ECB meeting where are rate cut is fully prices in, inflation from the US and China, final Q2 GDP reading from Japan as well as industrial production and consumption data from China will highlight the week ahead of us. First presidential debate between Harris and Trump will be held on Tuesday.
USD
ISM manufacturing PMI for the month of August printed 47.2 after 46.8 in July and thus made first improvement after four consecutive declines. Expectations were for a bigger rebound, to 47.5 and manufacturing remains in contraction for the fifth straight month. New orders fell to lowest since May of 2023 and production continued to decline with both falling deeper into contraction. Prices paid increased but are still below the six month trend indicating that inflation is coming down.
August ISM services PMI printed 51.5, a tick up from 51.4 in July, higher than 51.1 as expected. New orders improved and moved further into expansion while there were small drops in business activity and employment components, they are all in expansion. Prices paid component ticked up.
August NFP report showed economy added 142k jobs vs 160k jobs as expected. Previous month’s reading was revised down to 89k. The unemployment rate ticked down to 4.2% while participation rate remained stable at 62.7%. Wages came in strong as they rose by 0.4% m/m and 3.8% y/y. Weekly hours ticked up to 34.3. Private payrolls increased by 118k vs 139k as expected. The markets were split 50/50 whether Fed will deliver a 25bp rate cut or a 50bp rate cut but started leaning more toward the 25bp as more details were scrutinized.
The yield on a 10y Treasury started the week at 3.91%, rose to 3.94% and finished the week at around 3.72%. The yield on 2y Treasury started the week at 3.92%, reached the high of 3.95%. Spread between 2y and 10y Treasuries started the week at -1bp and finished the week at 6bp as curve proceeded to disinvert and moved into positive territory. The 2y10y wss inverted for over two years. FedWatchTool sees the probability of a 25bp rate cut at September meeting at around 67% while probability of a 50bp rate cut is around 33%. Markets are fully pricing in November and December rate cuts making it a total of three rate cuts in 2024.
This week we will have inflation data.
Important news for USD:
Wednesday:
CPI
EUR
Final manufacturing PMI for the month of August was revised up to 45.8 from 45.6 as preliminary reported and was unchanged compared to the July reading. New orders are slowing down further and business conditions are continuing to deteriorate. The report shows that both input and output prices increased which will keep inflation pressures elevated and it will not be welcomed by the ECB. Services PMI was revised down to 52.9 from 53.3 due to miss in Italian reading and downward revision to German reading. Olympic games were responsible for strong French reading and that propelled overall reading higher than in July. Composite was also revised down, 51 vs 51.2 as preliminary reported, but still stronger than 50.2 the previous month. Final Q2 GDP number was revised down to 0.2% q/q from 0.3% q/q shown in first and second readings and this will further vindicate next week’s rate cut.
This week we will have ECB meeting. Rate cut is fully priced in but future rate cut path is not clear. We will get new economic projections that will determine the path of rate cuts in the future. If inflation and growth are seen to be lower than in June projection we can expect further rate cuts in December.
Important news for EUR:
Thursday:
ECB Interest Rate Decision
GBP
August final manufacturing PMI was unchanged at 52.5 which is a new 26-month high. Unlike in the Eurozone, UK manufacturing sector is experiencing strong growth in employment, output and new orders. The report also mentions that domestic market is the driver of strength while foreign demand is struggling. Services PMI was revised higher to 53.7 from 53.3 as preliminary reported with new business growing at a stronger pace. The rate of input cost pressures has continued to decline and that is something that will keep BoE happy. Composite was also revised up and printed 53.8 vs 53.4 as preliminary reported.
AUD
Q2 GDP print saw growth of 0.2% q/q same us upwardly revised Q1 print, lower than 0.3% q/q as expected and 1.5% y/y vs 1.3% y/y in the previous quarter. Household consumption was weak and decreased by 0.2% as there was a big drop in discretionary spending. Government consumption rose by 1.4% Net exports contributed positively to the reading but terms of trade fell by 3%. Household saving to income ratio remained at 0.6%. Growth is chugging along spurred by government spending, consumer is hurting due to high prices. RBA is still primarily focused on bringing inflation down and they plan to keep rates unchanged, but if growth and consumer start to suffer more we could see them changing their tune and going for the rate cuts.
