The economic week ahead

4 September, 2017

The next four months will be busy ones for policymakers as we head into year end. It will be a busy four months for policymakers heading into year-end. The U.S. Congress returns from recess on Tuesday and will be immediately confronted with debt limit and budget issues. The devastation from Hurricane Harvey may have accelerated the U.S. fiscal agenda. Across the pond, Brexit negotiations have made “no decisive progress.” Meanwhile, the ECB should start talks on balance sheet normalization. Asian markets will remain subject to North Korea angst after last week’s missile launch over Japan, and reports that an H-bomb has been successfully loaded onto an ICBM.

United States: U.S. markets are closed Monday for the Labor Day holiday.  Congress is back in session starting Tuesday and has a lot on its plate. Debt limit issues and emergency hurricane aid will be first and foremost on the list. Along with fiscal issues, monetary policy will factor into trading. Fedspeak will dominate the calendar and after the disappointing August jobs report, it will be interesting to hear what policymakers have to say. This week’s slate includes several FOMC voters, including Dudley, Brainard, Kashkari, Kaplan, and Harker. While most all Committee members have supported the start of the balance sheet normalization “soon,” which likely translates into this month, outlooks on the rate stance have been more diverse. The softness in the jobs report further reduced already low risks for another rate hike at the December 12, 13 policy meeting. The upcoming September 19, 20 meeting had long been ruled out as the Fed indicated it would delay tightening when it began unwinding the balance sheet, which is expected to be announced at the upcoming meeting. Additionally, the slippage in inflation, the dovish shift from several policymakers, especially including Yellen, the rising geopolitical risks, also suggested the FOMC would remain sidelined this month.

This week’s data slate is thin with just a few reports of much interest. The August ISM services index (Wednesday) is expected to rise 1.1 points to 55.0, recovering somewhat from the 3.5 point tumble to 53.9 in July. The July trade deficit (Wednesday) is forecast widening to -$44.6 bln amid declines in imports and exports, after narrowing 5.9% to -$43.6 bln in June. Revised Q2 productivity and unit labor costs (Thursday) should show productivity bumped up to a 1.3% clip from 0.9% previously, while costs should be nudged down to a 0.2% pace from 0.6%.

Canada: The Bank of Canada’s announcement (Wednesday) is the week’s attention getter. No change is expected in the current 0.75% rate setting at Wednesday’s announcement, as the Bank takes a breather after raising rates 25 basis points in July. The accompanying announcement (there is no presser or MPR) should maintain the upbeat outlook on growth and inflation that came alongside the July rate increase.The policy rate expected to be lifted to 1.00% in October. The data calendar is busy in the holiday shortened week (Monday is a market holiday). Labor productivity (Wednesday) is expected to be flat in Q2 (q/q, sa) following the 1.4% surge in Q1 (q/q, sa), as both GDP and hours worked grew 1.1% in Q2 (q/q, sa). The trade deficit (Wednesday) is seen widening to -C$3.9 bln in July from -C$3.6 bln in June. Building permit values (Thursday) are projected to grow 2.0% m/m in July after the 2.5% gain in June. The Ivey PMI (Thursday) is expected to improve to 61.0 in August from 60.0 in July. A 30.0k rise is anticipated for August employment (Friday) after the 11.0k rise in July. The unemployment rate is expected at 6.3%, matching July. Capacity utilization (Friday) is projected to bounce to 84.5% in Q2 from 83.3% in Q1, as the rapid GDP growth in the first half lifts capacity use.

Europe: The ECB meeting (Thursday) highlights the week, while the highlight of this week’s economic calendar are the final reading of August Eurozone Services and composite PMIs (Tuesday), detailed Eurozone Q2 GDP (Thursday) and July German manufacturing orders (Tuesday). The overall growth number is widely expected to be confirmed at 0.5% q/q, unchanged from Q1, with the breakdown likely to show robust domestic demand. However, there also should be signs that the strong EUR is fuelling import growth, which in turn is weighing on net exports. Survey data suggest that the recovery is strengthening and more importantly perhaps broadening in the summer quarter. And while the final services PMI is expected to confirm the drop back to 54.9 in August from July’s 55.4, the composite reading should be confirmed at 55.8, up from 55.7 in July, which together with the much stronger than expected ESI confidence readings will back the arguments for the ECB to gradually reduce the additional amount of stimulus that is still being pumped into the economy every month. German manufacturing orders data for July (Wednesday), meanwhile, will be the first real data for the third quarter and we are looking for a slowing in the monthly growth rate to 0.2% m/m from 1.0% in June, while industrial production is likely to rebound from the 1.1% drop in June and rise a stronger 0.7% m/m. Germany also has July trade data, while the Eurozone has retail sales and PPI inflation. Production data is also due from France.

