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THE ECONOMIC WEEK AHEAD

Market Analysis

Fed Chair Yellen and ECB President Draghi mostly discussed regulations in their Jackson Hole speeches. However, Draghi did repeat in Q&A that “a significant degree of monetary accommodation is still warranted” and that policymakers must remain “on guard” until the inflation goal is achieved. Meanwhile, the BoJ’s Kuroda stressed in a Bloomberg TV interview that “extremely accommodative” policy will continue for some time. It looks like the big three central banks will remain in slow motion as they look toward the exit. While there’s no meaningful change seen in monetary policy near term, there are several risks ahead that will keep the markets on their toes. North Korea remains a clear and present danger, the U.S. debt limit is also a growing risk, while this week, the president is expected to go on the road to talk up tax reform.

United States:  U.S. markets will have a lot to digest this week, including key economic data, supply, and month-end flows, all while keeping a close eye on Washington. Hence, this week’s data, especially jobs and the PCE price index, will be important for the medium term outlook, though not crucial for the immediate term. No one expects action on rates next month, and Fed funds future are suggesting only about a 33% chance for a tightening at the December 12, 13 FOMC. Employment data has continued to come in strong, indeed “very strong,” as noted by Fed Governor Powell last week, and therefore expected more of the same in August. Payrolls (Friday) should rise 190k after July’s 209k gain. The unemployment rate is expected to hold at 4.3%, tying the lowest rate since May 2001. Earnings are expected to rise 0.2% following the 0.3% July increase.

The income, consumption data for July (Thursday) will be just as important for the FOMC. The data will help fine tune GDP forecasts, but more importantly provide an update on the PCE price index, the main measure for the Fed. Other data this week includes August auto sales (Friday), the August ISM (Friday) is expected to ease to 55.7 in August after sliding 1.5 points to 56.3 in July. The index is still holding firm and well above the 52.0 in November. Consumer confidence figures for August are due as well (Tuesday and Friday). Confidence is seen rising to 122.0 after climbing 3.8 points to 121.1 in July. The final read on consumer sentiment for August from the University of Michigan survey (Friday) should edge up further to 98.0 after the surprise 4.2 point jump to 97.6 in the preliminary report. Also of interest is the revised Q2 GDP data (Wednesday). Other releases this week include the August ADP (Wednesday), the August Dallas Fed and Chicago PMI, July Advance trade numbers, June Case-Shiller home price index, July pending home sales, and July construction spending.

Canada: June and Q2 GDP reports are the focus this week. GDP (Thursday) is expected to accelerate to a 4.0% growth rate in Q2 (q/q) following the 3.7% gain in real GDP during Q1. Meanwhile, the current account (Wednesday) is expected to post a -C$18.0 bln deficit in Q2, worsening from -C$14.1 bln in Q1, courtesy of a deepening in the nominal goods deficit in Q2 relative to Q1. The industrial product price index (Tuesday) is seen falling 0.5% in July (m/m, NSA) after the 1.0% drop in June. But the loonie continued its sharp appreciation against the U.S. dollar, which we see driving the IPPI lower in July relative to June. Dealer reported vehicle sales for August are expected on Friday. The August Markit Manufacturing PMI is due Friday. Average weekly earnings for June are due Wednesday. The Bank of Canada’s day planner is again blank this week. The next scheduled event from the Bank of Canada is the September 6 policy announcement.

Europe: The data calendar is very busy and brings the first round of preliminary August inflation data as well as the latest set of confidence data for August in the form of the European Commission’s ESI economic sentiment indicator. Inflation expected to nudge higher slightly, but the Eurozone headline rate is still expected to remain clearly below the 2% limit in coming months, giving the ECB more room to ponder its options before clarifying the outlook for QE next year. After the somewhat better than expected PMI readings, the ESI Economic Confidence indicator (Wednesday) is expected to nudge higher to 111.4 from 114.2, helped by an improvement in consumer confidence and an expected rise in industrial sentiment. Indeed, the final August Manufacturing PMI (Friday) is likely to be confirmed at a very strong 57.4 suggesting a fresh acceleration in activity over the summer. German GfK consumer confidence reading for September (Tuesday) expected to remain steady at a very high 10.8. Ongoing improvements on the labor market are underpinning consumer confidence and PMI readings also suggest the job creation continued in August albeit at a somewhat slower pace than in July. Meanwhile the Eurozone unemployment rate for July (Thursday) is seen falling to 9.0% from 9.1%.

The calendar also has French consumer spending as well as German retail sale, Eurozone M3 sa (Y/Y) money supply growth, detailed Q2 GDP readings from Italy (Friday) and France (Tuesday) are likely to confirm preliminary readings of 0.4% q/q and 0.5% q/q respectively. Supply includes a German 2-year Schatz auction on Wednesday. The German HICP rate (Wednesday) expected to pick up to 1.7% y/y from 1.5% y/y in the previous month and the French rate (Thursday) to nudge up to 0.8% y/y from 0.7%, which should leave the overall Eurozone HICP rate (Thursday) at 1.4% y/y, up from 1.3% y/y in July.

UK: The relative stagnation of the UK economy was in full evidence last week. July leading from the BoE feature in this week’s calendar (Wednesday), along with the August Gfk consumer confidence survey (Thursday), and the August manufacturing PMI survey (Friday). The net consumer credit expected to come in unchanged at GBP 1.5 bln and mortgage approvals to tick up to 65.4k from 64.7k.  The consumer confidence eroding to show a new low of -14 from -12 in the month prior, while the manufacturing PMI has us anticipating a 55.2 outcome after 55.0 in the prior month.

New Zealand’s slate has Q2 import and export prices (Friday). Building permits for July are due Thursday. The Reserve Bank of New Zealand meets next on September 28. Hence no change to the current 1.75% rate setting through year-end, is expected.

Japan: July unemployment (Tuesday) is pencilled in at an unchanged 2.8%, with the job offers/seekers ratio steady at 1.51. July personal income and PCE are also due Tuesday, with the latter expected up 1.0% y/y from 2.3% previously. July retail sales (Wednesday) are seen up 0.1% y/y from up 0.2% for large retailers, and up 1.0% overall from the prior 2.2% rise. Preliminary July industrial production (Thursday) should slow to 0.5% y/y from 2.2% in June. July housing starts (Thursday) are forecast at a 1.5% y/y clip from up 1.7%. July construction spending is also due Thursday. The MoF Q2 capex survey (Friday) should rise 8.0% from 4.5%, while the August manufacturing PMI (Friday) is anticipated to have risen to 52.5 from 52.1. August auto sales are also due Friday.

China:  August CFLP manufacturing PMI (Thursday) is expected to ease to 51.0 from 51.4, while the August Caixin/Markit manufacturing PMI (Friday) should slip to 50.9 from 51.1. Both remain in expansionary territory, however.

Australia: Australia’s economic data includes July building approvals (Wednesday), expected to fall 6.0% in July after the 10.9% y/y surge in June. Private new capital expenditures (Thursday) are seen gaining 1.0% in Q2 (q/q, sa) after the 0.3% rise in Q1. Construction work done for Q2 is due Wednesday, while private sector credit is out Thursday. The Reserve Bank of Australia’s Deputy Head of Financial Market Infrastructures, Payments Policy Department Sarah Harris participates in a panel at the Risk Australia 2017 Conference (Thursday).

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Andria Pichidi

Market Analyst

HotForex

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