Markets will be subject to lower liquidity on Monday owing to the labour day holiday in the US and Canada.
Key Events: –
Tuesday: RBA Monetary Policy Decision, UK Markit Services PMI (Aug)
Wednesday: BoC Monetary Policy Decision, Australian GDP (Q2)
Thursday: ECB Monetary Policy Decision, Riksbank Monetary Policy Decision
Friday: Canadian Labour Market Report (Aug), Japanese GDP (Q2, 2nd), Chinese Trade Balance (Aug)
North America: –
Julys US factory orders data will hit on Tuesday, with analysts looking for a 1.5% MM fall, following last month’s 3.0% rise.
The Bank of Canada headlines the docket over the border, and is set to issue its latest monetary policy decision on Wednesday. Consensus expects that the BOC will keep rates on hold at 75bps. A run of strong Q2 data has led to markets pricing-in a circa 50% chance of a hike at next week’s meeting, although October still looks the more likely candidate with markets baking in a 25bps hike over that horizon. In the wake of the recent strong Q2 GDP release CIBC moved their base case to a September hike, noting that “the Bank of Canada hiked once on the view that the economy didn’t need interest rates as low as they have been to sustain growth, and could now use the same argument to follow up with a move in September, rather than, as the market expects, wait until October. We were sitting on the fence, but are now leaning towards a September hike, with some cautionary words in the statement to remind Canadian dollar bulls that they will be very patient on further hikes. Look it up: there’s no tradition in Canada of waiting for meetings with an MPR to continue on a rate hike path once one has started.” Wednesday will bring the release of July’s Canadian trade data. June’s deficit stood at CAD 3.60bln, and the bigger picture doesn’t point to much a move with a stronger CAD set to offset modest increases in global oil prices and volumes. Canada’s August labour market report will hit on Friday, and comes on the heels of a stellar run for the dataset in recent times. While there is no consensus, chatter points to another solid enough release. In spite of the red-hot labour market, notable wage growth remains scarce. BMO opines that that “Stagnant wages suggest some slack persists. Average hourly wages are up just 1.3% y/y to July, one of the slowest rates on record. Although the establishment survey shows somewhat faster wage growth, there’s little sign of a pickup.”
Other releases of note during the week: Wednesday US Trade Balance (Jul) Canadian Labour Productivity (Q2) US Markit Services & Composite PMI’s (Aug, F) US ISM Non-Manufacturing PMI (Aug) Thursday US Non-Farm Productivity (Q2) US Unit Labour Costs (Q2) Canadian Building Permits (Jul) Canadian Ivey PMI (Aug) Friday Canadian Capacity Utilisation Rate (Q2) US Wholesale Inventories (Jul)
The ECB is expected to leave key rates unchanged at its meeting on Thursday. The market’s focus will be on any guidance regarding the central bank’s asset purchases programme (currently running at a EUR 60bln monthly pace), which is due to conclude at the end of this year. At its July meeting, ECB President Mario Draghi told reporters that the central bank would have discussions about its bond buying programme in the Autumn – which traders have taken to mean September’s meeting or the meeting in October. This doesn’t mean that an announcement will be forthcoming in September, though Draghi will likely have to field questions on the subject. “We believe it is too early for any details to be announced at next week’s meeting on 7th September,” write analysts at Lloyds Bank, “the most likely outcome in terms of policy is a hint from Mr Draghi that the current pace of asset purchases and the overall mix of policy will be reassessed at next month’s meeting on 26th October, when concrete policy options are likely to be presented.” Indeed, the latest sources story suggested that the ECB would not have a plan for QE fully ready until the December meeting, and the Governing Council has no appetite to rush into a decision out of fear of spooking the markets, which have been “sensitive” after Draghi’s comments from Sintra. As a result, there may be some clues revealed next week to ‘prepare’ the markets. The ECB will also unveil fresh new economic projections next week, and the EUR strength is expected to weigh on its near-term inflation view. On the other hand, growth has been picking up in the Eurozone, with PMIs signalling strong growth ahead. After the EUR’s meteoric rise this year, comments on the value of the currency will be closely watched. Despite some comments from ECB policymakers playing down the strength of the EUR, the July meeting minutes clearly show that it is not going unnoticed. On the economic front, Monday brings Eurozone PPI data for July, with consensus looking for the YY print to moderate to 2.2% from 2.5%. Tuesday brings the release of the Eurozone’s retail sales data, while Thursday will bring the final Q2 GDP print for the single currency zone, with analysts looking for a repeat of the preliminary 0.6% QQ and 2.2% YY.
