ISM services could guide global sentiment: The Week Ahead

It has been another volatile week for traders thanks to weaker US economic data, a dovish Fed and a refreshingly hawkish Bank of Japan. ISM services is a key event from the US next week. We have some second-tier data from the APAC region such as the RBA meeting, NZ inflation expectations and China PMIs, but nothing that is likely to move markets to the same degree as the last two weeks. And that means appetite for risk might be the main driver for markets next week. But given the larger moves already seen, we may need to lower out expectations for volatility unless a fresh catalyst arrives.

The Week Ahead: Calendar

The Week Ahead: Key themes and events

• ISM services report
• RBA cash rate decision, press conference
• NZ unemployment, business inflation expectations
• China PMIs

ISM services report

USD bears and Fed doves were finally vindicated with another batch of weak economic data, and the Fed signalling rate cuts from next month. This week, ISM manufacturing contracted at a faster pace than expected. And if this is to be coupled with another weak ISM services report, it could further spook investors into thinking the Fed are late with cuts and they have finally broken something.

Last month’s report revealed the headline ISM figure contracted the services sector contracted at its fastest pace since the pandemic. New orders, employment and business activity were also negative. And if we are to see an extension of these patterns, then it points to a US (and therefore a global) recession on the horizon. That should be a bearish case for US indices, although it may be inadvertently bullish for the US dollar on a safe-haven basis, even if it does point to more aggressive easing from the Fed. Regardless, the ISM services report is the main economic event to watch next week.

Trader’s watchlist: EURUSD, USD/JPY, WTI Crude Oil, Gold, S&P 500, Nasdaq 100, Dow Jones

RBA cash rate decision

I really do not think the RBA have much of a decision to make, given their quarterly inflation data come in less than expected. Yes, it remains higher than they’d like it to be. But it might be enough for them to remove their hawkish bias from their next statement. And even if they keep it, traders won’t take it seriously. With the Fed in dovish move and the RBNZ removing their own hawkish bias, there seems little reason to expect them to hike with growth input figures softening, even if employment data remains robust overall.

Trader’s watchlist: AUD/USD, NZD/USD, AUD/NZD, NZD/JPY, AUD/JPY, ASX 200

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge