European stock futures are higher

1 September, 2016

European Outlook: European stock futures are higher, following on from a mixed session in Asia, where Japanese bourses managed to move higher in tandem with the Hang Seng after improvements in Japan and China manufacturing PMIs. Mainland Chinese bourses meanwhile were in the red. The U.S. jobs report tomorrow is moving into focus and investors and central bankers look to data for clues on the timing of a possible Fed hike. The ECB meanwhile seems eager to prevent any build up of easing speculation ahead of next week’s meeting and Draghi is still remarkably stumm as the block out period for central bank comments starts. Today’s European calendar focuses on PMI readings, which in the case of the final Eurozone reading is not expected to hold major surprises, while the U.K. number is hoped to lift slightly from the post Brexit slump in July.

Oil & Gold: Commodities under pressure – WTI crude has traded under the $45/bbl mark for the first time since August 15, touching $44.49 lows, as the combination of higher U.S. inventories, and a firm dollar continue to weigh. Bigger picture, an OPEC production freeze is not expected at the September meeting in Algiers, despite recent comments from Iraq’s oil minister, who said he would support a freeze. Loggerheads between Saudi and Iran, who has insisted on bringing its production back to pre-sanction levels, will likely result in no agreement to cap output. Gold dropped to new two-month lows of $1,304.10 from near $1,316.00, on a reported large sale (nominal $4 bln-plus), rumored to be linked to the cutting of a large long position. This may have been the result of the in-line ADP jobs data, and ahead of Friday’s official employment report. A solid NFP outcome on Friday will up the odds for a September Fed rate hike, which would likely weigh heavily on gold prices.

US Data Reports: Revealed an August Chicago PMI drop to 51.5 from 55.8 in July and a 17-month high of 56.8 in June, as these numbers unwind the mid-year auto-retooling boost, while ADP posted a firm 177k August rise after a big July boost to 194k from 179k. For producer sentiment, we expect the ISM-adjusted average of the major surveys to slip to 51 from 52 in July but a lower 50 in May and June. The ADP gain signals slight upside risk for our 185k August payroll estimate, given the 20k downside bias in as-reported ADP, alongside upside risk from tight claims and producer sentiment, but downside auto sector risk as sales drop to the 17.2 mln area in August after the July pop to a 17.8 mln rate.

Fedspeak: Minneapolis Fed’s Kashkari wants to see core inflation rise and needs more data before considering a rate hike, speaking on DJ News. Sounds like the moderate regional Fed president is still on the dovish side of the fence, though he’s not a voter in this rotation. These comments came from a video interview in which he reiterated calls for too-big-to-fail reforms and said monetary policy is a blunt tool, but offered little else on rate hike timing per se.

Main Macro Events Today        

US Manufacturing ISM  August ISM is out today and is expected to decline slightly to 52.0 (median 52.0) from 52.6 in July and 53.2 in June. Already released measures of producer sentiment for August have been weaker so one to watch at 14:00 GMT.

US Initial Jobless Claims data for the week of August 27 is out Thursday and should reveal a headline increase to 269k (median 264k) from 261k in the week prior and 262k before that. More broadly, we expect claims to set a higher average in August at 263k from 260k in July. This supports our nonfarm payrolls forecast which we currently have at 185k with a 4.8% unemployment rate for August.

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