Week Ahead US China trade talks could overshadow RBA NFP

After a relatively quiet week, the week ahead is going to be a busier one. For one, the economic calendar is full of market-moving data and the Reserve Bank of Australia looks set to cut rates one more time on Tuesday. For another, Q3 is officially ending on Monday, meaning there will be some portfolio rebalancing and window dressing operations from portfolio managers to provide extra volatility. All this is happening at a time when Brexit talks are entering a crucial stage, while the US-China trade talks are set to resume in early October.

But judging by the latest headlines that were released on Friday afternoon – i.e. that Trump was supporting a review of investment limits on China and considering delisting Chinese companies from the US stock exchanges – there is no guarantee that a deal will be reached any time soon. Now China is on holiday the whole of next week. But the markets could open with gaps, should the war of words intensify over the weekend.

With regards to Brexit, reports on Friday suggested that the EU believes negotiations have stalled and that the possibility of reaching an agreement in October is very limited. So, everything is up in the air and a lot could happen.

So, volatility should remain elevated, which should be good news for traders. On the data front, the key highlights are listed below:

• Monday: Chinese manufacturing PMI
• Tuesday: RBA meeting and US Manufacturing PMI
• Wednesday: ADP Employment report
• Thursday: US Non-Manufacturing PMI
• Friday: NFP

By the time we get to Friday’s nonfarm payrolls report, a lot could have happened. But those employment figures will likely be the week’s main scheduled event. With jobs growth slowing over the past few months, another disappointing showing could increase bets on further rate cuts from the Fed and, in turn, derail the dollar’s rally. Or will there be a surprise pick-up in wage growth? If that’s the case, the USD could remain supported for a while yet.

Ahead of Friday’s US jobs report, we will have had the latest manufacturing PMIs from both China and the US. After a shocking German PMI this week, growth concerns could really come to the forefront should manufacturers at the world’s largest economies also paint a bleak picture. So, commodity dollars could be in for a wild ride.

Speaking of commodity FX, the Aussie will clearly be in focus in the week ahead with the publication of not only key Chinese data but the small matter of a rate decision from the Reserve Bank of Australia. The market is 80% confident that rate setters at the RBA will trim the Cash Rate by 25 basis points to a new record low of 0.75% from 1.0%. Now 80% is 20 shy of 100 percent, meaning there should be some market reaction if the RBA does indeed cut rates, as the decision is not fully priced in. Obviously, the bigger surprise would be inaction from the central bank at this particular meeting.