Drivers for the Week Ahead

  • House Democrats passed a package to support and protect the Postal Service Saturday; the Kansas City Fed holds its annual Jackson Hole symposium Thursday and Friday
  • We get the first revision US Q2 GDP Thursday; regional Fed manufacturing surveys for July will continue to roll out; Canada reports Q2 GDP Friday
  • Germany reports final Q2 GDP data and August IFO business climate index Tuesday; August Tokyo CPI will be reported Friday

 AMERICAS

House Democrats passed a package to support and protect the Postal Service Saturday. It totaled $25 bln and the vote was 257-150. Of note, only 26 Republicans voted for the package. As such, there seems to limited chances that it will pass the Senate. Talks remain deadlocked on the overarching stimulus package and we are getting a bit more pessimistic that a significant one can be passed before the election.

The Kansas City Fed holds its annual Jackson Hole symposium Thursday and Friday. It will be held virtually, as the annual in-person event was canceled due to the Jackson Lake Lodge venue in Grand Teton National Park being closed due to the pandemic. The agenda has not been released yet, but the symposium is titled “Navigating the Decade Ahead: Implications for Monetary Policy.” Fed Chair Powell is scheduled to kick things off by speaking about the Fed’s Framework review Thursday morning. Ahead of that, the only other Fed official scheduled this week is Daly, who speaks Tuesday.

We get the first revision US Q2 GDP Thursday.  Consensus sees a contraction of -32.5% SAAR vs. the preliminary -32.9% and -5.0% in Q1.  The Atlanta Fed’s GDPNow model estimates Q3 at 25.6% SAAR, while the New York Fed’s Nowcast model estimates Q3 at 14.6% SAAR.  We suspect the truth is somewhere in between. Indeed, Bloomberg consensus is currently at 20.1% SAAR for Q3, slowing to 6.1% for Q4.

The regional Fed manufacturing surveys for July will continue to roll out.   Richmond Fed reports Tuesday and is expected at 10 vs. 10 in July.  Kansas City Fed reports Thursday and is expected at 5 vs. 3 in July.  Last week, the Empire survey came in at 3.7 vs. 15.0 expected and 17.2 in July, while the Philly Fed survey came in at 17.2 vs. 20.8 expected and 24.1 in July.  August Chicago PMI will be reported Friday and is expected at 52.5 vs. 51.9 in July.  Note preliminary Markit PMIs were reported last week.  Manufacturing came in at 53.6 vs. 52.0 expected and 50.9 in July, while services came in at 54.8 vs. 51.0 expected and 50.0 in July.

Weekly jobless claims will be reported Thursday.  Initial claims are expected at 1 mln vs. 1.106 the previous week, while continuing claims are expected at 14.4 mln vs. 14.844 mln the previous week.  All told, the data suggest the labor market is still healing, albeit slowly, as initial claims at 1 mln or more nearly every week shows.  Note that this week’s continuing claims data will be for the BLS survey week containing the 12th of the month. Consensus is currently 1.675 mln vs. 1.763 mln in July, with unemployment expected to ease to 9.8% from 10.2% in July.

Some other minor US data round out the week. Chicago Fed National Activity Index for July will be reported Monday and is expected at 3.69 vs. 4.11 in June. July new home sales (-0.1% m/m expected) and August Conference Board consumer confidence (93.0 expected) will be reported Tuesday. July durable goods orders will be reported Wednesday and are expected to rise 4.0% m/m vs. 7.6% in June. July pending home sales will be reported Thursday, followed by personal spending and income and wholesale and retail inventories Friday. Final August University of Michigan will also be reported Friday.

Canada reports Q2 GDP Friday. The economy is expected to have contracted -37.8% SAAR vs. -8.2% in Q1. However, data suggest activity is picking up in Q3. Furthermore, incoming Finance Minister Freeland is likely to announce more stimulus measures next month, which should keep the recovery going in Q4 as well.

 

EUROPE/MIDDLE EAST/AFRICA

Germany reports final Q2 GDP data and August IFO business climate index Tuesday.   September GfK consumer confidence will be reported Friday. German PMI readings for August were much better than France’s, and so the German economy has some solid momentum in Q3. On the other hand, it appears that France is losing some momentum due to the rising virus numbers. We suspect the ECB will have to take a much more cautious tone at its September meeting.

 

ASIA

August Tokyo CPI will be reported Friday. Headline inflation is expected to remain steady at 0.6% y/y, while ex-fresh food is expected to drop a tick to 0.3% y/y. This suggests little upside pressure to national CPI this month. In July, headline inflation rose 0.3% y/y and ex-fresh food was flat y/y. With the economy remaining sluggish and Abe’s popularity falling sharply, we expect another round of fiscal stimulus this fall.