US inflation and consumption data coupled with Chinese production and consumption data will be the highlights of the week ahead of us.

USD 

Unemployment benefits have expired on September 6, affecting around 9 million people. This may have adverse impact on the spending. On the other hand, this should lead to rise in participation rate and NFP numbers for September as more and more people return into the work force. JOLTS job openings came in at astonishing 10.934 million, representing a seventh consecutive month of rising job openings, new record number and indicates increasing demand for workers. While jobs are aplenty there seems to be a growing need for the rise in wages in order for slots to be filled. It can then turn the wage-push inflation spiral where companies transfer high labor costs to consumers who in turn then demand still higher wages to stay afloat with rising prices. If this is to happen, then inflation will have a hard time dropping back to 2% as some Fed members suggest. 

This week we will have inflation and consumption data. 

Important news for USD: 

Tuesday:

CPI

Thursday:

Retail Sales 

EUR 

ZEW survey in September saw German current situation improve from 29.3 to 31 while expectations plunged to 26.5 from 40.4 in August. Uncertainty regarding Q4 growth amid Delta concerns and ongoing supply chain disruptions is intensifying as the reading fell for the fourth consecutive month from the high of 84.4. European expectations showed similar drop to the German reading (31.1 from 42.7). Final Q2 GDP reading was improved to 2.2% q/q and 14.3% y/y from the second reading of 2% y/y and 13.6% y/y respectively. 

ECB has left key interest rates unchanged as expected. Accompanying statement showed that “the Governing Council judges that favorable financing conditions can be maintained with a moderately lower pace of net asset purchases under the PEPP than in the previous two quarters.” ECB President Lagarde stated that price increases are largely temporary, due to rising energy costs, reintroduction of German VAT and overall low price levels in the past year because of the pandemic. She stated that economic activity should return at pre-pandemic level by the year-end and labour market showing rapid improvements. Decision on PEPP was unanimous and she characterized it as “re-calibrating”. Growth forecast was boosted to 5% from 4.6% for 2021 and slightly lowered to 4.6% from previously expected 4.7% for 2022. Inflation has been revised upward and is now seen at 2.2% for 2021 vs 1.9% previously. Inflation in 2022 is expected to be at 1.7% vs 1.5% as seen in June and 1.5% in 2023. With inflation expectations below targeted 2% it I reasonable to assume that monetary policy will remain accommodative for a long period. October meeting will be uneventful but more easing should occur at the December meeting. 

GBP 

BOE Governor Bailey stated that short-term leveling off is seen in the economy. Central view of bank members is that inflation will not be persistent and that it is unlikely that commodity prices will continue to rise. Expectations are for supply chain bottlenecks to resolve themselves. MPC members were split in August 4-4 on whether the minimum conditions were met. Bailey stated that according to him minimum conditions for a rate hike were met, but they are not sufficient to raise interest rates. 

UK Prime Minister Boris Johnson introduced a tax rise – to pay for health and social care and thus break a pledge made before the elections by his Conservative Party. He stated that while raising taxes was not mentioned in the election campaign, there was also no mention of Covid and its devastating effect on the economy. 

This week we will have employment and inflation data. 

Important news for GBP: 

Tuesday:

Claimant Count Change

Unemployment Rate

Wednesday:

CPI 

AUD 

RBA has left both the cash rate and targeted yield on 3-year bonds unchanged at 0.10% as widely expected. Bank members have decided to maintain tapering plans while extending bond purchases of AUD4bn/week until at least February of 2022. They have struck rather optimistic picture about the economy stating that setback is only temporary, virus will only delay the recovery and that economy will continue to grow in Q4 with expectations for return to pre-pandemic growth path somewhere in the H2 of 2022. Conditions necessary for a rate hike will not be met before 2024. It was a dovish leaning message from the RBA indicating that they will wait for health situation to resolve before taking further measures and expecting economy to rebound once restrictions are lifted. 

Trade balance surplus from China continued to widen and for the month of August it came in at $58.3bn vs $56.58bn in July. Highlight of the report is imports rising 33.1% y/y from 28.1% y/y in July. Rising imports indicate healthy domestic demand that was not seen in recently reported retail sales from China. Inflation data for the same period saw CPI come in at 0.8% y/y vs 1% in July while PPI rose to a 13-year high with 9.5% y/y, up from 9% y/y the previous month. Economic theory suggests that rising producer prices will eventually be transferred to the consumer, however that transition is still missing in China. Inability to pass rising prices to consumers has led to fall in company profits. 

This week we will have employment data from Australia as well as production and consumption data from China. 

Important news for AUD: 

Wednesday:

Retail Sales (China)

Industrial Production (China)

Thursday:

Employment Change

Unemployment Rate 

NZD 

GDT auction in the first full week of September came in at 4%. This is first decent jump in prices since the first auction in March. Additionally, after eighth consecutive auctions of falling prices we now get a second auction in a row with rising prices. Another positive input for the New Zealand economy. RBNZ is expected to hike rates at their first meeting after lockdown is removed. 

This week we will have Q2 GDP data. 

Important news for NZD: 

Thursday:

GDP 

CAD 

BOC has left the overnight rate unchanged at 0.25% and let the purchase program continue at a pace of CAD2bn/week. Considering the surprising fall in Q2 GDP and the fact that elections are scheduled for September 20 the bank decided not to take any action but rather strike cautiously optimistic tone. They still expect economy to strengthen in the H2 of 2021 and close the output gap in H2 of 2022. With forward guidance being unchanged we expect BOC to continue with tapering of the purchase program to CAD1bn/week at their October meeting. 

Employment report for August showed that the economy added 90.2k jobs vs 67.2k as expected. Majority of the jobs were full-time (68.5k). The highlight of the report was the unemployment rate. It dropped to 7.1% while expectations were for it to come at 7.3%. It was 7.5% in July. The caveat is a small drop in the participation rate to 65.1% from 65.2%. A good employment report that will not make BOC stray from the taper road. 

This week we will have inflation data. 

Important news for CAD: 

Wednesday:

CPI 

JPY 

Average cash earnings in July rose 1% y/y vs 0.8% y/y as expected and with upward revision to June reading to 0.1% y/y this now marks a fifth consecutive month of rising wages. The rise in wages was not fully translated into consumption with household consumption rising 0.7% y/y vs 2.9% y/y as expected. Final Q2 GDP was revised up to 0.5 q/q and 1.9% y/y from 0.3% q/q and 1.3% y/y as preliminary reported. Private consumption, business investment as well as government spending contributed to the upward revision. State of emergency has been extended until September 30. It will last at least until the end of the quarter so we can expect a weak Q3 GDP reading. 

CHF 

SNB total sight deposits for the week ending September 3 came in at CHF714.9bn vs CHF715.2bn the previous week. The central bank is sitting idly on the side as markets are doing its work, pushing EURCHF toward the 1.09 level.

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Please note that this analysis should not be used as investing advice as it is only an overview of the economic events influencing the markets. Please remember that our accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.