The Economic Week Ahead


Main Macro Events This Week

A lot has been digested in recent weeks, including monetary policy decisions, a plethora of earnings reports, data, and supply, with geopolitics thrown in for good measure. Stocks have generally focused on the positives of continued central bank largess, generally bullish earnings news, and signs of improved economic activity, and they’ve left core indexes at or near record highs. There were no surprises from the recent FOMC and ECB policy decisions. Rates were left unchanged with QE kept intact, for now. Of the three central bank meetings this week, with the BoE, RBA, and RBI, steady to easier policy is expected. That should continue to underpin bonds and stocks near term.

United States:  This will be another busy week in the U.S. as August begins. Earnings will remain a factor ahead after strength the Blue Chips boosted the Dow to yet another record peak, though surprising weakness in tech shares and disappointing reports from FANG (Facebook, Amazon, Netflix and Google) shares rattled the NASDAQ. For the month-to-date, however, core Wall Street indexes are between 2% and 3.8% higher. As for data, another employment report is at hand and it will be closely monitored since it will help determine the start time for quantitative tightening, QT. Strong numbers will increase the risk that QT is announced at the next FOMC meeting on September 20, 21. July nonfarm payrolls (Friday) are expected to show a 182k following the better than expected 222k June gain, with the unemployment rate dipping again to 4.3% from 4.4%. Average hourly earnings are seen rising 0.3% (median 0.3%) versus the prior 0.2%. The workweek is expected to dip back to 34.4 (median 34.5) from 34.5. The as-expected acceleration in Q2 GDP to a 2.6% growth clip supports forecasts of decent job gains. Earnings will be a focus as the inflation aspect is important for the Fed view. Other major reports this week include the July manufacturing ISM (Tuesday), estimated dipping to 55.5 (median 56.4) after jumping a surprising 2.9 points to 57.8 in June, which was the highest since the August 2014. The nonmanufacturing ISM (Thursday) is also expected to slide to 56.8 in July after rising 0.5 points to 57.4 last month. June personal income and consumption (Tuesday) will help fine tune the GDP outlook. We’re forecasting a 0.4% income gain (median 0.4%), with spending up 0.1% (median 0.1%). July vehicle sales will provide more clues on spending. Domestic car sales (Tuesday) are seen at a 4.5 mln pace (median 4.5 mln), with trucks at 8.5 mln (median 8.6 mln).

Canada: releases are due this week with the July employment and June trade numbers reported (Friday). We expect employment to rise 25.0k in July after the 45.3k gain in June. The unemployment rate is projected at 6.5% in July, matching June. A widening in the trade deficit to -C$1.3 bln in June from -C$1.1 bln in May is projected. A 0.5% m/m gain in exports is seen following the 1.3% rise in May, as the tumble in crude oil prices weighs on the value of Canada’s total exports. The IPPI (Monday) is projected to fall 0.6 m/m in July after the 0.2% decline in May, as weaker energy and commodity prices and a sharp firming in the value of the loonie relative to the greenback drive the index lower. The Markit manufacturing PMI for July is due Tuesday. The seasonally adjusted Ivey PMI for July (Friday) is expected to improve to 63.0 from 61.6 in June.

Europe: This week’s round of data releases are likely to confirm the picture of robust growth, but still low inflation. Data have confirmed that the Eurozone recovery remained relatively robust in the second quarter and we expect official Q2 Eurozone GDP numbers (Tuesday) to show a quarterly growth rate of 0.6% q/q (median 0.6%), unchanged from Q1. Though these are backward looking numbers, the upcoming round of July confidence indicators (to be completed with the final PMI readings) suggest that momentum remained strong at the start of Q3. We expect the final manufacturing PMI (Tuesday) to be confirmed at the preliminary 56.8 (median 56.8) and the services reading (Thursday) at 55.4, leaving both sectors firmly in expansion mode. Confidence data aside, German manufacturing orders growth (Friday) has remained robust and we are looking for another solid June number, even if the quarterly rate is likely to have fallen back to 0.3% m/m (median 0.5%) from 1.0% m/m in May. Against that background, we expect the German seasonally adjusted jobless total (Tuesday) for July to have dropped a further -2K (median -6K), which would leave the sa jobless number unchanged at a very low 5.7%. The overall Eurozone unemployment rate for June meanwhile (Monday) is seen falling to 9.2% (median 9.2%) from 9.3% in May.

UK: The BoE’s Monetary Policy Committee meets this week (announcing Thursday), and the central bank will also release its quarterly Inflation Report with revised growth and inflation projections. Three of the then eight members voted for a 25bp hike in the repo rate at the last meeting in June (there are normally nine members, but one position was then temporarily vacant), and we expect a 6-3 vote spilt this time around in favor to leave interest rates unchanged (the same as the median expectation). With June CPI having undershot expectations, at 2.6% y/y after 2.9% y/y in May, and with concerns about the health of the key consumer sector, more dovish arguments will likely continue to prevail. There is risk of a downward nudge in growth forecasts in the Inflation Report, too, while inflation projections are likely to remain near unchanged. The data calendar this week is highlighted by the Markit PMI surveys for July. The manufacturing PMI (Tuesday) is expected to hold at a near steady 54.4 reading after 54.3 in June. The construction PMI (Wednesday) is seen at 54.3 after 548 in the prior month, and the services PMI is anticipated to lift fractionally to a 53.6 reading after 53.4 in June. In-line data would affirm that activity in all three sectors covered by the surveys is continuing to expand, albeit at a relatively less robust pace relative to the last year or two.

China: July CFLP manufacturing PMI (Monday) is expected to slip to 51.5 from 51.7, while the Caixin/Markit series (Tuesday) is forecast at 50.2 from 50.4. The July services PMI (Thursday) is estimated rising to 51.8 from 51.6. The markets remain optimistic on China’s growth outlook.

Japan: Industrial production report (Monday), which we expect will come in at a 5.0% y/y pace, slowing from the 6.5% in May. June housing starts (Monday) are penciled in at -0.3% y/y, unchanged from May. June construction orders are also due Monday. July manufacturing PMI (Tuesday) should improve to 52.5 from 52.4. July auto sales are also on tap Tuesday. July consumer confidence (Wednesday) is expected to dip to 43.2 from 43.3 in June. July services PMI is due Thursday.

Australia: The Reserve Bank of Australia meeting is center stage (Tuesday). We expect no change to the current 1.50% policy setting. The RBA also releases the Statement on Monetary Policy (Friday). Economic data is relatively abundant this week. Building approvals (Wednesday) are seen rising 3.0% in June after the 5.6% drop in May. The trade surplus (Thursday) is seen narrowing to A$2.0 bln in June from the A$2.5 bln surplus in May. Retail sales (Friday) are projected to edge 0.1% higher in June after the 0.6% m/m rise in May.


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Stuart Cowell

Senior Market Analyst


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