A busy week lies ahead in terms of economic events, but Monday kicks off slowly with no significant scheduled releases.
On Tuesday, the highlight will be the Canadian inflation data, followed by the U.S. retail sales m/m figures.
Wednesday brings inflation data from the U.K., alongside building permits, housing starts, and the most anticipated event of the week — the FOMC monetary policy announcement for the U.S.
Thursday is packed with key reports: New Zealand will release its GDP q/q data, while Australia will publish its employment change and unemployment rate figures. In the U.K., the BoE will announce its monetary policy decision. Meanwhile, in the U.S., we’ll see unemployment claims, the Philly Fed manufacturing index, and existing home sales.
On Friday, all eyes will be on the BoJ monetary policy announcement. Additionally, BoC Governor Macklem will speak at the National Bureau of Economic Research's Economics of Artificial Intelligence Conference in Toronto. Canada will also release its retail sales m/m data.
Canadian overall inflation data is expected to show signs of cooling, with the consensus for headline CPI projected to fall to 2.1%, one of the lowest levels since 2021. As a reminder, the BoC delivered another rate cut at its last meeting, but Governor Macklem stated that there are still upward pressures on inflation that may lead to increases later this year. He also noted the need to prevent the economy from weakening too much and driving inflation lower than it should be. This week's BoC minutes might offer further clues regarding the pace of future rate cuts and policymakers' views on easing.
The consensus for U.S. retail sales is -0.2%, down from the prior 1.0%, while core retail sales m/m are expected to come in at 0.2%, compared to the previous 0.4%. Last month's retail sales data surprised to the upside, with headline retail sales rising by 1.0%.
Wells Fargo analysts noted that July's retail sales report contrasted with weaker employment data for the same month, highlighting the resilience of consumers despite a softer labor market. They expect this resilience to carry into August, though with some pullback in auto sales. In the last retail sales report, the main driver of the strong increase was a 3.6% monthly rise in motor vehicle and parts sales, the largest component of retail sales.
The only notable data release before the FOMC meeting this week will be the retail sales report. Currently, analysts are split on whether the Fed will implement a 25 bps or 50 bps rate cut at this week's meeting.
With inflation showing improvements and continuing to decline, along with weakness in the labor market, both factors support a rate cut. However, the latest jobs report did not provide much clarity on how big the first rate adjustment should be.
Articles from WSJ’s Nick Timiraos and the FT late last week suggested that the Fed is still debating internally between a 25 bps and 50 bps reduction, pushing some market participants to lean toward a 50 bps cut, with the risk for this bigger adjustment now at 59%. The market will also closely monitor updates in the September SEP (Summary of Economic Projections) and the dot plot.
At this week's meeting, the BoE is expected to keep its monetary policy unchanged. After the first rate cut in August, the Bank opted for a cautious approach to further cuts due to services inflation, which remains elevated above 5% y/y.
In terms of the economic outlook, GDP data suggests the economy is on a recovery path. Despite July's GDP m/m figures being somewhat disappointing, the manufacturing and services PMIs are on a positive trend. The market currently anticipates another 25 bps rate cut from the BoE by the end of the year, likely in November, but if inflation drops more than expected, the Bank could deliver two back-to-back 25 bps cuts, in November and December.
The consensus for the U.S. existing home sales is 3.89M vs prior 3.95M, after a 1.3% increase in July. While mortgage rates have decreased slightly, slow employment gains and income growth are still limiting affordability. Well Fargo analysts don't see any potential for a housing market recovery, with any improvements from moderating financing costs being outweighed by price appreciation.
For Japan, the consensus among economists is that the BoJ will keep its monetary policy unchanged at 0.25%. Recently, core inflation data surprised to the upside, which might lead the Bank to delay rate hikes. The market now expects the next rate increases to occur in January and April next year.
Before this week's meeting we will get the Japanese core nationwide CPI y/y which is expected to rise from 2.7% to 2.8%, but this is not expected to influence the BoJ's decision.
Wish you a profitable trading week.
