- We remain dollar bulls; this is an important data week for the US
- Final August eurozone manufacturing PMIs will be reported Monday; UK reports August PMIs this week
- RBA meets Tuesday and is expected to keep rates steady at 1.0%; BOC meets Wednesday and is expected to keep rates steady at 1.75%
- Swedish Riksbank meets Thursday and is expected to keep rates steady at -0.25%; in EM, the central banks of Chile and Russia meet
Market sentiment rallied last week on a lot of unsubstantiated claims by President Trump regarding trade talks. At best, we know there is no further escalation (for now). At worst, the two sides in reality remain far apart and a deal is unlikely until 2020. That’s no reason to load up on risk or EM. As long as current and planned tariffs are in effect, global growth risks will remain high and EM will continue to suffer.
We remain dollar bulls. DXY traded at new highs for this move Friday and is on track to test the August 1 high near 98.932. The euro has fallen below $1.10 for the first time since May 2017, and the next target is the low from that month near $1.0840. President Trump continues to rail against the weak euro but jawboning clearly has diminishing returns.
This is an important data week for the US. The highlight will be August jobs data Friday. Consensus sees 162k jobs added vs. 164k in July. Average hourly earnings are seen falling to 3.0% y/y from 3.2% in July, due mostly to a high base effect.
Ahead of the jobs data, August ISM PMI readings and July construction spending will be reported Tuesday. August auto sales and July trade will be reported Wednesday. Because of the US holiday Monday, ADP August jobs data will be reported Thursday along with July factory orders.
The US economy remains in solid shape, at least for now. The Atlanta Fed’s GDPNow model is tracking 2.0% SAAR growth in Q3, down from 2.3% previously. This is at trend (~2%) and unchanged from the revised 2.0% SAAR in Q2. Elsewhere, the NY Fed’s Nowcast model is tracking 1.8% SAAR growth in Q3, steady from the previous week.
The Fed releases its Beige Book report Wednesday for the upcoming September 18 FOMC meeting. After a quiet August, the Fed speaking schedule picks up again. Rosengren speaks Tuesday. Wednesday has Williams, Bowman, Bullard, Kashkari, and Evans all speaking. Powell wraps up the week speaking in Zurich Friday.
US tariffs on Chinese goods went into effect this weekend. While markets are happy that things haven’t gotten worse, planned tariffs will be a headwind for the US economy.
Final August eurozone manufacturing PMIs will be reported Monday. Final services PMIs will be reported Wednesday, along with July eurozone retail sales. Germany reports July factory orders Thursday, followed by July IP Friday.
UK reports August manufacturing PMI Monday, which is expected at 48.4 vs. 48.0 in July. Construction PMI (46.5 expected) will be reported Tuesday, followed by services and composite PMIs (51.0 and 50.8 expected, respectively) Wednesday.
Japan reports Q2 capital spending Monday. July household spending and cash earnings will be reported Friday. Data were mixed last week, leading market to push out BOJ easing expectations. WIRP suggests 7% odds of a cut September 19, down from 53% at the start of last week. Last Friday, the BOJ adjusted its bond-buying program in an effort to push 10-year yields back into its target range of 0% +/- 20 bp.
Reserve Bank of Australia meets Tuesday and is expected to keep rates steady at 1.0%. WIRP suggests 12% odds of a cut, rising to 64% for the next meeting October 1. Right before the decision, Australia reports July retail sales and they are expected to rise 0.2% m/m. Q2 GDP will be reported Wednesday, with growth expected to ease to 1.4% y/y from 1.8% in Q1. July trade will be reported Thursday.
Bank of Canada meets Wednesday and is expected to keep rates steady at 1.75%. Data were firm last week, leading market to push out BOC easing expectations. WIRP suggests 7% odds of a cut this week, down from 14% at the start of last week. Right before the decision, Canada reports July trade. August jobs data and Ivey PMI will be reported Friday.
Swedish Riksbank meets Thursday and is expected to keep rates steady at -0.25%. At the last meeting July 3, the Riksbank kept its forward guidance for the next hike toward end-2019 or early 2020 and kept its rate path forecast through Q3 2021 unchanged. That path implies two hikes between now and Q3 2020 followed by one more hike by Q3 2021 that would take the policy rate to 0.52%. The bank cut its 2019 and 2020 growth forecasts then to 1.8% and 1.6%, respectively, noting that global uncertainties have increased.
In EM, the central banks of Chile and Russia meet. Both are expected to cut rates, with the former seen cutting 50 bp and the latter by 25 bp. Furthermore, a slew of EM CPI readings will be released this week that support further easing in Indonesia, Thailand, Turkey, Brazil, Korea, and the Philippines.