SINGAPORE, SINGAPORE -- (Marketwired) -- 09/30/13 -- In FXPRIMUS' Market Brief of The Week for 30 September, the brokerage firm's Senior Economist, Jimmy Zhu, looks at a range of central bank meetings this week, and the likelihood of the Fed keeping its dovish tone by strengthening its forward guidance and its dual mandate.
U.S. Non-Farm Payroll (NFP) dominates this week's sentiment
The U.S. Dollar remains on the lower side since the latest Federal Open Market Committee (FOMC) meeting when the Federal Reserve (Fed) refrained from reducing any asset purchasing. Last week, European currencies slightly outperformed the Greenback, but commodity currencies traded lower. All in all, the Greenback tended to be flat since there is no clear signal so far regarding the Fed's policy in the upcoming few months.
It's a heavy week amid global central bank meetings and some top-tier data from the U.S. The U.S. employment report will be paramount; the market is set to swing according to the release. I do see some uncertainties on the possible downward revision of the August report. If this is the case, the possibility of tapering in October looks extremely low when upcoming payrolls data will likely stay below 200K, despite possible jobs creation increasing, since it will certainly not reach the Fed's expectation level.
Frankly speaking, there isn't an available clue yet on tapering timing since the Fed highlighted many times that a change in asset purchases is not a preset course. Taking the labor market as an example, the change of payrolls is not consistent with the falling unemployment rate. A 35-year low labor market participation rate suggests that an increasing amount of people left the labor force. Besides the labor market, it looks difficult for inflation to inverse the downtrend which lasted for a prolonged period, since its Personal Consumption Expenditures (PCE) stands at 1.3% on a YoY basis.
The U.S. government also faces the risk of shutdown if Republicans and Democrats can't reach an agreement. Besides that, given the fact that Janet Yellen will succeed Ben Bernanke at the beginning of next year, the Fed will likely keep its dovish tone by strengthening its forward guidance and its dual mandate.
The Dollar faces challenges in resuming its bullish mode from earlier in the year amid rising uncertainties in the U.S. economy. Some analysts said that traders started pricing-in factors of a delayed tapering. I would rather call it a pricing-out of earlier high expectations of the U.S. economy and its financial condition. As long as the Treasuries yield curve keeps flattening, downside risk of the Greenback remains. Still, the payrolls data this week will offer some direction for various asset classes.
Global central bank watch
Various central banks will meet this week, including the Reserve Bank of Australia (RBA), Bank of England (BoE) and European Central Bank (ECB). Among these, the ECB could be the most attractive since investors are keen on further learning what the ECB monetary policy is, after Mario Draghi stressed that downside risks remain in the currency bloc. Besides that, I do not rule out the ECB starting to consider providing another tranche of long-term refinancing operations (LTRO).
Most Popular Stories
- American Airlines, US Airways Complete Merger
- ACA Delay Stresses Small Businesses
- Questions Remain in Jenni Rivera's Death
- Unemployed Wait as Lawmakers Debate
- General Dynamics Plans 200 New Jobs in N.M.
- Harley Issues Motorcycle Recall
- Dell Offers Undisclosed Number of Employee Buyouts
- Saab Gets Back into the Game; U.S. Auto Sales Soar
- Auto Dealer Builds Big Solar Project
- Authorities Close to Deal with JPMorgan Chase over Madoff Response