China fears linger as focus on Fed sharpens

Fri Aug 28, 2015 10:48am EDT
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By Jonathan Cable

LONDON (Reuters) - Fears over the health of China's economy kept world markets on edge this week and the country will remain in focus, along with the question of whether the Federal Reserve will raise interest rates next month.

Those concerns sent world stocks, commodities and currencies on a roller-coaster ride this week, and purchasing manager surveys due on Tuesday are expected to show manufacturing contracted during August in the world's second-biggest economy.

"China, the epicenter of the week's moves, is set to remain in focus over the next week as markets attempt to assess whether the worst of the sell-off has been seen," said Philip Shaw, chief economist at Investec.

"Despite September lift-off seemingly now off the cards, the timing of the FOMC's decision to raise interest rates thereafter remains data-dependent, hence Friday's non-farm payrolls report will still be a release worth watching."

The case for raising rates in September now seems less compelling, Federal Reserve Bank of New York President William Dudley said this week, leading several large banks to push back expectations.

"You are probably not getting it any clearer from a central banker than that," said Harm Bandholz, chief U.S. economist at UniCredit as he moved his call from September to December.

Markets will therefore be watching business surveys, factory orders and trade data from the world's largest economy as well as the employment numbers due on Friday.

"The week finishes with non-farm payrolls for August, typically the biggest market mover globally, and definitely on the Fed's radar given unemployment is already close to full employment and the Fed looking to gauge whether there is `some' further labor market improvement," economists at National Australia Bank said.   Continued...

U.S. Federal Reserve Board Chair Janet Yellen (L) and White House Advisor John Podesta (2nd L) attend a meeting with China's President Xi Jinping at the Great Hall of the People in Beijing in this July 10, 2014 file photo.   REUTERS/Jim Bourg