Global markets will be focusing on key economic data from major economies that will shape future trends in financial markets, including the eurozone’s final second-quarter GDP, Swiss inflation and economic growth, and US employment data.
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With central banks expected to continue cutting interest rates through the rest of the year, the outlook for the global economy will be crucial in shaping market expectations.
European markets continued their rally to new highs last week.
This week, investors will be closely studying key economic indicators, including final euro zone second-quarter GDP and employment change figures, U.S. non-farm payrolls data and the Bank of Canada’s interest rate decision.
Europe
The economic outlook for the euro area is expected to be relatively calm this week.
Key releases will include the final manufacturing and services PMIs for August, second-quarter GDP growth, and employment changes in the region.
In its two previous forecasts, the euro zone economy was expected to grow 0.3% in the second quarter, maintaining the same growth rate as in the first quarter and showing a steady pace of recovery in the first half of 2023 after two consecutive quarters of stagnation in the second half of the year.
Economic growth was particularly strong in major countries such as France, Italy, Spain and Belgium.
But Germany, the European Union’s largest economy, unexpectedly contracted 0.1 percent in the second quarter due to continuing constraints in its industrial sector.
Germany is also due to release its July industrial production data, which is expected to show that factory activity there could fall further from the previous month.
The final GDP reading is expected to confirm euro area growth of 0.3%.
Preliminary data showed the number of employed people in the euro area increased by 0.2% in the second quarter, down from a 0.3% increase in the first quarter.
Growth has remained relatively steady over the past few quarters, while the labor market recovery is showing signs of stabilizing following a post-pandemic surge in 2022 and early 2023.
The final figures are likely to be in line with initial estimates.
Additionally, Switzerland is due to release monthly inflation figures for August and second-quarter GDP.
Consumer prices fell 0.2% in July from the previous month, the first decline in eight months, but the annual inflation rate remained at 1.3%.
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The Swiss National Bank (SNB) has led other major central banks in cutting interest rates twice this year, taking them to 1.25% in response to rapidly slowing inflation.
Switzerland’s economic growth is also showing signs of accelerating, growing 0.6% year-on-year in the first quarter, and consensus forecasts call for the economy to continue growing at a steady 0.6% in the second quarter.
Inflation is expected to rise by 0.1% in August compared to July, which could lead the SNB to continue cutting interest rates.
US
The upcoming release of US non-farm payroll data for August will be crucial for market sentiment.
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The labor market is one of the key indicators the Federal Reserve closely monitors when determining interest rates.
Recent trends of easing hiring and subdued inflation have significantly increased the likelihood that the Fed will cut interest rates in September.
The U.S. economy added 114,000 new jobs in July, far less than expected, and the unemployment rate rose to 4.3%, the highest level since October 2021.
Moreover, wage growth slowed more than expected. The U.S. is expected to add 163,000 new jobs in August, and the unemployment rate is expected to fall slightly to 4.2%.
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In addition to the employment data, the US will also release the ISM Manufacturing and Services Purchasing Managers’ Indices (PMIs), which gauge business activity across these sectors.
The manufacturing PMI contracted for a fourth consecutive month in July as high interest rates suppressed demand, and consensus suggests the contraction could continue into August.
Meanwhile, the services sector expanded in July after contracting the previous month.
Canada
The Bank of Canada (BoC) is scheduled to decide on interest rates this week, and has cut interest rates for two consecutive months since June, a trend that is expected to continue.
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Annual inflation fell to 2.5% in July, the slowest increase since March 2021. The fall in consumer prices is likely to strengthen the bank’s efforts to cut interest rates further this year.
In addition to the interest rate decision, Canada is due to release employment data for July, providing insight into the state of the country’s labor market.
Following two consecutive months of declines in the number of employed people in June and July, the unemployment rate rose to 6.4%, the highest level since February 2022.
This rise in unemployment could have further implications for the Bank of Canada’s approach to monetary policy.
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Asia Pacific
In the Asia-Pacific region, attention will be focused on Australia’s second quarter GDP.
The country’s economy expanded just 0.1 percent in the first quarter as rising living costs and high levels of household debt weighed on consumer spending.
However, inflation remains above the Reserve Bank of Australia’s target, meaning the bank is likely to maintain a “higher interest rates for longer” stance.
The consensus is that economic growth will improve slightly to 0.2% in the second quarter.
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