UPCOMING EVENTS:
- Tuesday: US NFIB Small Business Optimism Index.
- Wednesday: US PPI, FOMC Minutes.
- Thursday: Japan PPI, UK GDP, ECB Minutes, US CPI, US Jobless Claims, NZ Manufacturing PMI.
- Friday: China CPI, China Trade data, Eurozone Industrial Production, US University of Michigan Consumer Sentiment.
This weekend, Hamas launched a massive attack against Israel which draws parallels between October 2023 and October 1973. The implications for global markets are still uncertain, but the Oil market is the first one that comes to mind. Javier Blas published a nice article on Bloomberg where he highlights the likely implications and how the situation can turn uglier.
Wednesday
The US PPI Y/Y is expected to match the prior reading at 1.6%, while the M/M reading is seen at 0.3% vs. 0.7% prior. The Core PPI Y/Y is expected at 2.3% vs. 2.2% prior, while the M/M figure is seen at 0.2% vs. 0.2% prior. This report might not be that much marker moving as the market is more likely to focus on the CPI report the following day.
The FOMC Meeting Minutes generally cause some reaction in the markets, but the moves are usually faded soon after as the contents are three-weeks old and mostly known. As a reminder, the Fed left the FFR at 5.25-5.50% as expected with growth and inflation projections revised higher and the unemployment rate revised lower. The Dot Plot showed that the FOMC still expects another 25 bps hike by the end of the year but “surprisingly” sees only 50 bps of rate cuts in 2024, where previously it was 100 bps.
Thursday
The ECB Monetary Policy Meeting Accounts, similar to the FOMC Minutes, are released roughly four weeks after the ECB Policy Decision and they generally aren’t market moving. As a reminder, the ECB hiked interest rates by 25 bps at the last meeting with the market seeing a 50/50 chance back then of either a hike or a pause. In the statement, the ECB added that it “judges that rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target”. This is basically them saying that they are done with the tightening cycle, which is also what the ECB members have been signalling in their speeches following the monetary policy meeting.
The US CPI Y/Y is expected at 3.6% vs. 3.7% prior, while the M/M reading is seen at 0.3% vs. 0.6% prior. The Core CPI Y/Y is expected at 4.1% vs. 4.3% prior, while the M/M figures is seen at 0.3% vs. 0.3% prior. Given the overall strong economic data and the beat in the NFP report last Friday, a hot CPI report might force the Fed to proceed with a 25 bps hike at the November meeting.
The US Jobless Claims keep on beating expectations week after week as the US labour market remains solid. This week the consensus sees Initial Claims at 210K vs. 207K prior with no consensus at the moment for Continuing Claims, although the prior reading was 1664K.
Friday
The Chinese CPI Y/Y is expected at 0.2% vs. 0.1% prior, while the M/M reading is seen at 0.3% vs. 0.3% prior. The PPI Y/Y is expected to remain in negative territory at -2.4% vs. -3.0% prior. The Chinese inflation rate slipped into deflation in July before returning in positive territory the next month as officials kept on rolling out easing measures to prop up their ailing economy.
The University of Michigan Consumer Sentiment is expected to tick lower to 67.4 vs. 68.1 prior. Consumer sentiment has been rising since October of last year as consumers’ finances improved due to lower inflation and higher wages. More recently, higher energy prices weighed on the sentiment, but the good news is that inflation expectations haven’t gone up as one would have expected.
