Top 5 things to watch in markets in the week ahead

Investing.com -- Friday’s August employment report will be the main focus in the holiday-shortened week ahead as markets prepare for the Federal Reserve to begin cutting rates later this month. Meanwhile, the Bank of Canda is set to deliver another rate cut, oil prices look likely to remain under pressure and China is to release more manufacturing data. Here's your look at what's happening in markets for the week ahead.

1. Nonfarm payrolls

With the Fed gearing up to cut interest rates for the first time in years investors will be focusing their attention on Friday’s August jobs report for clues about how aggressively the central bank may move.

Fed Chair Jerome Powell has flagged it is time to start reducing interest rates, and many in the markets expect the process to begin with a 25-basis point cut at the Sept. 17-18 meeting.

Any signs of weakening in the labor market could revive fears over the prospect of a recession that roiled markets in late July-early August. The influence of the Japanese yen carry trade exacerbated the selloff.

Ahead of Friday’s report there are other updates on the health of the labor market, starting with Wednesday’s Jolts job openings report, which also contains data on layoffs. ADP data on private sector hiring will be released on Thursday, along with the weekly report on initial jobless claims.

2. Market volatility

Wall Street stocks rose, and the Dow scored a second consecutive all-time closing high on Friday on hopes for imminent Fed rate cuts.

Markets have rebounded since the early August selloff and signs that the rally is broadening is seen as an encouraging signal to investors worried about concentration in technology shares.

Investors are also putting money in less-loved value stocks and small caps, which are expected to benefit from lower interest rates.

But historically, September and October can be volatile months for stocks according to analysts at Bank of America and but any surprises from economic data could cause fresh market shocks.

3. Bank of Canada to cut again

The Bank of Canada is widely expected to deliver its third consecutive rate cut when it meets on Wednesday.

The bank has already trimmed its benchmark rate twice since June to bring it down to 4.5% and markets are currently expecting two more rate cuts this year after September.

Data on Friday showed that the Canadian economy grew at a slightly faster than expected rate in the second quarter but in a sign of coming weakness June growth was flat and Statscan said preliminary estimates showed there would also be no growth in July.

BoC Governor Tiff Macklem hinted after the bank’s July at shifting the bank's focus towards boosting the economy rather than combating inflation.

4. Oil prices under pressure

Oil prices ended the week lower on Friday and notched up hefty monthly losses as expectations for an increase in OPEC+ supply starting in October weighed.

Brent crude futures for October delivery, which expired on Friday, settled $1.14 lower at $78.80 a barrel, marking a decline of 0.3% for the week and 2.4% for the month.

U.S. West Texas Intermediate crude futures settled down $2.36 at $73.55, a drop of 1.7% in the week and a 3.6% decline in August.

Reuters reported Friday that OPEC+ is sticking to plans to increase output from next month as Libyan outages and pledged cuts by some members to compensate for overproduction offsets the impact of sluggish demand.

Uncertainty around expected rate cuts from the Fed also weighed as strong consumer spending data on Friday argued against a faster pace of easing. Lower rates can boost economic growth and demand for oil.

5. China data

China is to release August Caixin manufacturing PMI data on Monday which is expected to tick back into expansion territory after contracting in July.

Government data on Saturday showed that Chinese manufacturing activity sank to a six-month low in August as factory gate prices tumbled and owners struggled for orders, keeping up pressure on Beijing for more economic stimulus measures to bolster household demand.

Following a weak performance in the second quarter, the world’s second-largest economy continued to lose momentum in July.

Policymakers have indicated a shift from their traditional strategy of investing heavily in infrastructure projects, instead focusing stimulus efforts directly on households.

--Reuters contributed reporting