ECB meeting as well as inflation data from the US and China will dominate the week ahead of us.
USD
August ISM manufacturing PMI improved to 48.7 from 48 in July but less than markets expected (49). New orders surged and returned into expansion while employment continued to drop deeper into contraction. Prices paid came down, although at still very elevated levels, suggesting that inflation pressures are easing.
ISM services PMI for the month August improved to 52 from 51 in July. Business activity expanded at greater than expected pace and combined with strong jump in new orders was the main contributor to increase in overall reading. Employment was basically unchanged and stays well in contraction. There was a small decline in prices paid component but it still remains at a very elevated level (69.2).
August employment report showed 22k jobs added vs 75k as expected. The unemployment rate ticked up to 4.3% as expected with participation rate also ticking up to 62.3%. Average wages saw 0.3% m/m increase, same as in July, and 3.7% y/y increase, slower than 3.9% y/y increase the previous month. Job revisions led to June showing job loses. Manufacturing and government payrolls were down while private sector added 38k jobs vs 75k as expected. Employment in healthcare dominated with 31k jobs added followed by employment in social assistance with 16k. Trump will be very happy with this report as it cemented September cut, even brought some chance of a 50bp rate cut, with long end yields dropping.
The yield on a 10y Treasury started the week at 4.23%, rose to 4.31% and finished the week at around 4.10%. The yield on 2y Treasury started the week at 3.63%, rose to 3.67% and finished the week at around 3.51%. Spread between 2y and 10y Treasuries started the week at 61bp and finished the week at 59bp. After the NFP report FedWatchTool sees the probability of a 25bp rate cut at September meeting around 88%, while probability of a 50bp cut is around 12%. Another cut in October is almost 80% priced in. Gold has reached new all time high as it crossed the $3590 level while silver crossed the $41 level for a new 14-year high. Yield on a 30y Treasury reached 5% but then backed down and continued dropping after the NFP report.
This week we will have inflation data for the month of August, expected to show no change.
Important news for USD:
Wednesday:
PPI
Thursday:
CPI
EUR
Final August manufacturing Eurozone PMI was revised up to 50.7 from 50.5 as preliminary reported on the back of strong Spanish reading as well as both Italian and French readings returning into expansion. New orders printed first increase in almost three years while output reached highest level in almost three and a half years. Final services reading was opposite of manufacturing as it was revised down to 50.5 from 50.7 as preliminary reported. German reading was the biggest issue as it dropped into contraction with a 49.3 print. The report shows that input prices continued to rise while output prices remained stable. Employment ticked up while there was a nice improvement in demand.
ECB Rehn, a dovish member, warned about inflation undershooting and stated that ECB should not be on preset path but that it should remain flexible in its decisions. He stated that strong euro and cheaper energy put downside pressures to inflation. ECB Executive Board member Schnabel had a hawkish take as she sees inflation risks tilted to the upside so she does not see any need for further rate cuts at the moment. She warned that global rate hikes may come sooner than markets expect.
Preliminary August CPI saw headline number tick up to 2.1% y/y from 2% y/y in July while core CPI ticked down to 2.3% y/y after a 2.4% y/y print the previous month. Services inflation ticked down to 3.1% from 3.2% while goods inflation stayed at 0.8%. Final Q2 reading was unchanged at 0.1% q/q and revised up to 1.5% y/y from 1.4% y/y as preliminary reported. Household and government consumption contributed positively to the reading while gross fixed capital formation and net exports detracted from the reading.
This week we will have ECB meeting. Markets are overwhelmingly expecting the bank to pause so focus will be on projections and forward guidance.
Important news for EUR:
Monday:
Confidence vote in the French government
Thursday:
ECB Interest Rate Decision
GBP
August final manufacturing PMI slipped further into contraction as it printed 47 vs 47.3 as preliminary reported. Commentary for the report shows that production is still holding despite all the negatives but employment is continuing to decline as it has been falling for the ten consecutive months. Additionally, new orders also plunged painting a worrying picture of the sector. Final services showed growing divide between sectors in the economy as they were revised up to 54.2 from 53.6 and printed an even bigger jump from 51.8 in July. The report shows output growing at a faster pace with new orders rebounding from the previous month and business optimism improving. Employment, on the other hand, remained subdued. Composite was lifted to 53.5 from 51.5 in July.
