Key Events This Week: August 31st – September 4th
USD: Aug mfg PMI; Aug ISM mfg (Tue); Aug ADP employment change; Jul Factory orders; Fed’s Beige Book (Wed); initial jobless claims; Jul trade balance; Aug flash PMI; Aug ISM non-manf (Thu); Aug NFP, average hourly earnings, unemployment rate (Fri)
EUR Aug Manf PMI (Tue); EC Jul PPI (Wed); ECB meeting; Markit Services/composite PMIs Jul retail sales (Thu); GE Jul factory orders; FR Aug Consumer confidence (Fri)
JPY: 2Q capital spending (Tue); and Aug Nikkei PMI Services (Thu)
GBP: Aug PMI mfg (Tue); Aug construction PMI (Wed); Aug PMI (Thu)
AUD: RBA meeting before Australia release GDP for 2Q on (Wed). Trade balance and retail sales are due on (Thu)
CAD: PMI-mfg (Tue). Labour figures (Fri)
USD Week ahead has US NFP as the headline risk event. Before that, we have the ADP private employment report that could also shift sentiment. Market focused on the question as to whether the door to a rate move is reopening? USD firmed, following comments from Fed officials at the Jackson Hole Symposium. Fed Vice-Chair Fischer said “should not wait until inflation is back to 2% begin tightening”; Bullard and Mester voiced “no panic about the recent market turmoil”; Lockhart said the chance of a Sep rate hike remains 50-50. Market implied probability of a rate hike in September has now moved back up to 38%, from 24% low last week
EUR was soft amid broad USD strength. Fri saw a low of 1.1156 trade. Monetary policy divergence theme is growing again, after slowing last week as Fed officials’ comments at Jackson Hole appeared to have re-open doors for a ep rate hike. Germany has retail sales along with the more important CPI estimate due this week a weaker number on those fronts will weigh on EUR. ECB meets again on Thursday and while no further action is expected from the central bank, there could be more EUR-negative comments with the inflation target still elusive.
GBP closed largely unchanged from where it opened last Friday. BoE Carney reiterated his earlier comments – that recovery in UK’s economy “will likely put the decision as to when to start the process of gradual monetary policy normalisation into sharper relief around the turn of this year”. He added that BoE could look through the temporary disinflationary impact on inflation from lower demand in China for commodities but would watch for any longer lasting impact on Britain from a slowing of the world’s No 2 economy.”
JPY After slipping to a level not seen since January of 116.18, the USDJPY has rebounded back above the 121-handle on the back of continued broad dollar strength. Dips should be an opportunity to buy as the the market turmoil seen last week maybe a catalyst for further easing in October. Industrial production print out this morning disappointed, rising by just 0.2% y/y in Jul against consensus’ 0.8% (Jun:2.3%)
AUD has erased some of the gains seen late last week . Concerns over the Chinese economy and concomitant impacts on key commodity prices such as copper and iron will cap upside. At this point, AUD has been hammered by China, and the effects of commodity demands as well as its deterioration in terms of trade. The fall in exports seem to have slowed and approaching a bottom. It could take some time for cheap AUD to lift exports of tradeable goods and tourism, as well as retail sales before investors and corporates can be convinced to increase business spending.
CAD With its -0.1% decline against the USD, CAD’s performance was toward the top of the pack among G20 currencies. Most of the price movement was about global risk appetite and commodity prices, not economic data. There was no meaningful economic data and Deputy Governor Schembri’s speech didn’t touch on monetary policy. The CRB rose by 3.0% last week. The CRB received a strong boost from energy, with West Texas Crude rising by 12%. The price of spot Western Canada Select rose by 21% on the week USDCAD tends to most closely track the most volatile factor; last week that factor was clearly oil.