UPCOMING EVENTS:
Monday: China PMIs, EZ GDP, EZ CPI.
Tuesday: RBA Policy Decision, EZ Unemployment Rate, US ISM Manufacturing PMI, US Job Openings.
Wednesday: NZ Jobs Report, US ADP.
Thursday: Swiss CPI, BoE Policy Decision, US Jobless Claims, US ISM Services PMI.
Friday: US NFP, Canada Jobs Report.
Monday: The Eurozone CPI Y/Y is expected to print at 5.3% vs. 5.5% prior, while the M/M reading is seen at 0.3% vs. 0.3% prior. The Core CPI Y/Y is expected at 5.4% vs. 5.5% prior, while there’s no expectation at the moment for the Core M/M figure, although the prior reading saw a 0.4% increase. It’s worth reminding that there will be another inflation report before the next ECB meeting, so this one won’t decide how much they will hike, but it can still weigh on the Euro if the data misses as the recent comments from ECB members leant towards a pause/end. The market is currently pricing a 30% chance of a 25 bps hike at the September meeting.
Tuesday: The RBA is expected to keep its cash rate unchanged at 4.1%, although there is a case for a hike as well. In fact, in the RBA Meeting Minutes we saw that the central bank was ready to hike at the last meeting as “the case for both a pause and a hike was strong”, although they eventually decided for a pause as “the case was stronger”. They agreed that “some further tightening may be required” as they noted the risk of waiting too long for inflation to come back to target and the stickiness of inflation in other countries. Given that Australian inflation missed expectations the last week, we can say that the chances for a pause are higher, although the last Jobs Report was once again really strong.
The US Manufacturing PMI is expected at 46.5 vs. 46.0 prior. The Manufacturing PMI has been in contraction since December of last year as the manufacturing sector is more sensitive to interest rates changes. The S&P Global Manufacturing PMI saw a notable jump the last week going from 46.2 to 49.0. So, the sentiment going into this report should be more skewed to the upside.
The US Job Openings is expected at 9.620M vs. 9.824M prior. It’s worth reminding that this data is two months old, but it can still be market moving given the market’s focus on the labour market indicators. Generally, the Stock Market performance leads Job Openings for the “wealth effect”. Moreover, we had very strong Consumer Confidence reports where the Present Situation Index, which correlates with the labour market performance, increased substantially.
Wednesday: The New Zealand Jobs Report is expected to show a 0.6% Q/Q in employment change vs. 0.8% prior and the Unemployment Rate ticking up to 3.5% vs. 3.4% prior. The Labour Cost Index will also be a key data point with the expectations seeing a 1.2% Q/Q increase vs. 0.9% prior.
The US ADP is generally used to predict the NFP data, but it has a really poor track record in doing so. In fact, last month we saw a big jump in ADP, but the NFP missed expectations. Nevertheless, it’s a market moving report. There is no expectation for this month’s report, although the prior reading showed a 497K increase.
Thursday: Swiss CPI Y/Y is expected to dip to 1.5% vs. 1.7% prior. Swiss inflation has returned to target already last month with both the Headline CPI and Core CPI back into the 0-2% range. Nevertheless, the SNB remained hawkish as they want to avoid second and third round effects. The market expects the SNB to raise rates again in September, although I think another miss would be enough for the SNB to pause.
The BoE is expected to hike by 25 bps bringing the Bank Rate to 5.25%. The market was pricing a higher chance for a 50 bps hike given another rise in wages data (although the unemployment rate jumped from 3.8% to 4.0%), but the expectations flipped as the UK CPI data missed expectations across the board. They are likely to put weigh on data dependency as their forecasts have been useless so far. Silvana Tenreyro left the MPC and was replaced by Greene, so we can expect Dhingra to be the only dissenter. The market’s expectation for the terminal rate stands at 5.75% at the moment.
The US Jobless Claims remain a strong market moving report as the labour market data is at the top of the market’s attention. Last week we got another beat across the board that sent the US Dollar higher, and this week the data is still expected to be good. US Initial Claims are seen at 227K vs. 221K prior, and Continuing Claims are expected at 1722K vs. 1690K prior.
The US ISM Services PMI is expected at 52.1 vs. 53.9 prior. The S&P Global Services PMI missed expectations the last week printing at 52.4 vs. 54.0 expected. A weaker services sector would be welcome to bring inflation back to target, but as Adam Button noted: should we be worried about the uptick in services prices?
Friday: The US NFP is expected to show 184K jobs added vs. 209K prior and the unemployment rate to remain unchanged at 3.6%. The Average Hourly Earnings M/M are seen at 0.3% vs. 0.4% prior, while there’s no expectation at the moment for the Y/Y figure, although it printed at 4.4% in the last month’s report. The labour market data is undoubtedly at the top of the Fed’s and Market’s attention right now, but it’s also worth reminding that we will see another NFP report before the next FOMC meeting, so this one won’t be the decision maker. It can still tip the expectations on a more hawkish side if the data beats considering the Jackson Hole Symposium scheduled for 24-26 August where Fed Chair Powell might deliver some very hawkish comments if the employment and inflation data remains strong. Finally, the labour market data has been strong coming into this NFP report, so the market’s sentiment should be skewed to the upside, making a miss a more surprising outcome than a beat.
