This Week's Market Movers (1 - 5 Sep 2008)

Four of the world's major central banks will hold monetary policy meetings this week. The Reserve Bank of Australia (RBA), The Bank of Canada (BoC), the Bank of England (BoE) and the European Central Bank (ECB) will each decide their respective economies' interest rate settings but only the RBA is expected to lower rates, the rest are forecast to leave rates unchanged.

Australia:

A wave of economic indicators is scheduled for release this week. Australian real GDP growth, company profits, building approvals, current account and the trade balance are some of the key reports due out.

Financial markets are likely to be more interested to see how the Australian economy performed in the second quarter, particularly given the trickle of soft data over the past few months. Australian real GDP is expected to increase by 0.4 per cent in the June quarter for an annual growth rate of 2.9 per cent. This is down from the first quarter's 0.6 per cent quarter-on-quarter growth and strong 3.6 per cent increase.

But these key indicators, including the GDP report, will play second fiddle to the RBA's Board meeting on Tuesday where it is expected to lower the official interest rate for the first time since December 20001. RBA rhetoric over the past weeks have convinced markets unanimously that the Australian central bank will cut interest rates by 25 basis points to 7.0 percent after its meeting.

US:

Following last week's better-than-expected data on durable goods and the upward revision to second quarter real GDP, US markets will get the August updates on the ISM manufacturing and non-manufacturing indexes, the Beige Book, unit labour costs and payrolls.

The ISM manufacturing index is expected to remain balanced at 50 in August -- the delineation line between growth and contraction. The ISM non-manufacturing survey is also expected to remain steady at 49.5.

As is usual at the beginning of each month, US payrolls will be the keenly watched report this week. Non-farm payrolls are expected to show a ninth consecutive decline in August, with a loss of 75,000 jobs following July's 51,000 fall. The unemployment rate is expected to remain steady at 5.7%. Because of the weakening labour market, growth in unit labour costs is forecast to decelerate to 0.1 per cent in the June quarter from 1.3 per cent.

Economic data aside, investors will also keep a wary eye on Hurricane Gustav, which is expected to be as bad, if not worse, than Hurricane Katrina.

Japan:

This week will be a relatively quiet one for Japan in terms of economic data. Japanese capital spending and labour cash earnings are the major reports due out. Capital spending is forecasts to show a 0.2 per cent increase in the second quarter after a huge 4.9 per cent drop in the first. Meanwhile, labour cash earnings for July are expected to increase by 0.3 per cent, following a revised increase of 0.4% in June.

Financial markets will also be interested in BoJ Governor Masaaki Shirakawa's thoughts when he speaks in Nagoya early this week. Last week, the BoJ Governor admitted that Japan was facing a recessionary economy, but said a return to a moderate growth path would occur, though he could not say when.

Europe:

Monetary policy meetings by the Bank of England and the European Central Bank are the main highlights in Europe this week. Despite gloomy data in the UK and the sagging European economies, both are expected to leave their policy interest rates at 5 per cent and 4.25 per cent, respectively.

The ECB's interest rate decision will not be as interesting as the comments that follow with regard to the Bank's outlook for Eurozone growth and inflation. Markets expect that while the ECB will continue to forecast weak growth, it will maintain its hawkish stance on inflation and interest rates.

In the UK, while the BoE is not expected to reduce interest rates this month, markets foresee a rate reduction in November as weakening economic growth forces the British central bank's hand.