Thursday also brings the latest Riksbank monetary policy decision from Sweden. The consensus view expects the Riksbank to keep rates on hold at -50bps and keep its bond-buying settings on hold at the conclusion of its policy meeting, although there are risks that the central bank may tilt to the hawkish side. Data has been strong, with both growth and inflation showing upside surprises. Goldman Sachs expect the Riksbank to “remain cautious, discounting some of the growth and inflation surprises as temporary and continuing to show concern about currency appreciation. For this reason, we expect the Riksbank to revise its policy rate path only moderately higher.”
Other releases of note during the week: Tuesday Eurozone Services & Composite PMIs (Aug, F) Thursday German Industrial Production (Jul) Friday German Trade Balance (Jul)
Markit’s heavily watched services PMI will be released on Tuesday, with analysts looking for a steady 53.5 in August, following on from July’s 53.8. HSBC posit that “service sector activity remains sluggish, as higher inflation weighs on consumer spending and Brexit uncertainties continue to loom. We think this softness is set to continue. In terms of the survey detail, we note that the price indices ticked up in July following a recent softening. That could suggest further inflation pressures in the pipeline.” Friday brings the national output data for the month of July. Analysts expect industrial production to rise by 0.1%, manufacturing production to rise by 0.3% and construction output to fall by 0.3%. Industrial production and manufacturing both made negative contributions to GDP in Q2, while Markit’s PMI surveys point to a solid start for Q3, although the collator cautions that “the key question is whether this positive start to the second half of the year can be sustained.” Meanwhile, construction output has fallen in four of the past five months, with the construction PMI falling by around three points in July, a fairly negative setup for the upcoming release.
Focus in Japan will fall on Friday’s second Q2 GDP estimate. The initial estimates came in at an impressive 1.0% QQ and 4.0% on an annualised basis. Since the release BoJ governor Kuroda has warned that such a rate of economic growth simply cannot continue, while the Q2 capex survey was extremely disappointing. Barclays note that the survey is a key “key input in the second GDP estimate. Based on those findings, we expect real growth to be revised down sharply to 0.5% QQ.”
Tuesday will bring the release of China’s Caixin Services PMI, the July reading came in at 51.5, while August’s official non-manufacturing PMI (geared towards larger firms) moderated in August. July’s trade data is due on Friday, with analysts looking for a wider surplus of USD 49.3bln, compared to July’s USD 46.7bln. TD Securities posit that “as global trade picks up and commodity prices follow suit, we see upside for Chinese imports and exports compared with consensus.”
Tuesday’s RBA decision could be a bit of a non-event. The RBA is expected to leave its cash rate unchanged at 1.50% and maintain its glass half full outlook, amid divergent pressures on the Bank’s policy rate (perhaps best highlighted in last month’s minutes, which noted “the need to balance the risks associated with high household debt in a low-inflation environment”). The RBA will receive ample air time next week with RBA Governor Lowe appearing at the RBA board dinner on Tuesday evening, as well as on Friday. Reserve Bank board member Heath is due to speak on Wednesday, with Deputy Governor Debelle due to speak on Friday. On the economic docket Q2 GDP will headline when it is released on Friday, with analysts looking for 0.7% QQ and 1.8% YY. Consumption and business investment have made solid contributions. The final pieces to the puzzle come in the form of business inventories and business profits on Monday, with the current account (and therefore net exports) due on Tuesday. On Thursday we will get July’s trade balance (with consensus looking for the surplus to widen slightly) and retails sales (which are expected to hold relatively steady).
Over the Tasman in New Zealand focus will also fall on Q2’s national accounts, with two GDP components due for release. Consensus looks for construction to have risen by 1.6% QQ, rebounding from Q1’s 3.5% fall after approvals data continue to point to ongoing construction growth through to 2018. The final piece of the GDP puzzle will be released on Friday (New Zealand time), and comes in the form of the manufacturing release; as ever there are no forecasts for the release, and it follows a solid enough 2.8% rise in Q1. It is also worth noting that a latest GDT auction will be held on Tuesday. The most recent auction saw the headline index fall by 0.4% to USD 3,339, with whole milk powder falling 0.6% to USD 3,143.
Other releases of note during the week: Monday Australian Melbourne Institute Inflation (Aug) Wednesday Japanese Wage Data (Jul) Friday Japanese Current Account (Jul) Australian Housing Finance Data (Jul)