UPCOMING EVENTS:
- Monday: PBoC LPR.
- Wednesday: Japan/Australia/Eurozone/UK/US Flash PMIs, BoC Policy Decision.
- Thursday: US Durable Goods Orders, US Jobless Claims, US Q2 Advance GDP.
- Friday: Tokyo CPI, US PCE.
Monday
The PBoC is expected to keep the LPR rates unchanged at 3.45% for the 1-year and 3.95% for the 5-year. The central bank left the MLF rate unchanged at 2.50% last week and it’s generally a leading indicator for the LPR decision.
As a reminder, the PBoC recently introduced a new cash management mechanism and Governor Pan Gongsheng said that the seven-day reverse repo rate "basically fulfils the function" of the main policy rate. ING published a nice article on the new policy framework reform here.
Wednesday
Wednesday will be the Flash PMIs Day for many major economies with the Eurozone, UK and US PMIs being the main highlights:
- Eurozone Manufacturing PMI: 46.3 expected vs. 45.8 prior.
- Eurozone Services PMI: 53.0 expected vs. 52.8 prior.
- UK Manufacturing PMI: 51.1 expected vs. 50.9 prior.
- UK Services PMI: 52.5 expected vs. 52.1 prior.
- US Manufacturing PMI: 51.5 expected vs. 51.6 prior.
- US Services PMI: 55.0 expected vs. 55.3 prior.
The BoC is expected to cut interest rates by 25 bps and bring the policy rate to 4.50%. Such expectations have been influenced by another soft labour market report and strengthened after the last Canadian CPI data where the underlying inflation measures eased further. Including the July cut, the market expects 62 bps of easing by year-end.
Thursday
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 pretty much stable around cycle lows and inside the 200K-260K range created since 2022. Continuing Claims, on the other hand, have been on a sustained rise recently with the data printing new cycle highs every week.
This shows that layoffs are not accelerating and remain at low levels while hiring is more subdued. This is something to keep an eye on. This week Initial Claims are expected at 238K vs. 243K prior, while there's no consensus for Continuing Claims at the time of writing although the prior reading saw an increase from 1847K to 1867K.
Friday
The Tokyo Core CPI Y/Y is expected at 2.2% vs. 2.1% prior. Inflation in Japan is basically at target and there are no strong signals that point to a reacceleration. It’s hard to see a rate hike given that Japan strived to achieve inflation for decades and it might ruin this accomplishment by tightening policy too much.
Nonetheless, besides the expectations of BoJ trimming its bond purchases by a “substantial” amount, the market is also assigning a 60% probability of a 10 bps hike at the upcoming meeting.
The US PCE Y/Y is expected at 2.4% vs. 2.6% prior, while the M/M measure is seen at 0.1% vs. 0.0% prior. The Core PCE Y/Y is expected at 2.5% vs. 2.6% prior, while the M/M reading is seen at 0.1% vs. 0.1% prior. Forecasters can reliably estimate the PCE once the CPI and PPI are out, so the market already knows what to expect.
This report won't change anything for the Fed as the central bank remains in a “wait and see” mode. The market has already fully priced in a rate cut in September and one in December with some chances of a back-to back cut in November. The Fed is expected to be more dovish at the upcoming meeting but won’t deliver a rate cut nor pre-commit to one.
The next CPI release will be key (barring quick deterioration in the labour market) as another benign report will likely see the Fed Chair Powell pre-committing to a rate cut in September at the Jackson Hole Symposium.
