% from 6.2% previous.

The US economy has been shedding jobs at a rapid rate recently and economists are expecting another bout of negative data for the month of November. Non-Farm Employment Change from the Bureau of Labor Statistics is likely to show that 320K jobs were lost in November to add to the 240K cut in October. The US Unemployment Rate, also due at 13:30, should increase to 6.8% from 6.5% seen one month previous.