UPCOMING EVENTS:
- Monday: New Zealand Services PMI, Fed’s Waller, BoC’s Senior Loan Officer Survey.
- Tuesday: PBoC LPR, RBA Meeting Minutes, Canada CPI, Eurozone Wage Growth.
- Wednesday: Canada PPI, FOMC Meeting Minutes.
- Thursday: Australia/Japan/Eurozone/UK/US Flash PMIs, ECB Meeting Minutes, US Jobless Claims, Jackson Hole Symposium.
- Friday: New Zealand Retail Sales, Japan CPI, Canada Retail Sales, Fed Chair Powell, Jackson Hole Symposium.
Tuesday
The PBoC is expected to keep the 1-year and 5-year LPR rates unchanged at 3.35% and 3.85% respectively. Such expectations are mainly due to the fact that the central bank delivered substantial rate cuts across the board last month and will likely refrain from adjusting interest rates again so soon.
The Canadian CPI Y/Y is expected at 2.5% vs. 2.7% prior, while the M/M figure is seen at 0.4% vs. -0.1% prior. The central bank focuses on the underlying inflation measures (mainly Trimmed Mean CPI). The Trimmed-Mean CPI Y/Y is expected at 2.8% vs. 2.9% prior. The market is assigning a 98% probability of a 25 bps cut in September and a total of 73 bps of easing by year-end.
Thursday
Thursday will be the Flash PMIs Day for many major economies with the Eurozone, UK and US PMIs being the main highlights:
- Eurozone Manufacturing PMI: 46.0 expected vs. 45.8 prior.
- Eurozone Services PMI: 51.9 expected vs. 51.9 prior.
- UK Manufacturing PMI: 52.1 expected vs. 52.1 prior.
- UK Services PMI: 52.8 expected vs. 52.5 prior.
- US Manufacturing PMI: 49.5 expected vs. 49.6 prior.
- US Services PMI: 54.0 expected vs. 55.0 prior.
The US Jobless Claims continue 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. 227K prior, while there’s no consensus for Continuing Claims at the time of writing although last week we saw a pullback to 1864K vs. 1871K prior.
Friday
The Japanese Core CPI Y/Y is expected at 2.7% vs. 2.6% prior. As a reminder, the BoJ surprised with a 15 bps hike (even though we got a leak the day earlier) at the latest policy decision and that triggered a mess in the Japanese markets with the Yen surging and the Nikkei falling like a rock, especially after BoJ’s Ueda comment on not seeing 0.50% as a policy ceiling.
Since then, we got comments from Japanese officials cautioning on further rate hikes given the turmoil in financial markets. The expectations are now for a rate hike in March 2025.
The main event of the week will be Fed Chair Powell speaking at the Jackson Hole Symposium at 10:00 am ET. The Jackson Hole Symposium is famous for major policy communications from the Fed.
In August 2020 Powell announced a change in the Fed’s inflation strategy called AIT (Average Inflation Targeting) which was meant to allow inflation to move above and below the target rate of 2% so that it averaged out to 2% over time.
I expect Powell to finally pre-commit to a rate cut in September saying something like “the time to ease policy has come”. Although the market has already fully priced in at least three cuts by the end of the year, it would still be a major event which should reverberate in the market’s sentiment.
He will also be asked about the size of the rate cut as there are still small chances of a 50 bps cut in September (28%). He will likely dodge the question but if he were to leave the door open for a larger cut, it will be seen as a dovish “surprise”.
