US nonfarm payrolls, China manufacturing PMIs to drive sentiment this week

Shipping containers are stacked at a port in Lianyungang, Jiangsu Province of China. The manufacturing sector in China will be in focus this week, with the August purchasing managers index (PMI) data due.
VCG | Getty Images
Shipping containers are stacked at a port in Lianyungang, Jiangsu Province of China. The manufacturing sector in China will be in focus this week, with the August purchasing managers index (PMI) data due.

The all-important U.S. non-farm payrolls report and manufacturing surveys from China are expected to drive investor sentiment this week, while data out of Japan and India will also jockey for trader interest.

Last Friday, U.S. Federal Reserve Chair Janet Yellen upped the chances for a September rate hike and struck a more optimistic note on the economy at a much-anticipated speech at an economic symposium at Jackson Hole, Wyoming.

Following her remarks, Fed vice chair Stanley Fischer told CNBC the August jobs report, due to be released on Friday, would likely weigh on the Fed's decision, along with other data that may come in before the Federal Open Market Committee's two-day meeting beginning September 20.

The U.S. likely added 180,000 jobs in August, according to the median forecast in a Thomson Reuters poll.

Shane Oliver, head of investment strategy and chief economist at AMP Capital, said in a note he expected the unemployment rate at 4.8 percent and wages to climb around 2.6 percent on-year in August.

In July, the U.S. economy added 255,000 jobs, while the unemployment rate was at 4.9 percent and wages increased at an annualized pace of 2.6 percent.

"This should be enough to keep the September Fed meeting "in play" for a hike, but not enough to make it probable," he said.

Elsewhere, the latest update on the state of China's factory activity will be released this week, with the official manufacturing and services purchasing managers' indexes (PMIs) due on Thursday.

The PMIs measure the level of factory activity in large, mostly state-owned enterprises. Also due on the same day is the Caixin manufacturing PMI, which is a survey of small-to-medium sized private businesses.

Goldman Sachs analysts said they expect the official August manufacturing PMI to be at 49.9, unchanged from July.

"After the very slow credit and fiscal expenditure growth in July, policy support has likely normalized in August to support activity growth," the analysts said in a note. "However, regional growth could face downward pressures from G20-related shutdowns around the Hangzhou area late in August."

The G20 Summit will be held in Hangzhou on September 4 and 5, although expectations of additional policy measures from the meeting are pretty slim.

"Compared with the Finance Ministers and Central Bank Governors Meeting in late February, there appears to be less immediate need for a major policy initiative from the upcoming meeting in Hangzhou," said Qu Hongbin, chief China economist at HSBC.

Qu added market concerns over the depreciation of the renminbi as well as the global economy have abated, while economic activity has stabilized in China, supported by fiscal expansion.

"With less near term worries on the radar, we think China's policy makers will seek to advocate a more medium term agenda for the global economy," said Qu. "One that features reforms to the global monetary system, greater use of green finance, and a more prominent role for infrastructure investment."

Market watchers will also keep an eye on China's financial market and the availability of cash within.

In the previous week, the People's Bank of China (PBOC) re-introduced the 14-day reverse repo agreement for the first time since February. It continues to also inject cash into the market through its 7-day reverse repo agreements.

"The shift of liquidity supply to longer tenor signaled that PBOC may want to curb leverage in bond market as funding cost from 14-day reverse repo is higher than from 7-day and overnight reverse repo," said Tommy Xie, an economist at Singapore's OCBC Bank.

Xie added that China's bond market, which rallied due to leverage on the back of stable short end funding, may face price pressure in the near-term due to "reduced easing expectation as well as the PBOC's warning shot to leverage."

Japan will also be a key market to watch, after last week's data showed consumer prices fell for a fifth straight month, despite efforts from the government to prop up the country's moribund economy, which included a 28 trillion yen stimulus package announced in late July.

Data due this week are July employment report, household expenditure and retail sales on Tuesday, industrial production on Wednesday and August consumer confidence number out on Friday.

Shopping in Nishiki Market in Kyoto, Japan.
Craig Ferguson | LightRocket | Getty Images
Shopping in Nishiki Market in Kyoto, Japan.

"Japan's workers' household expenditure likely fell 0.3 percent on-year in July," according to a note from Moody's Analytics on Friday. "Persistently low wage and output growth is weighing on the spending decisions of Japanese households. Consumers have little to be optimistic about, with the trend of low wage growth set to persist over the coming years."

Moody's added it does not expect household spending to increase in the coming months.

The data will serve as a report card on the government's efforts to kick start the Japanese economy. While the effects of Prime Minister Shinzo Abe's hefty stimulus plan might take time to show up in government data, the numbers could put additional pressure on the Bank of Japan to ease monetary policy further at its September meeting.

Speaking at Jackson Hole, Governor Haruhiko Kuroda said the central bank would approve further monetary easing without hesitation.

India's second quarter gross domestic product (GDP) numbers are due Wednesday, with Moody's forecasting the economy to have grown by 7.4 percent, citing consumption to be the key driver of growth.

Last week, Goldman Sachs said it expects the world's fastest growing major economy to accelerate further due to several factors including a better monsoon season and progress on major economic reforms.

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