RBA and BoC meetings, ISM services PMI from the US, GDP data from Australia and Switzerland and employment data from Canada will dominate the week ahead of us. Please note that Monday is a holiday in the US so liquidity will be lower.
USD
Combination of two data points, consumer confidence plunging in August to 106.1 from 117 in July and JOLTS printing 8.827m in July vs downwardly revised 9.165m in June stirred talks about weakening of the US economy and sent USD down. Second reading of Q2 GDP was revised down to 2.1% from 2.4% which exacerbated USD selling.
PCE data for the month of July saw numbers come in line with expectations. Headline number was at 3.3% y/y vs 3% y/y in June while core number was 4.2% y/y, a tick up from 4.1% y/y the previous month. Core services ex housing component, this is closely watched by the Fed because it is more influenced by wages, rose 0.46% m/m, up from 0.3% m/m in June. Inflation pressures are creeping back. Personal income rose at a slower pace of 0.2% m/m vs 0.3% m/m the previous month while personal spending sped up increase to 0.8% m/m vs 0.5% m/m the previous month. Strong growth in personal spending boosts projections for higher Q3 GDP. Most banks now see Q3 GDP between 3 and 3.5% while Atlanta Fed GDP Now tracker sees it at 5.6%.
Headline NFP number for August came in at 187k vs 170k as expected and up from 157k in July. Private education and health services were the biggest job creating sectors while information and trade and transport saw biggest declines in jobs. There was a large jump in the unemployment rate which printed 3.8%, up from 3.5% the previous month. Part of it was due to jump in participation rate to 62.8% from 62.6% but part of it is for sure due to Fed’s fast rate increases. Additionally, average wages came in at 0.2% m/m and 4.3% y/y vs 0.4% m/m and 4.4% y/y the previous month. Average hours worked ticked higher to 34.4.
The yield on a 10y Treasury started the week and year at around 4.25%, fell to 4.04% and finished the week at around 4.18%. The yield on 2y Treasury reached the high of 5.11%. Spread between 2y and 10y Treasuries started the week at -85bp then tightened to -68bp. The 2y10y is has now been inverted for over a year. FedWatchTool sees the probability of a 25bp hike at September meeting at around 7% while probability of no change is at around 93%.
This week we will have ISM Services PMI.
Important news for USD:
Wednesday:
ISM Services PMI
EUR
Spain CPI in July rose and printed 2.6% y/y as expected. It is a second consecutive month of increases in inflation. German CPI in August slipped to 6.1% y/y from 6.2% y/y in July while expectations were for a further decline to 6% y/y. German state inflation readings were mixed with majority states printing declines but some printing price increases. French CPI rose to 4.8% y/y vs 4.6% y/y as expected and up from 4.3% y/y the previous month. Preliminary Eurozone CPI was unchanged at 5.3% y/y while expectations were for a decline to 5.1% y/y. Much more optimistic data came in from the core CPI which fell to 5.3% y/y as expected from 5.5% y/y the previous month. Probabilities of a rate hike in September are declining. Additionally, member of ECB Governing Council Isabel Schnabel gave a more balanced view in her interview stating that although there are uncertainties around inflation outlook growth has decelerated. When a known hawk strikes a more balanced, less hawkish tone, markets pay much more attention and her words were interpreted as dovish for future rate hikes.
GBP
BoE Deputy Governor Broadbent came out with hawkish comments stating that inflation is likely to slow down slower and that monetary policy will need to remain in restrictive territory for some time. BoE Chief Economist Pill stated that monetary policy needs to be sufficiently restrictive for long enough period of time. He commented that job on inflation is not through, however that there is a possibility of doing too much in the fight against inflation. Dovishness starts to creep in as economy is in danger of slowing down while inflation remains high. Raising rates too high in this type of environment could be very dangerous. Final manufacturing PMI for August was revised up to 43 from 42.5, but still down from 45.3 in July indicating that bottom is not yet in for UK’s manufacturing sector.
AUD
CPI data for the month of July came in at 4.9% y/y vs 5.2% y/y as expected and down from 5.4% y/y in June. Although monthly reading does not measure prices of all goods that go into official quarterly measurement of CPI, this is still a very welcoming data point. This also cements no change to the cash rate at the RBA meeting next week. Private CAPEX rose 2.8% q/q vs 1.2% q/q as expected with great boost coming from new equipment and machinery. Investment in buildings and structures also improved greatly.
