EVENTS TO COME:
- Monday: UK public holidays, retail sales in Australia.
- Tuesday: Unemployment rate in Japan, US consumer confidence, job vacancies in the United States.
- Wednesday: Australian CPI, US ADP.
- THURSDAY: Japan Retail Sales, Chinese PMI, ECB Minutes, Eurozone CPI, Eurozone Unemployment Rate, US Jobless Claims, US Core PCE.
- Friday: Swiss CPI, American NFP, American ISM manufacturing PMI.
US consumer confidence has strengthened in recent months as consumers continue to see a strong job market, higher real wages and lower inflation.. Compared to the University of Michigan Consumer Sentiment, which shows more how consumers view their personal finances, the Consumer Confidence Index shows how consumers view the job market. The consensus expects an index of 113.4 in August against 117.0 in July.
Labor market data is now the top priority for the Fed and the markets
as a weaker labor market is seen as necessary to sustainably achieve the 2% inflation target. After peaking in May 2022, job vacancies are trending lower, although they are still considered too high. Consensus calls for job openings to rise to 9.793 million in July from 9.582 million in June.
Monthly year-on-year Australian CPI data is expected to show further disinflation, with consensus of 5.2% in July versus 5.4% in June. The latest minutes from the RBA meeting showed that the central bank prefers to remain on hold and, given recent weaker data such as the jobs report, it looks like only a noticeable beat can bring the trend out. RBA of this pathway.
The US ADP continues to be pretty useless in predicting the US NFP, but the market continues to react to it nonetheless. The consensus predicts 195,000 new hires in August compared to 324,000 in July.
China’s manufacturing PMI is expected to rise to 49.5 from 49.3 previously, while there is currently no consensus on the services reading although it was 51.5 in July. China’s economy has been struggling for some time and, despite promises of increased support from the authorities, the market interpreted the latest measures as insufficient.
Eurozone annual CPI is expected to decline to 5.1% from 5.3% previously, while the M/M figure is expected at -0.1% from -0.1% previously. Core CPI Y/Y is expected at 5.3% vs. 5.5% previously.. ECB members increasingly feel that downside risks have materialized, necessitating a more politically cautious assessment. The market believes there is a 50/50 chance for a 25 basis point hike at the September meeting and this report should decide what we are likely to see in the next policy move. The unemployment rate remains unchanged at 6.4%.
US jobless claims remain a problem key indicator of the labor market, and they signal continued strength. Consensus expects initial claims to be 235,000 from 230,000 previously, while continuing claims are expected to be 1,709,000 from 1,702,000 previously.
The US PCE for the year is expected at 3.3% vs. 3.0% previously, while the M/M figure is expected at 0.2% vs. 0.2% previously. The Core PCE Y/Y, which is the Fed’s preferred measure of inflation, is expected at 4.2% vs. 4.1% previously, while the M/M reading is estimated at 0.2% vs. 0, 2% previously.. I don’t expect this report to move the market given that the market is more focused on more recent CPI data.
The Swiss CPI YoY is expected to match the previous reading at 1.6%, while the M/M figure is expected at 0.2% vs. -0.1% previously. As a reminder, Switzerland’s inflation rate is already within the SNB’s 0-2% target range, both at headline and underlying level, but the central bank maintains its hawkish stance, wary of upside risks. The market nevertheless believes that the SNB will remain on hold for the next meeting.
The main event of the week will of course be the US NFP report. The consensus foresees the creation of 170,000 jobs against 187,000 previously, the unemployment rate remaining unchanged at 3.5%. The annual average hourly wage is estimated at 4.4% compared to 4.4% previously, while the M/M figure is 0.3% compared to 0.4% previously. This report, coupled with the US CPI two weeks from now, will decide whether the Fed will hike or pause at the September meeting, according to their words, they will “decide on the totality of the data”. In my view, given the Fed’s particular focus on the labor market, if we get a hot report, the market will likely be anticipating a hawkish reaction without waiting for CPI data.
The US ISM manufacturing PMI is expected to rise slightly to 46.6 from 46.4 previously. THE The U.S. S&P Global Manufacturing PMI far exceeded expectations last week, the sentiment expressed in this report is therefore likely to be on the downside. Special attention should also be paid to the employment sub-index which fell to its lowest cycle in the previous report.