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Economic Calendar - Top 5 Things to Watch This Week

Investing.com -- Thursday’s European Central Bank meeting will be the highlight of the week, amid expectations for more stimulus to bolster the sluggish euro area economy. With the threat of a no-deal Brexit still looming, the upcoming U.K. jobs data will be watched for further signs of weakness in the economy. Meanwhile, economic data out of China and the U.S. will be in focus as the trade war intensifies.

Here’s what you need to know to start your week.

ECB in focus

The ECB is all but certain to approve new stimulus measures on Thursday to boost an ailing economy, but the exact composition of the stimulus package is still unclear. While an interest rate cut seems like a done deal the big question is whether a resumption of asset purchases will be part of the package after some policymakers said it would be premature.

“While we doubt that more monetary easing will generate much of a growth effect, doing nothing is not an option anymore, as markets have already priced in additional easing”, economists at ING wrote.

“We expect a 20 basis point deposit rate cut, a tiered interest rate system for excess liquidity, more generous TLTRO conditions and €30 billion per month of quantitative easing (though this last point is still being discussed and could be delayed to wait for the Brexit outcome)”.

Brexit uncertainty

A three-month Brexit postponement looks increasingly likely after Prime Minister Boris Johnson’s efforts to take Britain out of the European Union on Oct. 31 with or without a deal have floundered. Johnson lost his majority in parliament last week and has seen his initial bid to call an early general election blocked.

On Monday, Johnson is expected to make a second attempt to call snap elections, but opposition lawmakers said Friday they would not back an election until the government asks the EU for an extension.

With the economy showing signs of teetering on the edge of recession Tuesday’s U.K. employment report will be the highlight of the U.K. data calendar, which also features updates on second quarter growth along with figures on industrial output, construction and trade.

China data dump

Figures early Sunday showed that China's exports unexpectedly fell in August as shipments to the U.S. dropped 16%, pointing to further weakness in the world's second-largest economy.

Beijing is widely expected to announce more support measures in coming weeks to avert the risk of a sharper economic slowdown, including cuts in some key lending rates.

On Friday, the People’s Bank of China again slashed banks' reserve ratios, freeing up around 900 billion yuan to shore up the economy

Figures on inflation and factory prices due Tuesday could offer some insight into whether more policy easing is needed.

U.S. data

The key release to watch on the U.S. data calendar this week is Friday’s retail sales figures for August. Forecasts are for a 0.2% increase, slowing from a 0.7% increase in July. In the face of slowing exports and investment, shoppers remain a bright spot in the economy.

Sept. 1 saw U.S. tariff increases kick in on $112 billion worth of Chinese goods imports, bringing the tax up to 15%. News the two sides are to resume talks in October has soothed some fears but the tariffs will raise the prices Americans pay just before the holiday shopping season.

Other data to watch this week includes Wednesday’s factory gate numbers and Friday’s report on import prices.

Treasury bond/dividend yield inversion

A decline in interest rates on long-term U.S. government bonds below the average stock dividend yield has received less attention than an inverted Treasury yield curve, but it could be a reason stocks find support after a bruising August.

After the S&P 500 suffered its first monthly drop since May, equities have gotten off to a solid start in September. The uncommon Treasury bond/dividend yield inversion is providing a level of support.

U.S. Treasury yields have fallen in step with a global bond market rally as global trade tensions have kept recession fears on the horizon.

While yields on intermediate-term Treasuries have been below the S&P 500's dividend yield for several months, the long-term 30-year yield inverted at the end of August, the first time since March 2009.

"Whether it is the Federal Reserve signaling more cuts in the future or just in general this rally in the bond market, overall lower rates - you would think - put some sort of floor on the market as well," said Mark Kepner, equity trader at Themis Trading in Chatham, New Jersey.

-- Reuters contributed to this report

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