At the start of the week China’s Ministry of Finance announced that stamp duty on stock trades would be halved from 0.1% to 0.05%. This had immediate positive effect on Chinese stock markets and helped push AUD higher. Chinese banks have cut rates they pay on yuan deposits in order to stimulate investments into economy. Ultimately, PBOC will cut Forex Reserve Rate Ratio (RRR) to 4% from 6%. This decision will come into effect on September 15. The move is intended to free some USD liquidity, as banks now need to hold less USD than before, and use it to prevent yuan from falling further.
Official PMI data for the month of August saw improvement in manufacturing to 49.7 from 49.3. Slowly moving in the right direction and getting closer to the expansion level of above 50. New orders index has already edged into expansion with 50.2 with production index growing further into expansion. Non-manufacturing PMI missed expectations but it is still holding in expansion with 51. Expectations index is the main reason why Non-manufacturing is still in expansion with total orders and employment components printing below 50. Composite was propped up to 51.3 from 51.1 in July. Caixin manufacturing PMI returned into expansion with a 51 print vs 49.3 as expected.
This week we will have RBA meeting and trade balance data from China. No change to cash rate is expected. This will be Governor Lowe’s last meeting and from October he will be succeeded by current deputy Michele Bullock and she set bringing inflation down to the target as her top priority.
Important news for AUD:
Tuesday:
RBA Interest Rate Decision
Wednesday:
GDP
Thursday:
Trade Balance (China)
NZD
Business confidence in August improved to -3.7 from -13.1 in July. The report jumps in export intentions and employment outlook. Both Inflation and pricing expectations continued to decline while residential construction saw the biggest improvement within surveyed sectors.
CAD
Q2 GDP data were abysmal. The reading printed a decline of 0.2% annualised vs increase of 1.2% as was expected. Previous quarter’s increase was revised down to 2.6% from 3.1. There was no growth in q/q while Q1 growth was revised down to 0.6% from 0.8%. A drop of 0.2% m/m in June pushed the Q2 reading in negative territory. Preliminary July GDP reading is now seen coming in flat indicating a slow start for Q3. BoC should stand pat next week after this reading.
This week we will have BoC meeting and employment data. Markets are mixed but are leaning more toward no change in the interest rate.
Important news for CAD:
Wednesday:
BoC Interest Rate Decision
Friday:
Employment Change
Unemployment Rate
JPY
During the weekend BoJ Governor Ueda stated in Jackson Hole: “We think that underlying inflation is still a bit below our target, this is why we are sticking with our current monetary easing framework.” His dovish remarks kept JPY under pressure. Japanese government maintained its view on the economy in August stating that private consumption and business investments are picking up with industrial production showing signs of picking up. Employment shows movements of improvement while consumer prices are rising.
The unemployment rate in July jumped to 2.7% from 2.5% with job-to-applicant ratio slipping to 1.29. This is the highest level for the unemployment rate since February of 2022. Retail sales jumped 2.1% m/m, which is almost three times more than expected, after a decline of 0.4% m/m in June and rose 6.9% y/y after a 5.6% y/y increase the previous month.
CAPEX for the second quarter came in at 4.5% q/q vs 5.4% q/q and down from 11% q/q in the previous quarter. Company profits in Q2 soared to 11.6% q/q from 4.6% q/q in Q1. Reports are circling that government plans to extend subsidies on fuel. This will keep inflation lower. Yield on a 10y JGB reached a high of 0.66 and BoJ has not intervened in the markets.
CHF
SNB total sight deposits for the week ending August 25 came in at CHF471.4bn vs CHF476.2bn the previous week. SNB remains adamant in drawing down sight deposits and using them to purchase Swissy. Headline CPI in August remained steady at 1.6% y/y while it was expected for it to tick down to 1.5% y/y. More encouraging sign can be seen in core reading which dropped to 1.5% y/y from 1.7% y/y in July. SNB may opt for one more hike just to be sure at their September meeting but with inflation below 2% and moving down they can be satisfied with the job they have done so far.
This week we will have Q2 GDP data.
Important news for CHF:
Monday:
GDP