Yield on UK 30y Gilts has ballooned up to over 5.73%, which is the highest level since 1998, as markets are not happy with the way UK is being run, debt piling and fiscal recklessness, and express that unhappiness by selling government bonds. GBP is plummeting as well with GBPUSD losing over 200 pips. It will be hard for BoE to deliver rate cut under these conditions. BoE Bailey on Wednesday expressed his concerns about inflation and did not sound very supportive of November cut.
AUD
Australian economy grew by 0.6% q/q in the second quarter beating market expectations of a 0.5% q/q growth and accelerating from 0.3% q/q growth recorded in the first quarter.
Official Chinese PMI data for the month of August saw improvements across sectors. Manufacturing ticked up to 49.4 from 49.3 in July although markets were expecting a 49.5 print. It continues an uphill battle against falling domestic demand. Non-manufacturing PMI printed 50.3 as expected, up from 50.1 the previous month. Combined, they managed to lift composite to 50.5 from 50.2 in July. RatingDog manufacturing PMI, new name for a former Caixin, jumped back into expansion with a 50.5 reading, up from 49.5 the previous month. The report shows that new orders rose at the fastest pace since March with improving business confidence. There was a drop in the employment index which poses a concern while input costs surged at the highest pace in almost a year, but it was not transferred onto consumers, as output prices remained stable.
This week we will have inflation data from China.
Important news for AUD:
Wednesday:
CPI (China)
NZD
Building permits rebounded nicely in July as they rose 5.4% m/m after a disappointing -6% m/m reading in June. Q2 terms of trade jumped to 4.1% q/q vs 1.9% q/q as expected and up from 1.9% q/q in Q1. Export prices rose 0.2% q/q vs 1.5% q/q expected increase but import prices plunged by more than expected (-3.7% q/q vs -1.5% q/q). These data points kept NZD supported.
CAD
August employment report brought more trouble to the economy as it showed 65k job losses instead of 10k job adds as expected. This makes it over 100k jobs lost in last two months. Given that US economy is about ten times bigger than Canada’s this is equivalent to a million job losses in two months in the US. The unemployment rate jumped to 7.1% from 6.9% in July with participation rate ticking down to 65.1%. Both full-time and part-time jobs recorded loses with former losing 6k jobs and latter 59.7k jobs. BoC will have its hand forced with this report and will have to cut rates in order to help stabilise the labour market.
JPY
Final manufacturing PMI reading for the month of August was revised down to 49.7 from 49.9 as preliminary reported but it still shows an improvement from 48.9 print in July. New orders continued to fall due to slow domestic demand while new export orders recorded a big drop, the biggest in almost eighteen months. Business confidence suffered while employment improved for the ninth straight month as there are no issues with labour market in Japan. Final services reading was lifted to 53.1 from 52.7 as preliminary reported and thus it shows a smaller decline from 53.6 in July. There was a divergence as new export orders rose on the strong domestic demand while new export orders plunged as foreign demand subsides. Employment recorded its first drop in almost two years while input costs continued to climb. Still, business confidence improved on the back of stronger domestic demand.
Rumors spread that Japanese government plans to provide new economic measures to help fight off effects of tariffs and inflation. Additional stimulus would mean more JPY injections into the system, thus JPY weakened during the week. Former Prime Minister Taro will publicly call for presidential elections within ruling LDP party next Wednesday. This move is targeted at removing current president and Japan’s Prime Minister Ishiba.
Labor cash earnings for July rose by 4.1% y/y thus lifting real wages into positive territory for the first time in 2025 with a 0.5% y/y growth. As a result, household spending rose 1.4% y/y making it third consecutive month of rising spending. President Trump has signed the US-Japan trade agreement executive order. It shows that cars from Japan will be tariffed at 15%. Rising wages combined with lower tariff uncertainty could give a boost to BoJ’s October rate hike chances, but political uncertainty may deter bank from acting.
CHF
SNB total sight deposits for the week ending August 29 came in at CHF472.3bn vs CHF469.5bn the previous week. Another increase as they move to the upper level of well-established range. August inflation data saw headline number unchanged at 0.2% y/y while core ticked down to 0.7% y/y from 0.8% y/y in July. Governor Schlegel stated that Switzerland is in no danger of deflation so we may expect inflation to meander around these levels in the months to come.
