Inflation data from the US, Eurozone and Switzerland combined with NFP data and GDP data from the US and Canada as well as official PMI data from China will highlight the week ahead of us.
USD
New home sales in July surpassed expectations and came in at 714k, up from 684k in June. This is the highest number of new homes sold since February of 2022. Gains were led by sales in Midwest followed by sales in the West part of the country. This is yet another data point indicating resilience of the housing sector. Revision to the NFP number for March removed 306k jobs. This is a huge revision and undoubtedly a bad sign, but considering that market was bracing for a 500k jobs revision this can be seen in a positive light.
We will keep at it and job is not done are the main messages from Powell’s speech at Jackson Hole and Fed will thread carefully. He reiterated that Fed is data dependent and added that there are signs that the economy is not slowing down as expected. Inflation remains too high and although weak inflation data is welcome Fed needs to see more. Fed will not change 2% inflation target. Powell acknowledged that monetary policy is restrictive.
The yield on a 10y Treasury started the week and year at around 4.25%, rose to new highs of 4.36% and finished the week at around 4.23%. The yield on 2y Treasury reached the high of 5.08%. Spread between 2y and 10y Treasuries started the week at -69bp then widened to -79bp only to come back down and finish the week at around -78bp. The 2y10y is has now been inverted for over a year. FedWatchTool sees the probability of a 25bp hike at September meeting at around 19% while probability of no change is at around 81%.
This week we will have second reading of Q2 GDP, PCE data and NFP on Friday. Headline NFP number is expected to come at around 180k with the unemployment rate remaining at 3.5%.
Important news for USD:
Wednesday:
GDP
Thursday:
PCE
Friday:
NFP
Unemployment Rate
EUR
Preliminary August PMI data gave us an unpleasant surprise with services sector slumping down into contraction territory and printing 48.3 vs 50.3 as expected and down from 50.9 in July. This is the lowest services reading since February of 2021. Both new orders and new export orders have continued to decline deeper into contraction indicating weak domestic and foreign demand. Input prices have been on the rise due to wage increases, thus flaming inflation pressures. Manufacturing managed to improve a bit and printed 43.7 vs 42.6 as expected and up from 42.7 the previous month. Composite was dragged down by services sector and it printed a 31-month low of 47. ECB will be hard pressed to change their hawkish rhetoric and markets are lowering probabilities of September hike. Additionally, July and August PMI indicate another quarter of negative growth, but analysts expect a 0.1% q/q increase mostly due to income from tourism.
Second and final reading of Germany’s Q2 GDP was unchanged, coming in flat and confirmed that economy escaped technical recession by going into stagnation. Question can be raised if they really escaped recession especially after abysmal PMI data for Q3. Digging into details we can see that public consumption contributed positively with 0.1% q/q while public consumption was flat. Net exports were a drag while inventories were up indicating weak domestic and foreign demand. German Ifo survey showed further deterioration in all three categories: current situation, business climate and outlook.
This week we will have preliminary inflation data for the month of August.
Important news for EUR:
Thursday:
CPI
GBP
The worst preliminary PMI for the month of August came from the UK. They saw all three components declining with all three of them now in recession territory. Manufacturing slumped to 42.5 from 45.3 in July, services came in at 48.7 vs 51.5 the previous month and they both collectively dragged composite down to 47.9 from 50.8 in July. The report shows easing of inflationary pressures as weak demand reduces price setting power of companies. Reduction of inflation is coming at the high cost as growth is severely dampened. That was BOE’s plan, to cause subdued growth in order to fight off inflation. September rate hike is still in play, but markets are positioning as it will be the last one in this cycle.
AUD
PBOC has delivered a 10bp rate cut to their 1-year Loan Prime Rate (LPR) which now stands at 3.45% vs 3.55% previously. Markets were expecting a 15bp rate cut. Additionally, they have left 5-year LPR rate unchanged at 4.20%. LPR rate is used as a basis for commercial banks when they determine interest rates for new loans for their customers. Lower than expected rate cut and no cut to longer tenor rate caused further weakening in AUD and NZD.
This week we will have official PMI data from China.
Important news for AUD:
Thursday:
Manufacturing PMI (China)
Services PMI (China)
Composite PMI (China)
NZD
Q2 retail sales came in at -1% q/q vs -2.6% q/q as expected and improved from -1.4% q/q in Q1. When we look y/y we also see improvement from -4.1% in Q1 to -3.5% in Q2. Core retail sales have continued to decline and came in at -1.8% q/q vs -1.1% q/q in the previous quarter. High inflation is taking its toll on consumers who are in turn dialing back on their consumption.
CAD
Retail sales form the month of June managed to increase by 0.1% m/m vs being flat as expected. Ex autos category plunged deeper with -0.8% m/m reading. Motor vehicles and parts were the biggest contributor to retail sales while furniture, electronics and appliances were biggest drag on the reading. Advanced reading for July sees retail sales rising 0.4% m/m suggesting strong start to the Q3.
This week we will have Q2 GDP reading.
Important news for CAD:
Friday:
GDP
JPY
Preliminary August PMIs saw improvements across all three readings. Manufacturing ticked up to 49.7 from 49.6 in July while services printed a very strong 54.3, up from 53.8 the previous month. Composite was thus lifted to 52.6 from 52.2 in July. New orders and new export orders saw stronger growth for services sector while they showed weaker decline for manufacturing sector. Employment was unchanged for manufacturing while it started to grow for services sector. Output prices showed weaker inflation coming from manufacturing sector with stronger inflation coming from services sector. Input prices showed both sectors facing stronger inflation,
August CPI data for the Tokyo are showed signs of slowing down with headline number coming in at 2.9% y/y vs 3% y/y as expected and down from 3.2% y/y in July. Ex fresh food category came in at 2.8% y/y vs 2.9% y/y as expected and down from 3% y/y the previous month. Ex fresh food, energy component, the so-called core-core, remained unchanged at 4% y/y. BOJ maintains the stance that inflation is transitory and it will start to drop below targeted 2% from September/October. Yield on 10y rose to 0.684% during the week and there was no intervention.
CHF
SNB total sight deposits for the week ending August 18 came in at CHF476.2bn vs CHF484.8bn the previous week. SNB keeps selling USD and EUR in order to prop Swissy strength and fight off inflation.
This week we will have inflation data.
Important news for CHF:
Friday:
CPI
