4 Questions to Ask for Next Week’s Trading

The non-farm payrolls week is just around the corner and you know what that means – potential volatility-inducing data! Here are some questions that we need to answer as we navigate through next week’s reports.

1. Is the U.K. economy firing on all cylinders?

Next week the U.K.’s manufacturing and construction PMI (purchasing managers’ index) reports are scheduled for release. After the not-so-impressive GDP release last Thursday, traders will be looking at these indicators to see if the U.K. economy is indeed “out of intensive care” as George Osborne had suggested. To put things in perspective, last month’s manufacturing PMI came in at its highest reading in 25 months while the construction PMI ticked higher for a second month in a row.

2. Is China’s manufacturing industry as weak as the HSBC report suggested?

Last week, China’s HSBC flash manufacturing PMI report caused mini heart attacks for the comdoll bulls when it dropped to 47.7 when analysts were expecting an uptick to 48.6. Will the government’s official numbers back the HSBC’s grim picture? If it does, then you better make sure that you’re not caught in any long comdoll trade by then!

3. Will the U.S. employment numbers provide the Fed more reason to taper its asset purchases sooner rather than later?

For forex noobs out there, you should know that the NFP week is not just some monthly celebration of increased volatility for overeager traders. It just so happens that once every start of the month, the U.S., the world’s largest economy, publishes its employment numbers. What makes these numbers important is that the Fed looks at them for guidance on how to proceed with its monetary policies.

Last month, the NFP report printed convincingly strong numbers, enough to boost the USD across the board as it hinted that the Fed would be reducing its monthly asset purchases sooner rather than later.

This time around, many are expecting only a 183,000 increase in the number of laborers who found work, lower than last month’s 195,000 uptick. However, the unemployment rate is seen to decline from 7.6% to 7.5%. The actual NFP numbers won’t be released until the end of the week, so pay attention to the ISM non-manufacturing report, as well as the ADP employment change and Challenger job cuts for clues!

4. Will the BOJ, ECB, BOE, and the Fed statements contain game-changing decisions?

As if Uncle Sam‘s employment numbers aren’t enough, FOUR major central banks are also set to take center stage next week. If you remember, all four central banks kept their interest rates steady last month.

In their accompanying statements, the BOJ didn’t add anything to its stimulus program; the ECB borrowed a page from Bernanke’s book by saying that it’s keeping its low rates in the foreseeable future; the BOE hinted that interest rate hike speculations are premature, and the Fed caused confusion.

Next week, BOJ Governor Kuroda will be the first to step up with a speech in Tokyo on Tuesday. He isn’t expected to say anything market-moving, although he’ll probably convey the BOJ’s optimism over Japan’s latest positive economic reports.

The next episode to the “taper tantrum” saga will unfold on Wednesday when Bernanke is expected to clarify the Fed’s timing on asset purchases and its opinion on interest rate hikes. Both the FOMC minutes and Bernanke’s recent attempts at explaining the Fed’s decisions have caused confusion and resounding calls of “What the heck?!” among market players, so let’s hope that Bernanke is more prepared this time!

The BOE-ECB tandem on Thursday is last but definitely not least on our list. Mario Draghi isn’t expected to change anything about its monetary policies, so our attention will most likely turn to new BOE head Mark Carney. Will his “forward guidance” contain bearish statements like the one he made last month, or will he emphasize the central bank’s unanimous decision to avoid pumping more money to its stimulus program as the MPC meeting minutes had suggested?

That’s it for me today! Can you think of other issues that need to be addressed with next week’s roster of economic reports?