Weekly Market Outlook (19-23 August)

Upcoming Events:

• Monday: New Zealand Services PMI, Fed Waller, Bank of Canada Senior Loan Officer Survey.
• Tuesday: PBOC key interest rate, RBA minutes, Canadian CPI, Eurozone wage growth.
• WednesdayCanada Producer Price Index, FOMC Meeting Minutes.
• Thursday:Australia/Japan/Eurozone/UK/US preliminary PMIs, ECB minutes, US jobless claims, Jackson Hole symposium.
• Friday:New Zealand Retail Sales, Japan CPI, Canada Retail Sales, Fed Chair Powell, Jackson Hole Symposium.

Tuesday

The People’s Bank of China is expected to keep its one-year and five-year lending rates unchanged at 3.35% and 3.85%, respectively. This is mainly due to the fact that the central bank delivered large-scale rate cuts last month and is likely to refrain from adjusting rates again anytime soon.

Canada’s CPI is expected to come in at 2.5% YoY versus 2.7% previously, while the monthly figure is expected at 0.4% versus -0.1% previously. The central bank focuses on core inflation measures (mainly the average discounted CPI). The average discounted CPI is expected at 2.8% YoY versus 2.9% previously. The market is pricing in a 98% chance of a 25bp cut in September and a total of 73bp of easing by year-end.

Thursday

Thursday will be the day of spot PMIs for several major economies, with Eurozone, UK and US PMIs being the highlights:

• Eurozone Manufacturing PMI: 46.0 expected vs. 45.8 previously.
• Eurozone Services PMI: 51.9 expected vs. 51.9 previous.
• UK Manufacturing PMI: 52.1 expected vs 52.1 previously.
• UK Services PMI: 52.8 expected vs 52.5 previously.
• US Manufacturing PMI: 49.5 expected vs. 49.6 previously.
• US Services PMI: 54.0 expected vs. 55.0 previously.

US unemployment claims remain one of the most important data to follow each week, as they are a more accurate indicator of the state of the labor market.

Initial claims remain within the 200K to 260K range that has been established since 2022, while continuing claims have been on a steady rise, indicating that layoffs are not accelerating and remain at low levels while hiring is more subdued.

Initial claims this week are expected to come in at 230k vs 227k previously, while there is no consensus on continuing claims at the time of writing, although last week we saw a decline to 1,864k vs 1,871k previously.

Friday

Japan’s core CPI is expected to come in at 2.7% y/y vs. 2.6% previously. As a reminder, the Bank of Japan surprised markets with a 15bp rate hike (although we got a leak the day before) following the latest policy decision, which sent Japanese markets into a tailspin with the yen soaring and the Nikkei falling sharply, especially after the BOJ’s Ueda commented that 0.50% was no longer a policy cap.

Since then, we have heard comments from Japanese officials warning against raising interest rates again amid the turmoil in financial markets. Now, expectations are for a rate hike in March 2025.

The main event of the week is Federal Reserve Chairman Jerome Powell’s speech at the Jackson Hole Symposium at 10:00 a.m. ET. The Jackson Hole Symposium is known for its major policy communications from the Federal Reserve.

In August 2020, Powell announced a change to the Fed’s inflation strategy called AIT (average inflation targeting) which aimed to allow inflation to move above and below the 2% target rate so that it averages 2% over time.

I expect that Paul
Finally committed to cut interest rates in September What happened at the ECB meeting was a signal that “it’s time to ease monetary policy.” Although the market has already fully priced in the possibility of at least three rate cuts by the end of the year, this will still be a major event that should resonate in market sentiment.

He will also be asked how big the rate cut will be, with the odds of a 50bp cut in September still slim (28%). He is likely to evade the question, but if he leaves the door open for a bigger cut it will be seen as a dovish “surprise”.