Q2 GDP data from trom the US, Canada and Switzerland along with PCE inflation will highlight this rather quiet week as the Summer winds down. NVIDIA earnings will have a big impact on the markets.
USD
Meeting between presidents Trump and Putin held in Alaska did not give any clear conclusions but positive signs were evident. For one it seems that Russia would accept US/NATO security guarantee for Ukraine. Both EU and Ukraine have made it clear that US security guarantees for Ukraine would be a vital step towards peace. On Wednesday President Trump asked for firing of FOMC member Cook on the grounds of mortgage fraud. In case she is fired or resigns that will make room for another Trump appointee at the Fed and another vote for lower rates. With Waller, Bowman and Miran already on lower rates camp this would make it a fourth voting member.
FOMC minutes showed that majority participants expressed fear of inflation returning, they judged it to be a greater risk than employment, and therefore opted to pause. There was a dissent on the effect of tariffs, as well as on rates, with majority wanting to see more data that will bring clarity in the months ahead. Minority argued that it would not be prudent to wait for complete clarity before adjusting monetary policy. Caveat to this minutes is that meeting was held before weak NFP and downward revisions.
S&P Global manufacturing PMI for the month of Aug surprised to the upside and returned to expansion territory with a 53.3 print vs 49.8 in July while markets were expecting a 49.5 reading. Output has surged showing the strongest monthly rise in over three years while new orders were highest since February of 2024. Services moved deeper into expansion with a 55.4, same as the composite index. The report states that these data are consistent with economy growing at a 2.5% annualized rate.
Fed Chair Powell did a 180 turn from July FOMC meeting at his Jackson Hole speech. He stated that risks to inflation are tilted to the upside, and risks to employment to the downside which puts them in a very difficult situation that requires them to thread carefully and balance both sides of the mandate. His statement “shifting risks may warrant adjusting policy” was interpreted by markets as dovish and that he is leaning towards a rate cut in September, although he is leaving his options open. He acknowledged that both supply and demand of labor market are slowing, Fed has unanimously adopted new policy framework of flexible inflation targeting thus replacing framework of flexible average inflation targeting. Inflation is seen as one-off effect from tariffs and will be less of concern compared to labor market. Powell has stated that GDP growth slowed “notably” in H1 of this year to 1.2% from 2.5% seen in 2024. Risk assets were repriced up while USD was repriced down as a result of the speech.
The yield on a 10y Treasury started the week at 4.32%, rose to 4.35% and finished the week at around 4.26%. The yield on 2y Treasury started the week at 3.76%, rose to 3.78% and finished the week at around 3.68%. Spread between 2y and 10y Treasuries started the week at 57bp and finished the week at 58bp as curve continues to meander between steepening and flattening. After the Jackson Hole speech FedWatchTool sees the probability of a 25bp rate cut at September meeting around 75%, while probability of a no cut is around 25%.
This week we will have second estimate of Q2 GDP as well as Fed’s preferred inflation measure, PCE.
Important news for USD:
Thursday:
GDP
Friday:
PCE
EUR
Final inflation for July saw 2% y/y for headline and 2.4% y/y for core, unchanged from the preliminary reading. ECB President Lagarde spoke in Geneva and stated that Euro-Area economy performed resiliently this year but clarified that cracks already started to appear in Q2 and warned that Q3 growth is expected to show a slowdown. She added that although a trade deal with the US is a positive it has not completely removed uncertainty.
August preliminary PMI for the Eurozone saw manufacturing return to expansion with a 50.5 print for the first time since June of 2022. Manufacturing has been improving every month this year and now Germany and France both printed 49.9. Tables have turned as now manufacturing is the stronger part of the economy. Services took a bit of a dip as they printed 50.7 vs 51 in July. German reading was down while French was up. New orders were up for both sectors as well as employment, particularly in the services sector. There were again increases in costs in the services sector. Overall activity, as indicated by the composite PMI, increased and is now printing 51.1 compared to 50.9 the previous month. This report adds to the case of ECB pause in September.
Final German Q2 GDP was revised down and now it shows a bigger drop (-0.3% q/q vs -0.1% q/q as preliminary reported). Digging into the details we can see that consumer spending was up and that was the lone positive. Manufacturing and construction sectors were revised down, with construction being particularly big drag on the economy. Investments and net exports also deducted from the GDP with latter experiencing a reversal of frontrunning of tariffs and full effect of US tariffs.
