Top 5 Market Highlights to Watch for in the Upcoming Week

Investing.com — The upcoming August employment report on Friday will be a key focus for investors in the holiday-shortened week ahead, as markets anticipate the Federal Reserve commencing interest rate cuts later this month. Additionally, the Bank of Canada is expected to announce another rate reduction, while oil prices are likely to remain under pressure, and China is set to release further manufacturing data. Here’s a summary of what to expect in the markets in the coming week.

1. Nonfarm Payrolls

As the Federal Reserve prepares for its first interest rate cut in years, investors will closely examine Friday’s nonfarm payroll report for insights into how aggressive the central bank may be with its upcoming decisions.

Fed Chair Jerome Powell has indicated that the time has come to lower interest rates, with many market participants anticipating a 25-basis point cut at the Sept. 17-18 meeting.

Weakness in the labor market could reignite fears of an impending recession, which caused market turbulence in late July and early August, exacerbated by the Japanese yen carry trade.

Before Friday’s report, there will be additional updates on the labor market, including a report on job openings and layoffs on Wednesday, followed by data on private sector hiring on Thursday along with the regular weekly unemployment claims report.

1. Market Volatility

U.S. stock markets experienced gains last week, with major indices reaching new all-time closing highs, fueled by expectations of imminent Fed rate cuts.

Since the selloff in early August, markets have rebounded, and the broadening nature of this rally is seen as a positive sign for investors concerned about over-reliance on technology stocks.

Investors are increasingly shifting towards undervalued stocks and small-cap stocks, which are anticipated to benefit from lower interest rates.

Historically, September and October can be particularly volatile months for equities, and analysts note that unexpected economic data could create new market shocks.

1. Bank of Canada Rate Cut Expected

The Bank of Canada is widely anticipated to implement its third consecutive rate cut during its meeting on Wednesday.

After reducing its benchmark rate twice since June to 4.5%, the market expects two more cuts before the end of the year following September.

While recent data indicated that the Canadian economy grew at a slightly faster pace in the second quarter, signs of potential weakness emerged with flat growth in June and preliminary estimates suggesting stagnation in July.

BoC Governor Tiff Macklem has signaled a shift in focus towards stimulating the economy rather than solely combating inflation.

1. Oil Prices Under Pressure

Oil prices faced declines last week, registering significant monthly losses due in part to expectations of increased OPEC+ supply starting in October.

October futures settled $1.14 lower at $78.80 per barrel, reflecting a weekly decline of 0.3% and a monthly drop of 2.4%.

In particular, U.S. West Texas Intermediate futures fell by $2.36 to settle at $73.55, marking a 1.7% decrease for the week and a 3.6% decline in August.

Reports indicate that OPEC+ remains committed to increasing output next month, despite ongoing supply outages in Libya and pledged cuts by some members to offset previous overproduction, which has been balanced against sluggish demand.

Additionally, uncertainty surrounding expected Fed rate cuts added pressure, as strong consumer spending data suggested against a more accelerated easing.

1. China Data

China is set to release manufacturing data for August on Monday, which is anticipated to show a return to expansion after experiencing contraction in July.

Recent government statistics revealed that Chinese manufacturing activity fell to a six-month low in August, with factory gate prices declining and firms struggling to secure orders. This has intensified calls for the Beijing government to enact more economic stimulus measures to enhance household demand.

After a lackluster performance in the second quarter, the world’s second-largest economy has continued to lose momentum. Policymakers appear to be shifting away from large-scale infrastructure investments, instead directing stimulus efforts more towards households.

This summary encapsulates key market events and upcoming data that could influence economic direction in the near future.