US jobs data will take the spotlight for global financial markets this week as investors look for clues on how far the Federal Reserve might go in cutting interest rates.
Closely-watched non-farm payrolls data for August is due to be published on Friday, with economists expecting an increase of around 165,000 – above the modest 114,000 rise in July.
Meanwhile, the figures are expected to show that the US unemployment rate fell to 4.2 per cent from 4.3 per cent.
In a sign of its significance to markets, last month’s jobs report, which undershot forecasts, helped trigger a massive sell-off across global stocks as traders piled into bets that the Fed would have to aggressively ease monetary policy to stave off a recession in the world’s largest economy.
While markets have since calmed, Friday’s data could fuel the Fed’s concerns about a weakening jobs market ahead of its next interest rate meeting in two weeks.
The central bank is all but certain to lower borrowing costs for the first time since 2020 this month following latest comments from chair Jerome Powell that the “time has come” to cut rates. Investors are now focused on how far policy easing could go.
Money markets currently imply a roughly 70 per cent chance of a quarter percentage point cut, while giving a 30 per cent likelihood to a jumbo half-point reduction. Any sign of a economic downturn could bolster the latter prediction.
“Stock, bond, currency and commodity markets continue to ponder whether they will get the dream scenario of a cooling in inflation, a soft economic landing and interest rate cuts from central bankers,” said Russ Mould, investment director at AJ Bell.
“That combination of backward-looking figures and revisions to them only increase the risk that central bankers – and investors – are led up the garden path by this macroeconomic dataset, but financial markets pay slavish attention to the jobs figures all the same.”
Elsewhere, policymakers at the European Central Bank will have until the end of Wednesday to make public statements before a “blackout period” ahead of their 12 September rate decision.
A second cut this year is very much on the cards, with inflation running at a three-year low.
It is a quiet week for UK economic data, with final readings for August’s manufacturing and services purchasing manager indexes due on Monday and Wednesday respectively.
Barratt, Ashtead and Direct Line results due
On London’s earnings calendar, Britain’s biggest housebuilder Barratt Developments is due to report its annual results on Wednesday, followed by rivals Vistry and Berkeley.
While Keir Starmer’s warning last week that October’s Budget would be “painful” sent down shares in housebuilders, these firms are expected to benefit from the new government’s promise to restore mandatory housebuilding targets for local authorities as part of efforts to build 1.5m homes over five years.
Other firms reporting earnings include FTSE 100 plant hire group Ashtead on Tuesday, insurer Direct Line on Wednesday and electrical retailer Currys on Thursday.
Investors will also be looking for any clues on reports that Ashtead is considering switching its listing from London to New York.
Ashtead, which rents out heavy machinery to the construction industry, earns the bulk of its revenue from the US market – where the manufacturing sector has shown signs of contraction for most of the last two years.
Direct Line’s half-year results are expected to reflect aggressive price hikes as it battles claims inflation. Investors will be looking at whether higher prices have put off customers, with 383,000 of Direct Line’s own-brand insurance walking out the door last year.
After firing out two profit warnings in two years, new chief executive Adam Winslow has restored the firm’s dividend and is targeting at least £100m in cost cuts as part of measures to boost investor returns.