Key Events: –
Wednesday: US GDP (Q2, 2nd)
Thursday: US PCE Data (Jul), China Official PMIs (Aug)
Friday: US Labour Market Report (August), Eurozone CPI (Aug, P), Canadian GDP (Q2), China Caixin PMI (Aug)
Thin trade conditions are expected on Monday owing to a UK public holiday.
North America: –
The major focus will be August’s US labour market report, due for release on Friday. The consensus looks for 184K Non-Farm Payrolls to be added to the US economy, against the 209K seen last time out. The unemployment rate is expected to hold steady at 4.3%, though average hourly earnings are likely to moderate to 0.2% MM from 0.3% prior. 2017 has been another solid year for the US labour market with a YtD average of 185K for Non-Farm Payrolls the unemployment already below Fed officials’ estimate of its ‘natural’ level. The FOMC expects the labour market will continue to tighten, although notable wage growth remains elusive. In terms of broader monetary policy implications, the release, in isolation, shouldn’t have too much of an impact, as the Fed has telegraphed a September announcement on balance sheet normalisation, and traders are currently pricing in a circa 40% chance of one further rate hike in 2017.
Wednesday will provide the traditional pre-cursor to the official labour market report, with the ADP employment report due. Median expectations look for a steady 178K. However, analysts are always keen to caution that the correlation between the two releases is somewhat tenuous (in the short term at least). The second release of Q2 GDP is likely to garner more interest, with analysts expecting the headline QQ annualised figure to tick up to 2.7% from the 2.6% seen in the initial estimate. Focus will fall on the investment and consumption sections within the breakdown.
Thursday will bring July’s PCE data. The core YY price metric stood at 1.5% last time out, personal income is expected to have risen by 0.3% MM following a flat reading last time out, while personal consumption is seen up 0.4% MM against a prior 0.1%. Inflation seems to be limiting some of the more centrist FOMC members views regarding monetary policy, the most notable is perhaps current voter Robert Kaplan, who has noted that he needs to see more progress on inflation before being comfortable with implementing another rate hike this year.
Over the border in Canada, Wednesday brings the releases of Q2’s current account. Consensus looks for a deficit of CAD 17.4bln, wider than Q1’s CAD 14.1bln. BMO notes that such a figure “would weigh in at just over 3% of GDP, in line with the average so far this cycle. Merchandise trade will weigh on the balance in Q2, with the goods deficit widening sharply in nominal terms. The services deficit likely narrowed, as it continues to adjust to the lagged impact of a weaker currency. All told, the size of the deficit, while manageable, suggests the Canadian dollar will struggle to hold on to any outsized strength.” Thursday also will brings the release of June and Q2 GDP data. Analysts are looking for 0.1% MM in June and 3.1% QQ annualised for Q2. CIBC is more optimistic than most heading into the print. The bank suggests that “overall, monthly data are pointing to a 3.7% annualized pace for Q2 GDP, which would match the rate reported for the first quarter and represent a 3.5% advance on a year-over-year basis. Recent retail sales figures suggest that consumer spending was once again a big player in driving growth, with government spending also likely helping but inventories providing a drag.” However, the bank cautions that “the quarter is likely, however, to go out on a bit of a whimper. Despite a robust retail sales report, declines in manufacturing and wholesaling could hold June’s monthly GDP to a flat reading. That would be the first sign of an economy cooling back to the more trend-like growth rates expected for the second half of the year.”
Other releases of note during the week: Monday US Advance Goods Trade Balance (Jul) US Wholesale Inventories (Jul) Tuesday S&P Case Shiller House Price Index (Jun) Thursday US Chicago PMI (Aug) US Pending Home Sales (Jul) Friday US Markit Manufacturing PMI (Aug, F) US ISM Manufacturing PMI (Aug) US University Of Michigan Consumer Sentiment Survey (Aug, F)
Friday brings the release of the Eurozone’s preliminary CPI dataset for August, with analysts looking for relatively stable 1.4% YY headline (against last month’s 1.3%), while the core reading is expected to print at a steady 1.2% YY. Looking forward, HSBC expects inflation to “rise to 1.5% YY in August and September before falling again later in the year due to the base effects from energy.” The bank adds that “the strong euro should also soon start exerting downward pressure on inflation, likely causing the ECB to revise down its inflation forecast in September.” This being said the ECB’s Ardo Hansson has recently noted that EUR’s appreciation thus far is “not a big change,” despite the latest ECB meeting minutes revealing that rate setters expressed concerns about possible market overshooting regarding EUR. Looking forwards, the ECB looks set to make an announcement on its QE programme in the coming months with a recent ECB sources piece suggesting that the governing council will make such an announcement at its October meeting.
