Here are a handful of the key questions for investors as a new trading week beckons.
Will US wage growth show up?
The relative lack of inflation in developed economies since the financial crisis is a major quandary for central banks as they try to remove monetary stimulus.
It will be what investors are watching most closely when the latest US monthly jobs figures are released on Friday. The jobs market has shown continued strength, with the US finally closing its post-recession jobs gap.
August’s figures are expected to show that the pace of job creation slowed to 180,000, while wage growth is forecast to have accelerated to 2.6 per cent this month from 2.5 per cent in July.
The subdued pace of wage growth is acting as a drag on inflation, an unwelcome complication for the US Federal Reseve in deciding the timing of its next interest rate rise.
“The the lack of upward momentum in pay growth has been a real talking point,” says Victoria Clarke, an economist at Investec. “The Fed appears happy to sit tight and move gradually on interest rate normalisation, waiting until December before enacting the next hike, despite the low unemployment rate.”
However, analysts noted that if Friday’s figures do show an acceleration in wage growth it is likely to harden the conviction of those who believe the Fed will end up raising interest rates later this year.
Strategists at TD Securities noted that “the combination of near-consensus job growth and an on-consensus pick-up in wages argues for a hawkish reaction, given how much wages have disappointed the last four months.”
When will sterling find a bottom against the euro?
The fortunes of the pound will remain in focus after the currency last week touched its lowest level against the euro since 2009.
With the dollar itself struggling, traders and investors’ have been showing their unease with the pound’s prospects most clearly against the euro.
Despite signs that members of the UK government are moving towards a ‘softer Brexit’ that prioritises safeguarding the economy, sterling hasn’t drawn any support from that development.
Instead the focus has been on the relative strength of the eurozone economy, whose momentum has led investors to anticipate that the European Central Bank will further scale back its bond-buying programme later this year.
Cheaper sterling could boost exports to the continent and draw in more tourists — particularly as the euro is by far the most important currency for British trade; it makes up nearly 50 per cent of the UK’s trade-weighted currency basket according to data from UBS.
Further weakness in the pound is not a given, however. The UK economy is still holding up better than originally forecast in the aftermath of the EU referendum. This week’s release of thet UK industrial, services and manufacturing indicators, along with trade data will therefore be closely watched.
Foreign exchange strategists at JPMorgan Chase believe forecasts that the euro could reach parity against the pound are overdone.
“There is naturally some focus on whether EUR/GBP could reach parity,” they note. “But we regard that as being much too aggressive in the absence either of an outright UK recession or the failure of Brexit negotiations that heightens the risk of a disruptive Brexit in 2019.”
How far does the metals boom have to run?
After strong rallies in metals from zinc to aluminium, debate is increasing over whether prices have gone too far too fast. The answer lies with your view on China, the world’s largest metals consumer, which is trying to consolidate its industry to improve quality and reduce pollution.
Aluminium is trading close to a six-year high, while zinc prices are near their loftiest in a decade. A wide ranging environmental clampdown in China has led to countrywide inspections on producers of metals, which has reduced supply.
Investors will be looking for signs from China about the seriousness of the clampdown, as the Communist Party gears up for its 19th Party Congress in the autumn.