We have a busy week ahead in terms of economic events, but Monday starts slowly with no major releases scheduled.
On Tuesday, the highlight will be Canadian inflation data, followed by US retail sales figures on a monthly basis.
Wednesday brings inflation data from the UK, along with building permits, housing starts, and the most anticipated event of the week – the US Federal Open Market Committee’s monetary policy announcement.
Thursday will see several key reports: New Zealand will release quarterly GDP data, while Australia will publish employment change and unemployment figures. In the UK, the Bank of England will announce its monetary policy decision. Meanwhile, in the US, we will see jobless claims, the Philadelphia manufacturing index, and existing home sales.
On Friday, all eyes will be on the Bank of Japan’s monetary policy announcement. In addition, Bank of Canada Governor Macklem will speak at the National Bureau of Economic Research’s Artificial Intelligence Economics conference in Toronto. Canada will also release monthly retail sales data.
Canada’s headline inflation data is expected to show signs of slowing, with the consensus for the core CPI expected to fall to 2.1%, one of the lowest levels since 2021. As a reminder, the Bank of Canada cut interest rates again at its last meeting, but Governor Macklem said there were still upward pressures on inflation that could lead to increases later this year. He also pointed to the need to prevent the economy from weakening too much and pushing inflation too low. This week’s BoC minutes could provide further clues regarding the pace of future rate cuts and policymakers’ views on easing.
US retail sales are expected to come in at -0.2%, down from 1.0% previously, while core retail sales are expected to come in at 0.2% on a monthly basis, down from 0.4% previously. Last month’s retail sales data was a surprise, with core retail sales rising 1.0%.
Wells Fargo analysts noted that the July retail sales report contrasted with weaker employment data for the same month, highlighting consumer resilience despite a weak labor market. They expect this resilience to continue through August, albeit with some decline in auto sales. In the latest retail sales report, the main driver of the strong increase was a 3.6% monthly gain in auto and parts sales, the largest component of retail sales.
The only noteworthy data due before this week’s FOMC meeting is the retail sales report. At the moment, analysts are divided on whether the Fed will implement a 25 basis point or 50 basis point rate cut at this week’s meeting.
With inflation improving and continuing to decline, along with a weak labor market, both factors support a rate cut. However, the latest jobs report did not provide much clarity on the size of the first rate adjustment.
Late last week, articles by Nick Timeraos of the Wall Street Journal and the Financial Times suggested that the Fed was still internally debating between a 25bp or 50bp rate cut, leading some market participants to lean toward a 50bp rate cut, with the risk of such a larger adjustment now rising to 59%. The market will also be closely watching updates to the September Economic Outlook and Dot Chart.
At this week’s meeting, the Bank of England is expected to keep its monetary policy unchanged. After its first rate cut in August, the bank has opted for a cautious approach to further cuts due to services inflation, which remains above 5% year-on-year.
In terms of economic outlook, GDP data suggests that the economy is on track to recover. Although July’s GDP figures were somewhat disappointing, both manufacturing and services PMIs are on a positive note. The market is currently pricing in another 25bp rate cut from the Bank of England by the end of the year, most likely in November, but if inflation falls more than expected, the Bank could deliver two consecutive 25bp cuts in November and December.
U.S. existing home sales were forecast at 3.89 million units, up from 3.95 million previously, after a 1.3% increase in July. While mortgage rates fell slightly, slow job gains and income growth continue to limit affordability. Well Fargo analysts see little prospect for a housing market recovery, with any improvements from easing financing costs outweighing price increases.
For Japan, economists are widely expected to keep monetary policy unchanged at 0.25%. Recently, core inflation data has surprised, which could prompt the bank to delay raising interest rates. The market now expects the next rate hikes to come in January and April next year.
Ahead of this week’s meeting we will get the Japanese core CPI on a national basis on an annual basis which is expected to rise from 2.7% to 2.8%, but this is not expected to influence the BOJ decision.
I wish you a profitable trading week.
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