Powell’s speech at Jackson Hole will be the biggest event of the week ahead of us followed by FOMC minutes, preliminary PMI data from the Eurozone and the UK as well as inflation data from Canada.
USD
July inflation report saw headline number tick down to 2.9% y/y from 3% y/y in June. Expectations were for inflation to remain at 3%. Core number ticked down to 3.2% y/y as expected from 3.3% y/y the previous month. Both readings saw monthly increase of 0.2%. The biggest contributor to decline in inflation were used cars and trucks which saw prices decline by 2.3% m/m followed by airplane fares which saw prices decline by 1.6% m/m. Services less energy rose 0.3% m/m and 4.9% y/y while shelter saw 0.4% m/m increase, up from 0.2% m/m in June and 5.1% y/y increase compared to July of 2024. Disinflationary process continues, that is the story markets are going with and if there is no big deterioration in the labor market Fed is poised to deliver a 25bp rate cut in September.
Retail sales for the month of July rose by 1% m/m vs 0.3% m/m after being flat in June. The biggest increase was seen in motor vehicle and parts dealers which rose by 3.6% m/m followed by electronics and appliance stores with a 1.6% m/m increase. Control group, used for GDP calculation, grew by 0.3% m/m vs 0.1% m/m as expected. Retail sales ex autos and ex autos and gas both showed a growth of 0.4% m/m, coming in higher than expected. Another strong retail sales report reminding us never to underestimate US consumers and adding more credibility to the growing economy.
The yield on a 10y Treasury started the week at 3.94%, rose to 3.97% and finished the week at around 3.89%. The yield on 2y Treasury started the week at 4.06% and reached the high of 4.09%. Spread between 2y and 10y Treasuries started the week at -12bp and finished the week at -17bp as curve proceeded to flatten again. The 2y10y is inverted for over two years. FedWatchTool sees the probability of a 25bp rate cut at September meeting at around 70% while probability of a 50bp rate cut is around 30%. 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 FOMC minutes and Powell’s speech at Jackson Hole that will emphasize inflation coming down, talk about labor market and shed more light on the way Fed will proceed further with rate cuts.
Important news for USD:
Wednesday:
FOMC Meeting Minutes
Friday:
Powell Speech at Jackson Hole Economic Symposium
EUR
August German ZEW survey report results were disappointing. Current conditions plunged to -77.3 from -68.9 in July while a drop to -75 was expected. Expectations component dropped to 19.2 from 41.8 the previous month, much deeper fall than 32 as was expected. Investors have a bleak outlook towards German economy. Second estimate of Q2 GDP was unchanged at 0.3% q/q.
This week we will have preliminary August PMI data.
Important news for EUR:
Thursday:
Manufacturing PMI (Eurozone, Germany, France)
Services PMI (Eurozone, Germany, France)
Composite PMI (Eurozone, Germany, France)
GBP
Employment report saw ILO unemployment rate shockingly drop in June to 4.2% from 4.4% in May while increase to 4.5% was expected. Questions about validity of data are being raised. Employment change came in at 97.3k 3m/y with July payrolls change showing that the economy added 24k jobs. Wages continued to drop, average at 4.5% 3m/y and ex-bonus at 5.4% 3m/y, which will be warmly welcomed by the BoE. There was a big jump in claimant counts to 135k which just adds to the mixed results of this report.
July inflation data saw headline CPI increase to 2.2% y/y from 2% y/y in June, but smaller increase than 2.3% y/y print as expected. Core CPI was very satisfactory as it fell to 3.3% y/y from 3.5% y/y the previous month while a 3.4% y/y reading was expected. Services inflation showed a big decline as it came in at 5.2% y/y, down from 5.7% y/y in June. Both headline and core came in lower than expected and investors are now giving higher probability to a September cut.
Preliminary Q2 GDP reading came in line with expectations at 0.6% q/q, slightly lower than 0.7% q/q seen in the first quarter with 0.9% y/y compared to 0.3% y/y in the Q1. Services rose by 0.8% while production and construction both declined by 0.1%. Gross capital formation was the biggest contributor to the reading followed by government consumption and household consumption while net trade deducted from the GDP as exports grew by 0.8% while import rose by 7.7%.
This week we will have preliminary August PMI data.
Important news for GBP:
Thursday:
Manufacturing PMI
Services PMI
Composite PMI
AUD
July employment report showed that the economy added 58.2k jobs vs 20k as expected. This is the second consecutive month of 50k+ jobs added as last month we had 52.2k jobs added. The unemployment rate ticked up to 4.2% due to jump in participation rate to 67.1%. All of the jobs were full-time jobs (60.5k) which just adds to the stellar report. Q2 wage price index show increase of 0.8% q/q, same as in Q1, while increase of 0.9% q/q was expected.
July industrial production from China slipped to 5.1% y/y from 5.3% y/y as seen in June as external demand is weakening which is resulting in less production for imports. Retail sales rose 2.7% y/y slightly beating expectations of 2.6% y/y but strongly rebounding from 2% y/y in June. Although a nice rebound details are not showing strong consumer as spending for cars, jewellery and gold, cosmetics and apparel were all down. National Bureau of Statistics came in with expectations for consumption to increase, CPI to remain relatively stable and PPI to show smaller declines.
NZD
RBNZ has cut Official Cash Rate (OCR) by 25bp to 5.25% as Committee members agreed that some easing of restraints is in order. The statement showed that inflation is moving down in a stable manner and it is seen coming down to targeted range of 1 to 3%. Services inflation remains elevated but it is expected to come down with the rest of inflation components. New rate projections see at least one more 25bp rate cut by the end of the year as December 2024 rate is seen at 4.92% vs 5.65% previously. Rate for September of 2025 is now seen at 4.1% vs 5.4% previously. Members emphasized concerns around growth as as economy is contracting faster than anticipated.
RBNZ Governor Orr expressed his confidence that inflation is back in its targeted band and that it is appropriate to start bringing rates down. He added that members considered a range of of moves, meaning even bigger cuts and that consensus was for a 25bp cut. Incoming data indicates that economy is weakening. Dovish message from the RBNZ confirmed by Orr’s press conference will weigh down on NZD.
This week we will have Q2 retail sales data
Important news for NZD:
Friday:
Retail Sales
CAD
July building permits showed another huge drop as they fell by 13.9% m/m while expectations were for a 6.6% m/m increase. This makes it a second consecutive month of double digit drops in permits. June wholesale trade showed another decline as it printed -0.6% m/m as expected for a slightly smaller decline than 0.8% m/m in May. Manufacturing sales fell by 2.1% m/m after 0.2% m/m increase in May.
This week we will have inflation data.
Important news for CAD:
Tuesday:
CPI
JPY
Preliminary Q2 GDP reading saw bigger than expected rebound. GDP rose by 0.8% q/q and 3.1% y/y while 0.5% q/q and 2.1% y/y increases were expected. Personal consumption rose by 1% q/q, doubling market’s expectation of a 0.5% q/q increase, making it the first positive print since Q1 of 2023. Business investment rose 0.9% q/q as expected while net external demand deducted 0.1pp from the GDP as exports rose by 1.4% while imports rose by 1.7%.
CHF
SNB total sight deposits for the week ending August 9 came in at CHF463.1bn vs CHF453.9bn the previous week. Sight deposits bounced of the bottom of a range and are still within a well-established range.
