This week we will have employment data from the US and Canada, CPI from the EU and Switzerland, ISM PMIs and GDP from Australia. Monday is Labor Day holiday and US markets will be closed so liquidity will be thin.
USD
President Trump sent a letter to Fed Governor Cook on August 25 informing her that she is removing her from her position, effecting immediately. Trump’s continued meddling into Fed’s independence has averse effect on USD and leads to steeper yield curve. If he manages to replace Cook with one of his men then he will have a 4-3 majority in the Board of Governors (Waller, Bowman, Miran and potential Cook replacement) and will use it to have them vote for rate cuts. Governor Cook replied that she has no intentions of resigning and will continue to conduct her duties as Fed governor as Trump has no authority to fire her and later on sued Trump. US Federal Appeal court ruled that Trump overstepped his authority when imposing the tariffs, therefore most of them are illegal under laws that give Congress control of tariffs and tax policy. This will most likely be pushed to Supreme Court and in the meantime tariffs will stay.
Second estimate of Q2 GDP was revised up to 3.3% annualized from 3% as reported in advanced reading and better than 3.1% as expected. Personal consumption and investment were revised up with latter showing smaller drag on the GDP while net exports and government consumption were revised down. Government consumption was now a drag to the GDP in Q2.
July PCE data showed headline number stay at 2.6% y/y as expected while core ticked up to 2.9% y/y, also as expected, from 2.8% y/y in June. Monthly readings showed 0.2% increase for headline and 0.3% increase for core. Personal spending and income components also came in line with expectations at 0.5% m/m and 0.4% m/m thus increasing from 0.4% m/m and 0.3% m/m the previous month respectively. Rise in personal spending is a positive for the economy and third quarter GDP.
The yield on a 10y Treasury started the week at 4.26%, rose to 4.31% and finished the week at around 4.23%. The yield on 2y Treasury started the week at 3.71%, rose to 3.74% and finished the week at around 3.59%. Spread between 2y and 10y Treasuries started the week at 55bp and finished the week at 64bp as curve proceeds to steepen after Jackson Hole meeting. FedWatchTool sees the probability of a 25bp rate cut at September meeting around 86%, while probability of a no cut is around 14%.
This week we will have ISM PMIs as well as NFP data on Friday. Headline number is expected to come at around 50k with the unemployment rate staying at 4.2%.
Important news for USD:
Tuesday:
ISM Manufacturing PMI
Thursday:
ISM Services PMI
Friday:
NFP
Unemployment Rate
EUR
French Prime Minister François Bayrou surprised the markets by calling a vote of confidence in his government’s budge plan on September 8. French parliament has 577 seats and ruling coalition holds 210 of them. Other parties have already stated that they will vote against the government and with confidence vote requiring absolute majority chances of government surviving are less than grim.
Minutes from the ECB July meeting show bank firmly in data-dependent mode. They show that inflation risks are broadly balanced while risks to growth are tilted to the downside due to global trade tensions that could negatively impact exports and pose a drag on investment and consumption. Uncertainty remains very high due to trade policies and geopolitics. Preliminary August CPI data saw French, Spanish and Italian readings come weaker than expected as countries printed 0.9% y/y 2.7% y/y and 1.6% y/y price increases respectively. On the other hand, German reading printed 2.2% y/y vs 2.1% y/y as expected and up from 2% y/y in July.
This week we will have preliminary August inflation data.
Important news for EUR:
Tuesday:
CPI
GBP
BoE Governor Bailey stated at his speech in Jackson Hole that weak productivity and labor participation put a lid on economy’s potential growth. Participation in the labor force has been declining after the pandemic and if it does not pick up then productivity growth will have to do the heavy lifting of the economy.
AUD
RBA minutes from August meeting showed that reduction in the cash rate will be likely needed over the coming year and added that “faster easing might be needed if the labor market is already in balance, risking inflation undershooting the midpoint”. Monetary policy is still considered somewhat restrictive. The bank remains data dependent and is carefully watching global developments as any deterioration in the global economy could shift risks to the downside in Australian economy. Inflation and jobs remain two most important data points for policymakers.
July monthly CPI showed a jump to 2.8% y/y from 1.9% y/y in June while a print of 2.3% y/y was expected. Monthly figure recorded price increasing by 0.9%. Core reading also surged printing 2.7% y/y from 2.1% y/y the previous month. Monthly figure does not capture all items that go into inflation basket, quarterly CPI does that, but still such surge in reading is not a welcoming sign.
This week we will have Q2 GDP data.
Important news for AUD:
Wednesday:
GDP
NZD
Business confidence continued to improve in August as now 49.7% of surveyed expect economy to improve compared to 47.8% in July. Export and investment intentions showed biggest improvements followed by the ease of getting credit. On the other hand, employment and profit expectations recorded declines. On the inflation front, pricing intentions and wage growth expectations moved down which kept inflation expectations stable.
CAD
June GDP showed another, third in a row, month of -0.1% m/m print. Preliminary reading of July GDP shows 0.1% m/m growth and a potential to break the streak. Q2 GDP plunged -1.6% annualized after Q1 was revised down to -2% from 2.2% annualized. A drop in exports to the US is hurting the economy and pushing BoC to deliver another rate cut in order to help the economy recover.
This week we will have employment data.
Important news for CAD:
Friday:
Employment Change
Unemployment Rate
JPY
BoJ Governor Ueda spoke at Jackson Hole about the need for more women to enter labor force in Japan as well as the need for more foreign workers to help with labor shortages. July PPI number came in at 2.9% y/y, down from 3.2% y/y in June and as was expected. This may be an early indications that price pressures are fading in Japan which will keep BoJ on hold and negatively impact JPY.
August inflation report for the Tokyo are saw headline number decline to 2.6% y/y as expected from 2.9% y/y in July. Ex fresh food component dropped to 2.5% y/y as expected from 2.9% y/y the previous month while ex fresh food, energy component remained at 3.1% y/y for the third straight month. Although headline and core are coming down, they are still well above BoJ’s 2% target, but given the unexpected drops in July industrial production and retail sales (both printing -1.6% m/m) we cannot see them move for a rate hike as they have emphasized importance of economic recovery. Additionally, July unemployment rate surprisingly dropped to 2.3% from 2.5% in June which could keep pressure on wages and in turn on inflation.
CHF
SNB total sight deposits for the week ending August 22 came in at CHF469.5bn vs CHF465.7bn the previous week. A decent increase gives the bank more ammo for intervention. SNB vice chairman Martin reiterated bank’s main points stating that interventions in FX market may be necessary, that Swissy’s strength has more to do with USD weakness and that they do not see a risk of deflation materializing. On interest rates he clarified that hurdle to go into negative is much greater than hurdle to cut rates when they are in positive territory adding that negative rates have worked in the past. Due to their adverse effects on households, banks and investors they are not pushing for negative interest rates. Final Q1 GDP data showed economy growing by 0.1% q/q and 1.2% y/y after 0.4% q/q and 1.8% y/y growth seen in the previous quarter.
This week we will have inflation data.
Important news for CHF:
Thursday:
CPI
