Market Outlook for the Week of August 3-7, 2023

Monday begins with the release of the manufacturing PMIs for the eurozone, the U.K., and the U.S. On Tuesday, attention will shift to the U.S. JOLTS job openings report. Wednesday will see New Zealand's employment change and unemployment rate, followed by services PMI releases for the eurozone, the U.K., and the U.S. on the same day. Thursday will feature the U.S. weekly unemployment claims figures, with the labor market report, including average hourly earnings, non-farm employment change, and the unemployment rate, set for Friday. Canada will also release its employment change and unemployment rate on Friday.

In the U.S., the consensus for the ISM manufacturing PMI stands at 54.0, up from 53.3 previously, while the ISM services PMI is expected to rise to 54.5 from 54.0. However, there are downside risks as the S&P Global's flash manufacturing PMI indicated a slight decline in July compared to June, which could signal a weakening trend.

In New Zealand, the consensus for employment change is projected at 0.1% q/q, down from 0.2% previously, with the unemployment rate expected to increase to 5.4% from 5.3%. Analysts from Westpac suggest that the labor market is gradually softening, with job growth not keeping pace with population increases, potentially leading to a further deterioration in both the unemployment rate and labor force participation in the coming quarters.

For the U.S., average hourly earnings are expected to remain stable at 0.3% m/m, while non-farm employment change is forecasted at 88K, a significant increase from the previous 57K. The unemployment rate is anticipated to hold steady at 4.2%. Despite the market consensus for job growth, analysts at ING predict a more modest gain of 75K, with the unemployment rate potentially rising to 4.3%. The recent decline in labor force participation, with approximately 700K individuals exiting the workforce in June, suggests that the unemployment rate may not fully reflect the labor market's health.

Monetary policy expectations have shifted following the latest Federal Reserve meeting, with Chair Kevin Warsh indicating a cautious approach to further rate hikes. Concerns about the Fed's policy credibility have emerged, particularly after discussions about potentially altering the inflation target as part of an ongoing policy framework review. This has led to a more dovish reassessment of the Fed's policy trajectory, reflected in lower U.S. dollar values and Treasury yields.

In Canada, the consensus for employment change is 15.0K, down from 18.2K, with the unemployment rate expected to remain at 6.5%. Analysts anticipate signs of stabilization in Canada's labor market, although the composition of employment, particularly the reliance on part-time positions, will be crucial to monitor. Wage growth has shown slight improvement but is expected to ease as labor market slack persists.