UPCOMING EVENTS:
- Monday: Japan on Holiday, Australia/Eurozone/UK/US Flash PMIs.
- Tuesday: Japan Flash PMI, RBA Policy Decision, German IFO, US Consumer Confidence.
- Wednesday: Australia Monthly CPI.
- Thursday: SNB Policy Decision, US Durable Goods Orders, US Q2 Final GDP, US Jobless Claims.
- Friday: Tokyo CPI, Canada GDP, US PCE.
Monday
Monday will be the Flash PMIs Day for many major economies with the Eurozone, UK and US PMIs being the main highlights:
- Eurozone Manufacturing PMI: 45.6 expected vs. 45.8 prior.
- Eurozone Services PMI: 52.1 expected vs. 52.9 prior.
- UK Manufacturing PMI: 52.5 expected vs. 52.5 prior.
- UK Services PMI: 53.5 expected vs. 53.7 prior.
- US Manufacturing PMI: 48.5 expected vs. 47.9 prior.
- US Services PMI: 55.3 expected vs. 55.7 prior.
Tuesday
The RBA is expected to keep the Cash Rate unchanged at 4.35%. There shouldn’t be anything new as the central bank continues to maintain its hawkish stance amid persistently high inflation. The market sees the first rate cut in February 2025 with a total of 101 bps of easing by the end of next year.
The US Consumer Confidence is expected at 103.8 vs. 103.3 prior. The last report surprised to the upside. Dana M. Peterson, Chief Economist at The Conference Board said: “Overall consumer confidence rose in August but remained within the narrow range that has prevailed over the past two years.”
“Consumers continued to express mixed feelings in August. Compared to July, they were more positive about business conditions, both current and future, but also more concerned about the labour market.”
“Consumers’ assessments of the current labour situation, while still positive, continued to weaken, and assessments of the labour market going forward were more pessimistic. This likely reflects the recent increase in unemployment. Consumers were also a bit less positive about future income.”
Wednesday
The Australian Monthly CPI Y/Y is expected at 3.1% vs. 3.5% prior. RBA’s Governor Bullock stated that one inflation report won’t change their mind as they will wait for more data to increase their confidence that inflation is coming back to target. Therefore, unless we get big deviations, this release is unlikely to change anything.
Thursday
The SNB is expected to cut rates by 25 bps and bring the policy rate to 1.00%. The market is assigning a 45% probability of a larger 50 bps cut. The reason for this is because inflation has been surprising to the downside with the last release showing a drop to 1.1%, which is much lower than the SNB’s 1.5% projection for Q3.
Moreover, SNB’s Jordan said in late August that the continued strength of the Swiss Franc has been hurting the Swiss industry. Therefore, there’s a high chance that the central bank either delivers a 50 bps cut (especially after the recent Fed’s move) or jawbones the currency by threatening intervention.
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 after rising sustainably during the summer started to improve considerably in the last weeks.
This week Initial Claims are expected at 225K vs. 219K prior, while there’s no consensus for Continuing Claims at the time of writing although the prior release showed a drop to 1829K.
Friday
The Tokyo Core CPI Y/Y is expected at 2.0% vs. 2.4% prior. The Tokyo CPI is seen as a leading indicator for National CPI, so it’s generally more important for the market than the National figure.
The BoJ at the last policy decision kept everything unchanged as expected but Governor Ueda made a surprising dovish turn by saying that “there is some time to make a decision on monetary policy because upside price risks have decreased given the recent FX moves”.
He also mentioned that it’s important for them to check overseas economic trends including US when making policy decisions. This suggests that the Fed’s 50 bps cut is making them fear more Yen appreciation and decreases the need to act with more tightening. USD/JPY shot higher after his comments…
The US PCE Y/Y is expected at 2.3% vs. 2.5% prior, while the M/M figure is seen at 0.1% vs. 0.2% prior. The Core PCE Y/Y is expected at 2.7% vs. 2.6% prior, while the M/M reading is seen at 0.2% vs. 0.2% prior.
Forecasters can reliably estimate the PCE once the CPI and PPI are out, so the market already knows what to expect. Fed’s Waller last Friday mentioned that they expect 0.14% on the Core M/M measure.
The main focus for the Fed in the last months has been the labour market, so inflation data lost a bit of its importance in terms of market reaction.
Interestingly tough, Fed’s Waller mentioned that the inflation data during the blackout period pushed him in favour of the larger cut. He added that what’s got him more worried was that inflation was running softer than he thought.
Finally, he said that he was in favour of two more 25 bps cuts by the end of the year if the economy evolved as he expected, but if the labour market data worsened, or if the inflation data continued to come in softer than everybody expected, then he would support going at a faster pace before adding that a fresh pickup in inflation could also cause the Fed to pause its cutting.
This week’s release shouldn’t be important overall given that it’s August data and it was already incorporated into the Fed’s decision.
