Weak jobs data out of the US seemed to confirm that the world’s largest economy was headed for a double dip recession while Chinese service sector figures touched record lows, compounding the bad news for the global growth outlook. As a result, equity markets across Europe are called to open lower and that is having the usual impact on currency markets whereby the US dollar, Swiss franc and Japanese yen are experiencing safe haven buying, while currencies which are deemed as riskier are facing losses. US and Canadian markets are closed for a public holiday, which could increase volatility on low volumes. The Bank of England, the ECB and the Bank of Japan will meet this week to discuss monetary policy. Aside from the European Central Bank policy meeting, the euro will face several hurdles this week. Negotiations over collateral in Greece’s second bailout, the assessment of deficit reduction measure in Greece, planned participation in swap deals, and a German court ruling over the constitutionality of the bailouts are all expected to see conclusions this week. Service PMI data will be released in the UK and EU. Both sets of results are expected to stay in expansion territory, however, signs of weakness from the UK would not cause too many surprises.
Sterling
The CIPS PMI construction survey faced slowing orders which took the index to its lowest level since last December. The data only served to compound the gloom over the global economy and helped investors move into the safe haven dollar.
US dollar
Risk appetite for investors is gone again after US non-farm payrolls failed to create even one new job in the month of August. The poor jobs data highlight the threat of a double dip recession that could be met with another round of quantitative easing measures.
Euro
Aside from the European Central Bank MPC meeting, the euro will face a number of challenges this week. The ECB is expected to leave interest rates on hold and could even signal rates will remain steady for the remainder of the year since the risks to price stability have now turned to the downside. There remains an internal struggle within the committee over the central bank’s bond purchasing programme, which will be under review.
Japanese yen
The Japanese yen is experiencing gains on the back of increased safe haven demand. Asia equity markets are trading in negative territory after data confirmed suspicions that the US economy is headed for a double dip recession.
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