Friday will also bring the release of the Eurozone labour market data for July, with the median looking for a steady unemployment rate of 9.1%. It is worth noting that the employment sub-metric of the composite PMI did ease back a tad in July, but remains at a relatively high level.
Other releases of note during the week: Wednesday Eurozone Consumer Confidence (Aug) German CPI (Aug, F) Friday Eurozone Manufacturing PMI (Aug, F)
The manufacturing PMI survey for August will be released on Friday and is expected to print at 55.0, against last month’s 55.1. The previous release pointed to activity picking up slightly from June’s four-month low, with employment numbers rising at the fastest pace since January 2016, a solid start for Q3. Although optimism regarding the outlook for business remains subdued post-Brexit, which has been reflected in the Q2 GDP investment breakdown and the recent trend in retail sales data. The survey also highlighted that “price pressures continued to ease in July, as the rates of input cost and output charge inflation both slowed further.” Input prices rose at the weakest pace in over a year, with a similar story apparent in the official inflation numbers. Markit opined that “if this trend of milder price pressures is also reflected in other areas of the UK economy, this should provide the Bank of England sufficient lee-way to maintain its current supportive stance until the medium-term outlook for economic growth becomes less uncertain.” HSBC is “sceptical that the survey optimism will be translated into hard data although exporters do seem to be seeing some benefit from the weak pound.”
Other releases of note during the week: Wednesday Money Supply & Credit Data (Jul)
China’s August PMI surveys will headline the county’s risk events next week. Thursday brings the release of the official surveys, with the manufacturing release expected to print a steady rate of expansion; the consensus looks for 51.4. as ever there are no expectations for the non-manufacturing release. Friday will bring the release of Caixin’s manufacturing PMI, with consensus looking for 51.0 from 51.1. Last month’s Caixin release saw output and total new orders expand at the fastest rates seen since February, while new export sales increased at the second-fastest rate for nearly three years and input price inflation accelerated to solid pace. The survey compiler noted that the improvement in operating conditions in July suggests that “the economy’s growth momentum will be sustained.” TD sees downside risk for the manufacturing PMIs after “lofty readings in July failed to translate into real activity data and the exchange rate has soared.”
Tuesday will bring the release of Japan’s labour market report for July. The unemployment rate is expected to hold steady at 2.8%, the job-to-applicant ratio is expected to edge up to 1.52 from 1.51 but household spending is expected to fall by 0.5% MM following last month’s 1.5%. Despite the labour market sitting at its tightest level in decades and ultra-loose monetary policy at the BoJ, Japan cannot shake itself from the shackles of low inflation. Thursday brings the preliminary industrial production release for August, with analysts looking for a 0.5% pullback in MM terms, which would undershoot corporate Japan’s (notoriously optimistic) estimate of a 0.8% rise.
Focus in Australia will centre around the release of some of Q2’s GDP components. On Wednesday we will get the release of the completed construction work metrics. Consensus looks for a gain of 1.0% QQ, following Q1’s 0.7% fall. In terms of the breakdown only dwelling construction and engineering feed in to the national accounts. ANZ expects “strength in the public sector to offset further declines in privately funded mining work. Public activity looks set to continue its recent upswing, with a significant volume of engineering work (especially roads) in the pipeline. An upside risk is a bigger-than-expected rebound in dwelling construction after weakness in Q1.” Thursday brings the release of the second GDP component release of the week, which comes in the form of capital expenditure. The median estimate looks for 0.2% QQ from 0.3% last time, with 2016-17 actual figures seen at AUD 95.6bln. ANZ are less optimistic than consensus, suggesting that “total capex contracted in Q2, hindered by ongoing declines in the mining sector. In more positive news, plant and equipment spending is likely to have posted a moderate rise.”
Other releases of note during the week: Wednesday Japanese Retail Sales (Jul) Thursday Japanese Business Capex (Q2) Australian HIA New Home Sales (Jul) Friday New Zealand Terms Of Trade (Q2)