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

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.