Top and bottom to start August

There was no change in the Chinese manufacturing data on Saturday with a read of 50 versus an estimate of 50.2 (which was also the previous month’s read).

Source: Bloomberg

It’s unlikely this will be seen as good news as the fence-sitting read looks convenient and is still contracting. China will have several hard questions asked of it over the week, feeding into the concern it’s facing a hard landing.

It’s the first week of the month and all the central banks around the world release press releases. This week also sees the Australian earnings season beginning in earnest. Finally, non-farm payrolls is Friday – the penultimate read before the September meeting. Will it signal September or December as the month for the first rate increase?

Top and bottom events of note

The final read of the Caixin China manufacturing read is today. The flash read was a 15-month low. Will it be revised up? (Very likely)

US manufacturing data is released tonight. Having seen a Q2 GDP print jump, you would expect further signs of strength, which will add to USD strength.

Tuesday sees a mass of Australian data, trade balance retail sales and the RBA’s decision on rates as it’s the first Tuesday of the month. Market expectations of a rate cut are 7.8% but three economists (of 27) believe there will be a 25-basis-point cut. An interesting conclusion, as the local data and RBA speak clearly suggest otherwise. It would be a huge surprise if the bank was to move tomorrow (if at all in 2015).

Earnings to watch this week include Suncorp, Virgin and - the big one - Rio Tinto. The red ore has declined 20% in the first half of the year; will Sam Walsh’s CAPEX slashing and production ramp up offset the decline in price?

On Thursday the Bank of England will be watched with more interest than usual as Mark Carney is moving further and further to a hawkish stance. Will the BoE beat the Fed in raising rates? The GBP is powering ahead and there are further signs rates rises are coming in the UK. The pairs we like best to trade this possibility are EUR/GBP and GBP/AUD.

Australia’s employment data is due Thursday. It remains a roulette wheel: the unemployment rate has continued to edge down and the mean-average of the employment change has it rising over the past six months. However, the gloom from the end of the mining boom is clouding these trends. It’s hard to trade the employment numbers as the monthly figures are very erratic, but the trend is more positive than has been reported.

Non-farm payrolls: the FOMC last week suggested that there was ‘some’ slack remaining in the labour market. A further print above 200,000 will continue the trend in 2015 and the slack may be gone in time for the September meeting.

Ahead of the open

There was a very positive finish to the month on Friday: July added 4.4% for the second-best month of the year behind February.

Iron ore came crashing back on Friday, losing 4%, and the futures market was off a handful of points. We may therefore see a slightly negative start to August. The biggest question for the month is whether we give back the gains from July.

Ahead of the open, we are calling the ASX flat at 5699.

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