Fed, BoE and BoJ meetings, with Fed cutting while other two staying on hold, coupled with inflation data from the UK and Canada, consumption data from the US and employment data from Australia will highlight the massive week ahead of us.
USD
August CPI report saw headline number at 2.5% y/y vs 2.6% y/y as expected, down from 2.9% y/y in July. This is the lowest headline CPI number in 36 months. Core number came in unchanged at 3.2% y/y with core inflation increasing 0.3% m/m vs 0.2% m/m as expected. Airline fares surprised to the upside as they rose 3.9% m/m while shelter rose 0.5% m/m and 5.2% y/y and was the biggest contributor to the reading. Supercore printed uncofmortably high 4.5% y/y. Prices of used cars dropped by 1% m/m. With core inflation staying unchanged and shelter moving in the opposite direction this report gives a big nudge to a 25bp rate cut at next week’s meeting.
The yield on a 10y Treasury started the week at 3.71%, rose to 3.76% and finished the week at around 3.66%. The yield on 2y Treasury started the week at 3.65%, reached the high of 3.71%. Spread between 2y and 10y Treasuries started the week at 6bp and finished the week at 9bp as curve remained upward slopping. The 2y10y was inverted for over two years. FedWatchTool sees the probability of a 25bp rate cut at September meeting at around 53% while probability of a 50bp rate cut is around 47%. 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 retail sales and FOMC meeting. Markets are almost evenly split between a 25bp rate cut and a 50bp rate cut. We are leaning more towards the 25bp rate cut due to still good labor market as well as low unemployment claims and think that Fed can speed up rate cuts at following meetings if necessary. However, we feel that market pricing almost 10 cuts by the June of 2025 is too much. Additionally, we will also get new Summary of Economic Projections.
Important news for USD:
Tuesday:
Retail Sales
Wednesday:
Fed Interest Rate Decision
EUR
ECB delivered 25bp rate cut as expected and lowered deposit rate to 3.50%. Inflation data has come in as broadly expected but we should see some increase in the second half due to base effects. There were no changes to headline inflation, as it is seen averaging 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026. There were upward changes to core inflation projections, due to higher services inflation and it is now seen at 2.9% in 2024, 2.3% in 2025 and coming down to the 2% in 2026. GDP was revised lower and is seen at 0.8% in 2024, 1.3% in 2025 and 1.5% in 2026. The statement reiterated data-dependent and meeting-by-meeting approach.
At the press conference ECB President Lagarde clarified that it was a unanimous decision on rates. She added that there is no predetermined path on future rate cuts noting that recover is facing hardships, there are downside risks to growth, but it will strengthen in time thanks to rising real incomes. On the inflation front she stated that September inflation reading will be low due to base effects on energy, but then inflation will rise in Q4, also due to base effects. Inflation expected to come down to 2% by the end of 2025. She noted that R* is probably higher than it was and emphasized data-dependence, they are looking at a wide range of data and are not swayed by the single data point.
GBP
Employment report saw August payrolls change drop by 59k with negative revisions to the previous month’s reading. July unemployment rate ticked down to 4.1% and employment change for the 3m/y showed a huge jump of 265k, doubling expected 132k. Wages continued to slide with average weekly earnings printing 4% 3m/y, the lowest in two years, vs 4.1% 3m/y as expected and down from 4.6% 3m/y in June. Ex bonus category came in at 5.1% 3m/y, as expected, down from 5.4% 3m/y the previous month. Employment change beating estimates, unemployment rate and wages coming down while payrolls declining. BoE should take comfort in falling wages.
July GDP came in flat vs 0.2% m/m increase as expected. Services contributed by 0.11% to the GDP but all of the production measures declined hard with manufacturing leading the way with a 1% drop m/m. Additionally, all of the measures, including services, missed on expectations. This makes second consecutive month of flat GDP readings and Q3 GDP is starting on the weak side.
This week we will get inflation data and BoE meeting. BoE is expected to pause at this meeting and then deliver next rate cut in Q4.
Important news for GBP:
Wednesday:
CPI
Thursday:
BoE Interest Rate Decision
AUD
Inflation data for the month of August saw CPI increase to 0.6% y/y from 0.5% y/y in July while a 0.7% y/y print was expected. Food prices rose for the first time in more than a year and were the main cause for increase in inflation while non-food components declined m/m and showed weaker consumer confidence. PPI, on the other hand, plunged as it printed a -1.8% y/y reading after a -0.8% y/y decline seen the previous month. Trade surplus increased to $91.02bn as exports rose 8.7% y/y while imports increased by just 0.5% y/y indicating weak domestic demand. Auto exports growth is now at 20% YTD while semiconductors export growth is at 22% YTD.
This week we will get employment data.
Important news for AUD:
Thursday:
Employment Change
Unemployment Rate
NZD
Electronic card retail sales for the month of August showed an increase of 0.2% m/m after a decline of 0.1% m/m the past month and decline of 2.9% y/y after a much bigger decline of 4.9% y/y in July. Card retail sales comprise of almost 70% of core retail sales.
This week we will get Q2 GDP data.
Important news for NZD:
Thursday:
GDP
CAD
BoC Governor Macklem stated that bank has to focus on risk management. They need to balance upside risks to inflation with downside risks to economic growth. He concentrated his comments around trade stating that trade disruptions increase variability of inflation adding that global trade growth has slowed down which causes a risk to Canadian economy. Macklem hinted that there is a possibility of a 50bp rate cut in October and markets took it and pushed CAD lower.
This week we will get inflation data.
Important news for CAD:
Tuesday:
CPI
JPY
Despite a strong CAPEX reading for the second quarter, Q2 GDP was revised down to 0.7% q/q and 2.9% y/y from 0.8% q/q and 3.1% y/y as preliminary reported. Private consumption and net exports were revised down and thus brought GDP with it.
This week we will have BoJ meeting. No changes to the rate are expected at this meeting as markets see next hike coming in December.
Important news for JPY:
Friday:
BoJ Interest Rate Decision
CHF
SNB total sight deposits for the week ending September 6 came in at CHF455.9bn vs CHF456.7bn the previous week. A small decline, but still within well-established range.