GBP
July CPI report saw both headline and core rise to 3.8% y/y stronger than 3.7% y/y as expected for both readings. June headline was at 3.6% y/y while core was at 3.7% y/y. Details of the report show that services inflation accelerated to 5% y/y from 4.7% y/y the previous month. Food inflation also surged printing 4.9% y/y compared to 4.5% y/y in June. BoE pause is almost fully priced in for September meeting and this report raises concerns about bank’s ability to cut in November.
Preliminary August PMI data saw further division between manufacturing and services sector. Manufacturing PMI declined to 47.3 from 48 in July while increase to 48.3 was expected. Services, on the other hand, smashed expectations as they printed 53.6 vs 51.8 as expected and as was the previous month. Services represent much bigger part of the economy so this is a very welcoming result. Composite was thus lifted to 53 from 51.5 in July.
AUD
AUD had a tough week with risk off sentiment going into the Jackson Hole meeting, but after Powell’s speech it was lifted up along with other risk assets. PBoC has left 1-year and 5-year Loan Prime Rates unchanged at 3% and 3.5% respectively as was expected.
NZD
RBNZ delivered widely expected 25bp rate cut thus bringing the Official Cash Rate (OCR) down to 3% but their statement and projections were very dovish. The vote was 4-2 in favour of a 25bp rate cut but 2 members voted for a 50bp rate cut! New projections see OCR at 2.71% in December of 2025 vs 2.92% previously. OCR is expected to come down to 2.59% by September of 2026 while it was seen there at 2.9% previously. The statement shows that if inflation continues to ease as expected further rate cuts are coming. Focus seems to be switching from inflation, expected to come to mid of the targeted range by mid-2026, to growth and employment emphasizing spare capacity. GDP projection for 2026 is now seen at 1.1% vs 1.6% previously.
RBNZ Governor Hawkesby added to the dovishness of the decision at the press conference. He clarified that next two meetings are live and that it is expected that terminal rate will be at around 2.5%. He added that OCR is now no longer restrictive and that Q2 economic data was weaker than expected. Additionally, he is comfortable with NZD declining.
CAD
July inflation report saw headline number print 0.3% m/m and 1.7% y/y, down from 1.9% y/y in June. This is the third 1.7% y/y reading in the past four months as grocery prices and shelter dominated the reading with both printing price increases of above 3% y/y. Gasoline prices plunged almost 20% y/y and thus kept a lid on inflation. Core measures all showed same y/y increases as the previous month with Median at 3.1%, Common at 2.6% and Trim at 3%. Core readings pose a problem but with headline number staying below 2% target for the fourth consecutive month we can see BoC switching their focus on supporting growth and thus giving us additional rate cuts. Retail sales rebounded nicely in June printing 1.5% m/m after -1.2% m/m in May for headline and 1.9% m/m vs -0.3% m/m for the ex autos category. Advanced reading for July sees retail sales decreasing by 0.8% m/m.
This week we will get Q2 GDP data.
Important news for CAD:
Friday:
GDP
JPY
June machinery orders, a good predictor of CAPEX 6-9 months in the future, smashed expectations and rose by 3% m/m and 7.6% y/y. Preliminary August PMI readings saw manufacturing almost returning to expansion with a 49.9 print after a 48.9 print in July and beating expectations of a 49 reading. Increase in reading was gained by improvements in new orders indicating that rebound is driven by domestic demand as new export orders slumped as a result of tariffs. Services eased a bit with a 52.7 print after a 53.6 the previous month but they are still well in expansion and are driven by new orders. Input prices continue to rise and are going up faster in services sector than in manufacturing sector. Composite was lifted thus to 51.9 from 51.6 in July. New Reuters’ poll sees greater number of economists expecting a rate hike by BoJ in the fourth quarter.
Headline inflation in Japan in the month of July slowed down to 3.1% y/y from 3.3% y/y in June but markets were expecting a decline to 3% y/y. Drops in energy prices and government subsidized utilities as well as education fees brought inflation down while rising food prices prevented it from falling further. Ex fresh food component of inflation printed 3.1% y/y, down from 3.3% y/y the previous month while ex fresh food, energy remained at 3.4% y/y.
CHF
SNB total sight deposits for the week ending August 15 came in at CHF465.7bn vs CHF465.9bn the previous week. Virtually no change as SNB lets market dictate Swissy’s strength.
This week we will get final Q2 GDP data.
Important news for CHF:
Thursday:
GDP
