BoC meeting, rate cut fully priced in, NFP and employment data from Canada, ISM PMIs as well as Q2 GDP data from Australia and Switzerland will highlight the shortened week ahead of us. Be mindful that Labor day is on Monday, liquidity will be lower which could lead to increased volatility.
USD
Second reading of Q2 GDP saw it improve to 3% annualized from 2.8% annualized as preliminary reported. Consumer spending and private investment were the main culprits to the upward revision as they printed 2.9% and 7.5% respectively. PCE data for the month of July saw both headline and core numbers unchanged at 2.5% y/y and 2.6% y/y respectively while markets expected ticks up to 2.6% y/y and 2.7% y/y respectively. On a monthly basis headline number rose by 0.2%, 0.161% when calculated to the third decimal, which is in line with annual inflation printing 2%. Personal spending was up 0.5% m/m while income rose by 0.3% m/m.
The yield on a 10y Treasury started the week at 3.80%, rose to 3.87% and finished the week at around 3.91%. The yield on 2y Treasury started the week at 3.92%, reached the high of 3.96%. Spread between 2y and 10y Treasuries started the week at -11bp and finished the week flat as curve proceeded to disinvert. The 2y10y was inverted for over 788 days. FedWatchTool sees the probability of a 25bp rate cut at September meeting at around 68% while probability of a 50bp rate cut is around 32%. 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 ISM data and NFP on Friday. With Fed fully shifting their attention to the labor market this report will be closely watched and may provide increased volatility. Headline number is seen coming at around 100k with the unemployment rate remaining at 4.3%.
Important news for USD:
Tuesday:
ISM Manufacturing PMI
Thursday:
ISM Services PMI
Friday:
NFP
Unemployment Rate
EUR
Final Q2 GDP reading for Germany saw it contract by printing -0.1% q/q, down from 0.2% q/q increase in Q1 due to weak private consumption and a big drop in construction activity. Investments and net exports were also a drag on GDP while government consumption contributed positively. The economy grew by 0.3% y/y. Final French Q2 GDP reading was revised lower and showed a 0.2% q/q growth, down from 0.3% q/q in the first quarter and 1% y/y vs 1.5% y/y in Q1. Household consumption improved but there were bigger drops in government consumption and investment, especially in construction.
Preliminary CPI for the month of August dropped to 2.2% y/y from 2.6% y/y in July. Core inflation ticked down to 2.8% y/y from 2.9% y/y the previous month. German French CPI readings dropped to 1.9% y/y with German monthly reading printing -0.1%. Spanish CPI plunged to 2.2% y/y from 2.8% y/y the previous month. A combination of lower growth and lower inflation is perfect mix for a September rate cut that is now fully priced in.
GBP
With no important news concerning UK economy pound has continued to strengthen on the back of recent positive data, namely PMIs. Additionally, BoE is seen pausing at their September meeting which pushed GBP even higher, causing Cable make new highs for the year.
AUD
CPI data for the month of July saw headline print decline to 3.5% y/y from 3.8% y/y in June. A smaller than expected decline caused some buying in AUD but when we look at the core measures we get a much brighter picture of inflation. Trimmed mean fell to 3.8% y/y from 4.1% while CPI ex volatile items and travel fell to 3.7% from 4% the previous month. Reminder that inflation is still above the targeted range of 2-3% and that monthly readings do not encapsulate full inflation basket, as quarterly CPI print does, but the trend down is clear and RBA will take joy in today’s data.
This week we will get Q2 GDP data.
Important news for AUD:
Wednesday:
GDP
NZD
ANZ business survey for the month of August showed business outlook jumping and reaching 50.6 vs 27.1 in July. The 50.6 print represents a 10-year high! Own activity outlook jumped to 37.1 from 16.3 with big jumps seen in investment intentions and residential construction. Pricing intentions continued to increase which casts a small shadow on the report. Ease of credit component jumped to a 9-year high as a result of expected rate cuts with inflation expectations falling below 3% for the first time in three years.
CAD
Q2 GDP came in at 0.5% q/q, up from 0.4% q/q in Q1 and 2.1% y/y, also up from 1.8% y/y in the previous quarter. June GDP came in flat vs 0.1% m/m as expected. Services were up 0.1% as expected but manufacturing collapsed and dropped -1.5% vs 1% as expected. Advanced reading for July also sees flat GDP which will not bode well for Q3 GDP.
This week we will have BoC meeting and employment data. Another 25bp rate cut is expected with inflation continuing to decline and growth is missing.
Important news for CAD:
Wednesday:
BoC Interest Rate Decision
Friday:
Employment Change
Unemployment Rate
JPY
August inflation data for the Tokyo area saw headline number rise to 2.6% y/y from 2.2% y/y in July. Ex fresh food component rose to 2.4% y/y from 2.2% y/y the previous month with ex fresh food, energy component ticking up to 1.6% y/y from 1.5% y/y in July. The unemployment rate surprised to the upside in July and jumped to 2.7% from 2.5% in June. Inflation heading north from the 2% target will keep BoJ on policy normalization path in Q4.
CHF
SNB total sight deposits for the week ending August 23 slipped to CHF463.6bn from CHF464.9bn the previous week. One more miniscule change as deposits remain in well-established range.
This week we will get Q2 GDP and inflation data.
Important news for CHF:
Tuesday:
GDP
CPI
