UPCOMING EVENTS:
- Monday: China CPI.
- Tuesday: UK Labour Market report, US NFIB Business Optimism Index.
- Wednesday: UK GDP, US CPI.
- Thursday: Japan PPI, ECB Policy Decision, US PPI, US Jobless Claims.
- Friday: New Zealand Manufacturing PMI, US University of Michigan Consumer Sentiment.
Monday
The Chinese CPI Y/Y is expected at 0.7% vs. 0.5% prior, while the M/M measure is seen at 0.5% vs. 0.5% prior. Real rates in China continue to be too high when there’s a strong need for very low and even negative rates in such economic circumstances. Chinese officials keep pledging more support but overall they’ve been pretty slow in doing so.
Tuesday
The UK Labour Market report is expected to show 114K jobs added in the three months to July vs. 97K in June, and the Unemployment Rate to tick lower to 4.1% vs. 4.2% prior. The Average Earnings including Bonus is expected at 4.1% vs. 4.5% prior, while the Average Earnings excluding Bonus is seen at 5.1% vs. 5.4% prior. The market sees an 83% probability of no change at the upcoming BoE meeting, and a total of 43 bps of easing by year-end.
The US NFIB Small Business Optimism Index is expected at 93.6 vs. 93.7 prior. It’s a pretty empty week on the data front and the market is very focused on growth, so this release might be market moving. As a reminder, the NFIB index recently broke out from the range it's been stuck since 2022 and jumped to a new cycle high at 93.6.
Wednesday
The US CPI Y/Y is expected at 2.6% vs. 2.9% prior, while the M/M measure is seen at 0.2% vs. 0.2% prior. The Core CPI Y/Y is expected at 3.2% vs. 3.2% prior, while the M/M figure is seen at 0.2% vs. 0.2% prior.
The Fed is now focused on the labour market, and they’ve even stated that upside surprises in inflation won’t change their overall outlook. Therefore, inflation reports have less significance at the moment although I’d say that a soft report will likely push the expectations for a 50 bps cut back around 50% as the it would give the Fed a stronger excuse to deliver a 50 bps insurance cut.
Thursday
The ECB is expected to cut by 25 bps and bring the policy rate to 3.50%. This rate cut has been strongly telegraphed since July. The market expects the central bank to cut by 25 bps at each subsequent meeting until June 2025. Although President Lagarde might not explicitly pre-commit to a back-to-back cut in October, it’s likely that she will keep such an option on the table "depending on the data".
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 (although they’ve improved recently) 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. 227K prior, while Continuing Claims are seen at 1850K vs. 1838K prior.
Friday
The University of Michigan Consumer Sentiment is expected at 68.0 vs. 67.9 prior. This indicator becomes more important at turning points in the business cycle, so it will be something the market will keep an eye on given the current focus on growth.