RBA Governor Bullock stated that it is premature to think about rate cuts as they are in no position to cut rates in the near-term as they need to see further results on inflation. She reiterated bank’s commitment to bringing inflation down to target adding that there is uncertainty around outlook with risks on both sides. She also added that labor market remains strong but it is expected to ease gradually and characterized slightly higher AUD as positive for fighting inflation.
August Caixin manufacturing PMI returned to expansion with a 50.4 reading after it surprisingly dropped into contraction last month with a 49.8 reading. Over the weekend official manufacturing PMI slipped further into contraction with a 49.1 reading. Caixin report showed that new orders continued to grow while new export orders recorded first decline in almost a year. There was a decline in both input and output prices with lower prices for raw materials and sales pressures keeping them subdued.
This week we will get inflation, industrial production and consumption data from China.
Important news for AUD:
Monday:
CPI (China)
Saturday:
Industrial Production (China)
Retail Sales (China)
NZD
First dairy auction of September saw GDT index drop by 0.4%. This breaks a streak of three consecutive auctions with rising dairy prices. The main culprit was a drop in whole milk powder prices.
CAD
BoC has delivered another 25bp rate cut as was widely expected and brought overnight rate to 4.25%. The accompanying statement notices that the economy grew in Q2 as projected but that growth waned in June and July. Labor market continues to slow down. Inflation continues to come down and is nicely within bank’s targeted range. Shelter and some other services are keeping inflation high while excess supply in the economy puts downward pressure on prices. The statement shows that “Governing Council is carefully assessing these opposing forces on inflation.” and concludes with “Monetary policy decisions will be guided by incoming information and our assessment of their implications for the inflation outlook.”
Employment report for August showed employment increase by 22.1k vs 25k as expected. Past two reports saw job losses so this is a positive sign. Unfortunately, positive signs stop there. The unemployment rate jumped to 6.6% from 6.4% making it the highest in seven years. Participation rate ticked up to 65.1% but not enough to soften the blow of jump in the unemployment rate. Wages have risen by 4.9% y/y compared to 5.2% y/y in July. The report shows that all of the jobs added were part-time (65.7k) while full-time jobs recorded a big decline (-43.6k). BoC will remain firmly on a rate cutting path after this report.
JPY
Final manufacturing PMI for the month of August was revised up to 49.8 from 49.5 as preliminary reported thus getting closer to the expansion territory. The report shows that output returned into expansion. New orders recorded softer fall while new export orders declined at a much faster pace indicating slower demand from abroad. Employment improved along with input prices which reached a new 16-month high due to increase in prices of raw materials and weak JPY. Services were revised down to 53.7 making them unchanged from July. New orders and employment continued to grow but at a slower pace. Composite was lifted to 52.9 from 52.9 the previous month.
CAPEX data for the second quarter increased by 7.4% y/y compared to 6.8% y/y increase in the first quarter, but markets were expecting a 9.9% y/y increase. Nevertheless, an improvement in CAPEX is bringing optimism that Japan economic growth will be driven by domestic demand. The improvement should be visible in next week’s final Q2 GDP print. July wages rose by 3.6% y/y, lower than 4.5% y/y increase seen in June but when adjusted for inflation real wages rose by 0.4% y/y for the second consecutive month of real wage increases. Governor Ueda stated that positive real wages and spending are necessary for inflation to be sustainable at 2% so this data point can guide BoJ towards policy normalization. Household spending grew by 0.1% y/y improvement over -1.4% y/y reading the previous month, but smaller than expected 1.2% y/y growth.
This week we will have final Q2 GDP reading.
Important news for JPY:
Monday:
GDP
CHF
SNB total sight deposits for the week ending August 30 came in at CHF456.7bn vs CHF463.6bn the previous week. Deposits have been in the range from 450 to 467 since mid-May. August CPI report saw headline number dropping to 1.1% y/y from 1.3% y/y in July while a 1.2% y/y print was expected. Core reading remained unchanged at 1.1% y/y. Q2 GDP data saw improvement as it printed 0.7% q/q vs 0.5q/q in Q1 and 1.8% y/y vs 0.6% y/y in the previous quarter. SNB has ample room to cut and a 25bp rate cut is expected at their September meeting.
