UPCOMING EVENTS:
- Monday: US/Canada Holiday, China Caixin Manufacturing PMI, Swiss Manufacturing PMI.
- Tuesday: Swiss CPI, Swiss Q2 GDP, Canada Manufacturing PMI, US ISM Manufacturing PMI.
- Wednesday: Australia Q2 GDP, China Caixin Services PMI, Eurozone PPI, BoC Policy Decision, US Job Openings, Fed Beige Book.
- Thursday: Japan Average Cash Earnings, Swiss Unemployment Rate, Eurozone Retail Sales, US ADP, US Jobless Claims, Canada Services PMI, US ISM Services PMI.
- Friday: Canada Labour Market report, US NFP.
Tuesday
The Switzerland CPI Y/Y is expected at 1.2% vs. 1.3% prior, while the M/M measure is seen at 0.1% vs. -0.2% prior. The market is expecting the SNB to deliver 52 bps of easing by year end with a 67% probability of a 25 bps cut at the September meeting (the remaining 33% is for a 50 bps cut).
SNB’s Jordan last week didn’t sound happy about the strong appreciation in the Swiss Franc, so we might either see a 50 bps cut in September or some intervention from the central bank to calm things down a bit.
The US ISM Manufacturing PMI is expected at 47.8 vs. 46.8 prior. As a reminder, the last month the ISM release was the catalyst that triggered a huge selloff in risk assets as we got the “growth scare”.
The main culprit might have been the employment sub-index falling to a new 4-year low ahead of the NFP report which eventually triggered another wave of selling as it came out weaker than expected across the board.
Later on, lots of data in August showed that the weak data in July might have been negatively affected by Hurricane Beryl, so that’s something that the market will look at for confirmation.
The S&P Global Manufacturing PMI released two weeks ago wasn’t exactly comforting though. The index saw the second consecutive contraction and the commentary was pretty bleak.
The agency said “this soft-landing scenario looks less convincing when you scratch beneath the surface of the headline numbers. Growth has become increasingly dependent on the service sector as manufacturing, which often leads the economic cycle, has fallen into decline.”
“The manufacturing sector’s forward-looking orders-to-inventory ratio has fallen to one of the lowest levels since the global financial crisis. Employment fell in August, dropping for the first time in three months”,
Wednesday
The BoC is expected to cut rates by 25 bps bringing the policy rate to 4.25%. The recent CPI report showed some more easing in the underlying inflation measures and the labour market data was pretty soft.
Overall, it doesn’t look like the central bank will go for a 50 bps cut but it cannot be completely ruled out. Including the September cut, the market expects a total of 75 bps of easing by year end.
The US Job Openings is expected at 8.100M vs. 8.184M prior. The last report saw a slight increase but the strong downtrend that started in 2022 remains firmly in place. The quit, hiring and layoff rates remain low as the labour market has been softening via less hiring rather than more layoffs.
Thursday
The Japanese Average Cash Earnings Y/Y is expected at 3.1% vs. 4.5% prior. As a reminder, the economic indicators the BoJ is focused on include wages, inflation, services prices and GDP gap.
Moreover, Governor Ueda kept the door open for rate hikes as he said that the recent market moves wouldn’t change their stance if the price outlook was to be achieved and added that Japan’s short-term interest rate was still very low, so if the economy were to be in good shape, BoJ would move rates up to levels deemed neutral to the economy.
The US Jobless Claims continues to be one of the most important releases to follow every week as it’s a timelier indicator on the state of the labour market.
Initial Claims remain inside the 200K-260K range created since 2022, while Continuing Claims have been on a sustained rise showing that layoffs are not accelerating and remain at low levels while hiring is more subdued.
This week Initial Claims are expected at 230K vs. 231K prior, while Continuing Claims are seen at 1865K vs. 1868K prior.
The US ISM Services PMI is expected at 51.1 vs. 51.4 prior. This survey hasn't been giving any clear signal lately as it’s just been ranging since 2022, and it’s been pretty unreliable. The market might focus just on the employment sub-index ahead of the US NFP report the following day.
The recent S&P Global Services PMI showed another uptick in the services sector as growth in Q3 diverged again between Manufacturing and Services.
Friday
The Canadian Labour Market report is expected to show 25.0K jobs added in August vs. -2.8K in July and the Unemployment Rate to increase to 6.5% vs. 6.4% prior. It’s unlikely that the market will care much about this report since we get the US NFP released at the same time.
The US NFP is expected to show 165K jobs added in August vs. 114K in July and the Unemployment Rate to tick lower to 4.2% vs. 4.3% prior. The Average Hourly Earnings Y/Y is expected at 3.7% vs. 3.6% prior, while the M/M figures is seen at 0.3% vs. 0.2% prior.
The last month, the US labour market report came out weaker than expected across the board and triggered another wave of selling in risk assets that started with the ISM Manufacturing PMI the day earlier.
There’s been lots of talk about the possible culprit for the weaker figures and it seems like Hurricane Beryl affected the data.
The BLS said Hurricane Beryl, which slammed Texas during the survey week of the July employment report, had "no discernible effect" on the data.
The household survey, however, showed 436,000 people reported that they could not report to work because of bad weather last month, the highest on record for July. There were 249,000 people on temporary layoff last month.
In fact, the majority of the increase in the unemployment rate has been due to people on temporary layoff. The market will want to see if July’s data was indeed negatively affected by temporary factors.
As a reminder, the Fed is very focused on the labour market now and this report will decide whether they will cut by 25 bps or 50 bps at the upcoming meeting.
