Main Macro Events This Week

United States:  The case for an increase in the funds rate “has strengthened,” said Fed Chair Yellen in her Jackson Hole speech on Friday, which for her was a relatively hawkish statement. That phrase only went halfway toward suggesting a tightening was in the cards near term, however, since she immediately turned to the worn “data dependency” caveat and cautioned of a still uncertain economic outlook. But, it was comments from Fed VC Fischer that excited the bears as he noted the pivotal nature of the August jobs report for the Fed outlook. Just as the advent of Yellen’s Jackson Hole speech paralyzed the markets for days, so too could the upcoming August nonfarm payroll release (Friday). Though the jobs report is a critical factor in the FOMC’s policy calculus, we doubt the Committee can credibly act as soon as September while inflation, the other half of the Fed’s mandate, is still running below target and isn’t showing convincing signs of moving higher toward the 2% target yet. Expectations area for a 185k headline increase, close to the 3-month average of 190k, might not make a clear case for a September rate hike. That would leave the onus on the other statistics, including the unemployment rate, which we see falling to 4.8% from 4.9% in July. Average hourly earnings would also be scrutinized, with our 0.2% estimate falling just shy of July’s 0.3% gain.

Other key data releases this week include July income and consumption (Monday) which will help fine tune the Q2 GDP outlook. The August ADP private payroll survey (Wednesday) should see a 175k increase. The ISM manufacturing index (Thursday) and revised Q2 productivity and unit labor costs will also be important, along with vehicle sales.  The ISM is seen slipping to 52.0 in August. That’s a very sluggish pace. Q2 productivity should be revised lower to -0.7% from -0.5% in the preliminary read. That won’t be good news for the Fed. Unit labor costs should bounce 4.2% however, nearly doubling the advance 2.2% print, and versus -0.2% in Q1. July international trade (Friday) will help solidify Q2 and Q3 GDP outlooks. Domestic vehicle sales are expected to decline after a healthy July growth. More secondary reports includes August consumer confidence (Tuesday), the August Dallas Fed (Monday) and August Chicago PMI (Wednesday), June Case Shiller house price index (Tuesday), July pending home sales, July construction spending (Thursday), and July factory orders (Friday).

Canada: Q2 GDP report (Wednesday) is expected to reveal a 1.8% drop in real Q2 GDP following the 2.4% gain in Q1 real GDP. The separate June GDP by industry report (Wednesday) is projected to show a 0.2% m/m gain after the 0.6% plunge in May. The July trade report (Friday) will be of considerable interest. Another gain in exports (we see +1.5%) would be supportive of the Q3 GDP rebound scenario. We expect the trade deficit to improve to -C$3.3 bln in July from the record -C$3.6 bln in June. The industrial product price index (Tuesday) is projected to fall 0.5% m/m in July. Labor productivity (Friday) is expected to pull-back 0.4% in Q2 after the 0.4% gain in Q1. The RBC manufacturing PMI for August is due Thursday.

Europe: This week’s data releases could play a decisive role in policy decisions, (next ECB meeting September 8^th) with the ESI economic sentiment indicator completing the August survey round and preliminary August inflation data featuring high on the agenda. So far, confidence indicators have been very mixed.

August ESI economic confidence indicator (Tuesday) to 104.4  from 104.6 in July, also, the final August EMU Manufacturing PMI (Thursday) is expected to be confirmed at 51.8. At the same time, inflation is creeping higher. We expect preliminary August German HICP (Tuesday) to move up to 0.5%, Italy’s index (Tuesday) is seen improving to -0.1%, with the Spanish reading (Tuesday) at -0.3 %  while the French reading (Wednesday) is seen unchanged at 0.4% y/y. These results should accelerate the overall August Eurozone headline HICP rate (Wednesday) to 0.3% y/y, up from 0.2% y/y in July. However, that’s still considerably below the ECB’s target of nearly 2%. Even core inflation, while higher, is still at low levels historically, and is giving Draghi room to maneuver.

The labor market is slowly improving and we see the leading German jobless number for August (Wednesday) unchanged over the month. The overall Eurozone reading for July (Wednesday) is expected to drop to 10.0% from 10.1%.

UK: This week’s calendar brings the August PMI surveys for the manufacturing and construction sectors (due Thursday and Friday, respectively), in addition to the monthly lending data form the BoE, coving July (due Tuesday). We expect the manufacturing PMI to lift to a reading of 49.0, up from 48.2 in July. Weakness in the pound should have bolstered export competitiveness in the sector. The construction PMI is also expected to recover a tad from July weakness, seen rising to a headline reading of 46.3  after 45.9 in July.

China: Caixin/Markit August manufacturing PMI (Thursday) is expected to dip to 50.0 from the flash 50.6 print, though that would be a measurable improvement from June’s 48.6. It’s been below the 50 expansion/contraction level since March 2015. The official CFLP PMI is penciled in slipping to 49.8 from 49.9.

Japan: July unemployment (Tuesday), expected unchanged at 3.1%, July personal income (Tuesday), along with July PCE, which is forecast falling 2.0% y/y, not quite as bad as the -2.2% June outcome, though it will give the BoJ angst. Additionally, July total retail sales are expected to contract at a 1.0% y/y clip from a revised -1.3%, while sales at large retailers are expected to rebound 0.5% y/y from the prior -1.5%. First 10-day August trade data are also due. Preliminary July industrial production (Wednesday) is seen slowing to a 1.0% y/y rate from the 2.3% June increase, while July housing starts (Wednesday) should improve to up 5.0% y/y from -2.5% in June. July constriction orders are on deck Wednesday as well. The Q2 MoF capex survey (Thursday) is forecast to rise 5.0% y/y from Q1’s 4.2% reading. The final August Markit/Nikkei PMI is projected to improve slightly to 49.4 from 49.3 in July (though it’s slightly below the preliminary August print of 49.6. It’s been in contractionary territory since March. July auto sales are due Thursday, with August consumer confidence on Friday, which is seen improving to 41.6 from 41.3.

Australia: The calendar has building approvals (Tuesday), expected to rise 1.0% in July after the 2.9% drop in June. Retail sales (Thursday) are seen expanding 0.2% in July after the 0.1% rise in June. Reserve Bank of Australia Assistant Governor (Financial Markets) speaks to an FX conference in Singapore via a video link on Wednesday.

Janne Muta

Chief Market Analyst

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