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U.S. Non-farm Payrolls in the Spotlight, A Trio of U.K. PMI Data On Tap

Oct, 01st 08:51

U.S. shares advanced and rose to record levels on Friday, bolstered by a surge in technology stocks. At the close in NYSE, the S&P 500 index jumped 0.37% to close in record territory while the Dow Jones Industrial Average gained 0.11% and the NASDAQ Composite index soared 0.66%. All three major U.S. equities ended September with year-to-date gains of at least 9 percent.

Traders shrugged off weaker than expected inflation. Indeed, according to the report released by the commerce department, core inflation unexpectedly eased, only rising 0.1% in August from a month earlier. The rate was in line with the previous month’s advance, but below expectations for growth of 0.2%.

On a yearly basis, the core PCE price index rose 1.3% last month -the lowest level since November 2015, failing to reach expectations for a 1.4% increase. The core PCE is the Federal Reserve’s preferred inflation measure with a target of 2 percent.

Also reported by the commerce department on Friday, consumer spending edged up 0.1% last month after a strong gain in July. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, slowed in August largely because of a decline of 1.8% in sales new cars and trucks. Meanwhile, personal income was reported to climb 0.2%, above the 0.1% forecast.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was steady at 92.92 after the close on Friday, not far from Thursday’s one-month highs of 93.50. The greenback has been supported by mounting expectations that the U.S. Federal Reserve will raise interest rates for the third time at the end of this year.

The Federal Reserve Chair Janet Yellen on Tuesday echoed her colleague – New York Federal Reserve President William Dudley’s comments that the central bank needs to continue gradual interest rate hikes despite uncertainty about the path of inflation.

While Dudley claimed that factors depressing inflation are “fading” and the U.S. economy’s fundamentals are sound, Yellen said it would be “would be imprudent to keep monetary policy on hold until inflation is back to 2%,”

In the week ahead, the U.S. Labor Department will release its September nonfarm payrolls report on Friday amid expectations that the data will show jobs growth of 88,000 in September, following an increase of 156,000 last month. The unemployment rate forecast to hold steady at 4.4% while average hourly earnings are expected to jump 0.3% after unexpectedly easing to a rate of 0.1% a month earlier.

Before the employment report, the Institute for Supply Management is to release data on manufacturing and non-manufacturing sectors on Monday and Wednesday, respectively.

Turning to the British Pound, Sterling fell 0.42% to close at 1.3386, not far from Thursday’s two-week lows of 1.3344. The currency was hit after the Office for National Statistics reported the second-quarter gross domestic product that was revised lower. According to the report, the final reading of year-on-year growth slipped to 1.5%, down from a previous estimate of 1.7%. On a quarterly basis, the UK economy grew 0.3% in the three months to June, in line with expectations.

U.K economic data next week include readings on September manufacturing sector activity on Monday, a report on the construction sector on Tuesday and the service sector on Wednesday.

The manufacturing PMI is forecast to edge lower to 56.3 from 56.9 recorded a month earlier, construction activity is expected to advance slightly to 51.2 from 51.1, while a survey on major sector services is forecast to rise to 53.3 from 53.2 last month.

The Australian dollar remained weaker on Friday, with the pair AUD/USD down 0.22% at 0.7838. The Reserve Bank of Australia is scheduled to announce its rate decision on Tuesday after the Reserve Bank of New Zealand keeps its interest rates unchanged at 1.75% last week and commented that the central bank does not expect to raise interest rates in near future given the fact that the economic growth outlook weakens and inflation slows.

The RBA is also expected to leave the cash rate unchanged at 1.5%. However, market participants will pay attention on RBA governor Philip Lowe’s comments on the future rate hike path after his speech in front of parliamentarians in August when he said that it would be reasonable to assume that the “next rate move will be up rather than down”.

The Canadian dollar lost ground versus its American counterpart on Friday, sending the pair USD/CAD up 0.51% to trade at 1.2490. The pair re-approached Thursday’s three-week high of 1.2519. The loonie was hit by data released by the Statistics Canada that showed the country’s economy stagnated in July. Canada’s gross domestic product was reported to be unchanged in July, due to the fact that oil and gas, mining and manufacturing industries all shrank. Economists had expected the economy to edge 0.1 percent higher for the month.

Next week, the Statistics Canada is to report data on the labour market on Friday.