Main Macro Events This Week
Fed Chairman Powell justified the FOMC’s gradualist approach to monetary policy in his Jackson Hole speech. He emphasized the uncertain nature of the two key policy variables — the natural rate of unemployment and the neutral real rate of interest. And in noting the difficulty in using them as navigational tools, he also solidified Greenspan’s risk management strategy still in effect today around the world as central bankers attempt to balance the risks of moving too quickly and choking off growth, or too slowly and allowing a destabilizing overheating.
United States: US markets rallied to end the week on a positive note after Chairman Powell showed no willingness to take on a more hawkish stance, even in the face of sustained strength in economic activity. And what’s more important, he doesn’t see signs of any overheating and suggested it might be prudent to look beyond inflation for signs of excesses. That means the FOMC need not become more hawkish but can maintain its gradualism policy stance. The USA500 and NASDAQ hit fresh all-time highs in the process.
Though the US economy continues to diverge from the rest of the world, its strength can help support Asian and European strength in the US, along with an ongoing accommodative posture from ECB and BoJ, remain supportive meanwhile, continuing to support global gains. There are several data releases of interest this week, including the second look at GDP, along with income and PCE, but none will alter the general outlook. Also highlighting this week is July personal income and consumption (Thursday), which will help fine tune GDP forecasts. It also includes the FOMC’s favoured inflation guide, the PCE deflator. Consumer confidence (Tuesday) should rise to 128.0 in August, from 127.4 in July. Confidence readings remain at elevated levels, close to the 17-year high of 130.0 registered in February and this trend is expected to continue over coming months, despite the noise from trade and politics. Preliminary August Michigan sentiment (Friday) is likely to slip down.
Canada: In Canada, GDP is the highlight, with data out for June and Q2. June GDP (Thursday) is expected to rise 0.2% (m/m, sa) after the 0.5% surge in May. Q2 real GDP (Thursday) is anticipated to grow 3.2% (q/q, saar), accelerating from the 1.3% rate of expansion in Q1. A pick-up in consumption spending and a positive contribution from net exports should drive Q2 GDP growth. A 3.2% Q2 GDP gain would overshoot BoC’s 2.8% estimate. Yet growth looks to moderate in Q3 and the details of the Q2 GDP report should align with the Bank’s views, suggesting that the report will not threaten policy gradualism. The current account (Wednesday) is seen running a -C$15.0 bln deficit in Q2 from -C$19.5 bln in Q1 as the goods trade deficit narrowed. The July industrial product price index (Friday) and the CFIB’s Business Barometer sentiment index (Thursday) round out the docket. There is nothing from Bank of Canada this week.
Europe: ECB’s unofficial summer break is slowly coming to an end and on their return officials will face an increasingly uncertain world that is bound to fuel diversions of opinion at the council. Trade jitters, Brexit risks and the potential fallout from Turkey’s troubles are only part of the multitude of risks that have underpinned volatility on peripheral bond markets and seen Italian officials in particular calling on ECB to scrap the planned phasing out of net asset purchases.
The lack of reform will further undermine competitiveness and growth potential going forward at a time, when external risks are mounting. Indeed, despite still positive growth rates, the Eurozone is not well equipped to deal with another major crisis, as ECB has much less room to maneuver this time around. Data releases this week are likely to confirm the overall picture of ongoing economic expansion and a gradual pick up in underlying inflation. French Q2 GDP (Wednesday), is likely to be confirmed at just 0.2% q/q and the Italian reading (Friday) also at just 0.2% q/q leaving the focus on the more forward looking confidence indicators, which come in the form of the German Ifo (Monday) and the European Commission’s ESI economic confidence indicator (Thursday). Against that background, the German official unemployment numbers (Thursday) are expected to drop a further -3K in August, which should leave the adjusted jobless rate at a very low 5.2%. The Eurozone unemployment rate remains considerably higher, but has been falling steadily and we expect a further decline to 8.2% with the July reading (Thursday), from 8.3% in June. Preliminary German HICP (Thursday) is seen steady at 2.1% y/y and French HICP (Friday) is expected to fall back marginally to 2.5% ) from 2.6%.
UK: UK markets are closed today for the UK’s latest August public holiday. Political and associated Brexit-related risks remain in play, manifested mostly in the forex market by keeping the Pound in a lower trading band than it would be otherwise. The UK government last week issued advice for individuals and businesses in the event of a no-deal Brexit, which, while apparently aiming to put to rest some of the scare stories that have been circulating in the populace, served to bring home the level of disruption this scenario would have on businesses. Time is running out for negotiations to avoid the no-deal scenario, with October’s EU leaders’ summit being the agreed on deadline. A “known unknown” wildcard is the risk that Prime Minister May will face as a leadership challenge in coming weeks. This week’s data calendar is fairly quiet, highlighted by the publication of monthly lending and money supply figures by BoE (Thursday) and the latest Gfk consumer sentiment survey (Friday).
Japan: The calendar doesn’t get underway until Thursday, when July retail sales are due. Sales are expected to fall to a -0.5% y/y pace of contraction from 1.5% for large retailers, but accelerate slightly to a 1.8% y/y clip overall, from 1.7% previously. The remainder of data come on Friday. Tokyo August CPI should tick up to 1.1% y/y from 0.9% overall, and remain steady at 0.8% y/y on a core basis. July unemployment is expected steady at 2.4%, with the job offers/seekers ratio a touch higher at 1.63 from 1.62. July industrial production is penciled in rebounding 0.5% m/m versus the prior 2.1% decline. July housing starts and July construction orders are also due.
China: China reveals the official August CFLP manufacturing PMI (Friday), which is expected to slip to 51.0 from 51.2 in July, and is down from 51.9 in May. The markets will keep a close eye on the data as signs of slowing in manufacturing have been a worrying development in the last couple of months and especially as the tariff frictions have escalated.
Australia: A sparse slate has private capital expenditures and building permits on Friday. Private capital expenditures are expected to grow 0.5% in Q2 (q/q, sa) after the 0.4% rise in Q1. Building permits are projected to fall 3.0% in July after the 6.4% gain in June. There is nothing scheduled from RBA this week. The next event is the September 4 policy meeting, where we expect no change to the current 1.50% policy setting.
New Zealand: Building permits for July (Thursday) are the lone highlight. RBNZ provided dovish forward guidance this month along with no change in rates, saying rates will be steady through to 2020.
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