Macroeconomics: The Week Ahead: 19 – 23 August

The Week Ahead – Preview: 

The new week’s run of data is quite sparse, but with Fed, ECB and RBA minutes and the week ending KC Fed Jackson Hole conference, central banks will be very much back in focus. Statistically the US has Existing and New Home Sales, there are G7 and India flash PMIs, ECB Q2 Negotiated Wages report, Canadian, Mexican and South African CPI, and Japanese National CPI, Trade and Machinery Orders. Central bank policy meetings in Indonesia, South Korea and Turkey are expected to see rates held at 6.25%, 3.50% and 50.0% respectively, with China’s monthly Loan Prime Rate fixings also seen unchanged at 3.35% 1-yr & 3.85% 5-yr, while Sweden’s Riskbank is expected to cut rates by 25 bps to 3.50%. Corporate earnings are reasonably plentiful, with the focus on retailers in the US, via way of Lowe’s, Macy’s Target, TJX, and in the retail cosmetics space Coty and Estee Lauder, following on from divergence at Home Depot and Walmart, though both noted that consumers having a ‘deferral’ mindset. Elsewhere the likes of Baidu, Kuaishou Technology, Ping An Insurance and Xiaomi will garner attention in China. Govt bond supply is seasonally quite light, with the US offering 20-yr and I-L 30-yr, the UK 3-yr, Germany 9, 10 & 26-yr and Japan 20-yr.  In the commodity space, there are monthly USDA Livestock reports, Brazil’s Conab and Unica publish sugar sector monthly reports, while there are also the EnerCom Denver — Energy Investment in the US and Namibia Oil & Gas conferences.

– August ‘flash’ PMIs: PMIs and even the ISM surveys have had a patchy record of late as guides to official economic data trends, outside of the consistent and wholly unsurprising negative message on manufacturing in the Eurozone, which is not expected to see any material change. Japan’s PMIs have fallen into line with Europe, with Manufacturing reversing much of the February-April recovery, while Services has ticked up with the improving trend in Personal Consumption, and indeed the local Economy Watchers survey, in both cases likely to be repeated this month. India’s PMIs should remain very robust, close to July’s 58.1 and 60.3 for Manufacturing and Services respectively, but perhaps signalling a modest loss of momentum. The Eurozone Services PMI is seen slipping slightly to 51.7, supported by summer tourism, but otherwise somewhat lacklustre. UK Manufacturing and Services are both expected to hold at levels indicating a continued modest expansion (51.1 & 52.8), while in the US Manufacturing is forecast to edge up to 49.8, while Services to ease to 54.0, after a robust run from May through July.

– U.S.A. – Wednesday’s FOMC minutes and Powell’s Jackson Hole speech will get more attention than the week’s run of housing data, though the latter still demand some attention, even if Existing (seen up 1.0%) and New (+1.1% m/m) Home Sales will not answer the question about whether the weakness in last week’s NAHB index and Housing Starts were more a function of home buyers balking at high prices and affordability headwinds, or waiting for mortgage rates to fall when the Fed initiates a rate cut cycle. Wednesday’s July FOMC minutes will be of interest with respect to the discussions on inflation and the labour data, which the statement noted were relatively balanced in terms of policy importance. It is expected that a few will still raise concerns about inflation, though many will likely see it as now on a sustained path back to target, while a small number will likely have voiced concerns that the loosening in labour market may signal that policy may be too restrictive. As with Powell’s speech on Friday, the message will likely be that a rate cut will be ‘appropriate’ soon, but the size and trajectory of the initial and future moves is still up for some debate, before a consensus view is formed. Indeed the August labour data (due September 6) will likely be the ultimate arbiter of whether rates are cut 25 or 50 bps, though last week’s solid activity data suggest that many FOMC members will opt for a 25 bps cut, primarily because a 50 bps would send an unduly negative signal about the state of the economy and labour demand, which they will want to eschew, at least at the current juncture. The Democrats hold their national convention at which both Harris and Walz will give acceptance speeches, though those speeches will probably not add much to policy outlines.

– Eurozone: the focus will be on the ECB minutes and the ECB’s Q2 Negotiated Wages indicator, along with the detailed breakdown of core CPI that will be contained in final Eurozone CPI. In terms of the latter, the preliminary estimate saw only a marginal 0.1 ppt dip in headline Services CPI to a sticky 4.0% y/y, but the question is whether super core measures continue to fall, or show some loss of downward momentum, even though there should be considerable downward momentum as Airfares, Holidays, Hotels and Restaurants prices drop after the summer holiday season, perhaps as soon as the August CPI data. The ECB’s Q2 Negotiated Wages indicator will perhaps be critical for the rate trajectory for the rest of the year, given that many ECB speakers have expressed concerns that wages have proven to be as sticky as Services inflation, with the Q1 reading having ticked up to 4.7% y/y vs. prior 4.5%. The latter was above all paced by settlements in Germany, with monthly surveys having seen considerable divergence at a national level. An unchanged or higher reading would raise doubts about a September rate cut. Lagarde was very cautious at the policy meeting press conference, putting a lot of emphasis on the data that would be published before the September meeting, and being careful not to pre-commit to a cut. Per se the minutes may merely highlight considerable differences of opinion on the path for inflation and rates, and place rather more focus on Lane’s speech at Jackson Hole on Friday.

– U.K.: this week’s run of data is unlikely to have much impact, comprising Rightmove House Prices, PSNB Budget data and the CBI’s Industrial Trends survey. But BoE Bailey’s speech at Jackson Hole late on Friday will be combed for clues on the rate trajectory, above all given the fact that his casting vote was decisive in delivering the August rate cut.

– Canada: CPI has largely surprised on the downside for much of this year, allowing the BoC to cut rates twice, and signal more to come in the face of a weaker economic outlook. July CPU is expected to reinforce that view, with a seasonally typical 0.4% m/m rebound in headline set to bring the y/y rate down to 2.5% from 2.7%, while Median and Trimmed Mean core measures are both forecast to edge down 0.1 ppt to 2.5% and 2.8% y/y respectively.

– Japan: While this week’s data carries some importance, it will be BoJ governor Ueda’s testimony to the Diet (parliament) on Friday, shortly after an expected dip in National CPI to 2.7% y/y, and a slight uptick in core CPI to 2.7% (echoing Tokyo measures), which gets most attention. Of particular note will be how he defends the July 31 rate hike, and the ensuing roller coaster in domestic and international markets, above all how he echoes or rephrases the comments from Uchida about not raising rates when markets are volatile. Machinery Orders are expected to post a tepid 0.9% m/m rebound after falling -3.2% and -2.9% in prior months, while Trade data are forecast to show Exports and Imports posting robust gains of 11.4% and 14.6% y/y, mostly paced by autos, after renewed production disruptions due to the emissions scandal, and only modestly enhanced by benign base effects.

– There are 16 S&P 500 companies reporting this week, with worldwide corporate earnings highlights as compiled by Bloomberg News likely to include: Agilent Technologies, AIA Group, Alcon, Analog Devices, Baidu, CGN Power, China Petroleum & Chemical, China Telecom, Coloplast, CRRC, Estee Lauder, Hong Kong Exchanges & Clearing, Intuit, Jiangsu Hengrui Pharmaceuticals, Kuaishou Technology, Lowe’s, Luxshare Precision Industry, Medtronic, Midea Group, NetEase, Palo Alto Networks, Ping An Insurance Group, Ross Stores, Snowflake, Swiss Re, Synopsys, Target, TJX, Toronto-Dominion Bank, Workday, Xiaomi, Zijin Mining Group