UK: The calendar this week brings the August construction and services PMI surveys (Monday and Tuesday, respectively), the BRC retail sales report for the same month (Tuesday) and July production and trade data (Friday). All eyes will be on the PMIs, especially those on the dominant service sector, after Friday’s stellar manufacturing survey, which highlighting that the manufacturing sector has continued to benefit from the combo of strong global growth and a competitive exchange rate while not being perturbed by Brexit anxieties. The construction PMI expected to come in at 52.0 in the headline reading, which would be near unchanged from July’s 51.9 outcome. The services PMI has us expecting a slight ebb, to 53.5, returning to near the six-month low seen in June at 53.4, after 53.8 in the prior month. The July services PMI survey shone a light on the impact Brexit-related uncertainty is having on this sector, feedback that is not likely to have changed much this month.

New Zealand: The calendar is again sparse in terms of top tier data. Q2 manufacturing is due Friday. The Reserve Bank of New Zealand meets next on September 28. No change to the current 1.75% rate setting through year-end, is expected.

Japan: The August services PMI (Tuesday) is set to improve to 52.5 from 52.0. The second look at Q2 GDP (Friday)is expected to see a downgrade bump to 3.0% from the initial 4.0% reading, while the July current account surplus is seen expanding to JPY 1,800.0 bln from 934.6 bln. August bank loan figures are also due Friday.

China: The August services PMI (Tuesday) is penciled in at 51.0 from 51.5, while the August trade surplus (Friday) is forecast at $49.0 bln from $46.7 bln. August CPI and PPI are tentatively due on Saturday, with the former seen rising to 1.7% y/y from 1.4%, and the latter slipping to 5.3% y/y from 5.5%.

Australia: a busy calendar is highlighted by the Reserve Bank of Australia’s meeting (Tuesday), expected to reveal no change in the 1.50% policy setting. The data docket is headlined by Q2 GDP (Wednesday), expected to improve to a 0.5% pace (q/q, sa) from the sluggish 0.3% growth rate in Q1. The Q2 current account (Tuesday) is seen at -A$8.0 bln from the -A$3.1 bln deficit in Q1. Retail sales (Thursday) are projected to rise 0.3% in July after the matching 0.3% gain in June. The trade balance (Thursday) is seen narrowing to an A$0.8 bln surplus in July from the A$0.9 bln surplus in June. Housing investment (Friday) is anticipated to gain 1.5% m/m in July after the 0.5% rise in June. ANZ job ads for August and the August Melbourne Institute inflation index are due Monday. Reserve Bank of Australia officials are busy this week: Governor Lowe speaks at the Reserve Bank Board Dinner in Brisbane (Tuesday). The RBA’s head of Economic Analysis, Alex Heath, speaks at the Economic Society of Australia, Tasmania (Wednesday).Deputy Governor Debelle participates in a panel discussion (Friday). Governor Lowe delivers brief remarks at the Bank of China Sydney Branch’s 75th Anniversary Celebration Dinner (Friday).

The economic week ahead26 Mar, 2018  

The pendulum has swung back wickedly to trade politics after President Trump announced tariffs on $50 bln in Chinese tech and telecom...

Germany waits for SPD vote19 Jan, 2018  

Germany waits for SPD vote on coalition talks.600 delegates are expected to sign off party leader Schulz’s deal with Merkel designed to lay the...

Central bank meetings come into focus 12 Dec, 2017  

Narrow ranges have prevailed so far today as market participants sit on their hands ahead of key data from key economies this week, the first of which arrives...

U.K. stock futures are down29 Nov, 2017  

European Outlook: Asian markets seem to have shrugged off North Korea’s missile launch and turned their focus to the progress of Trump’s tax cut...

ECB will still extend its balance sheet 26 Oct, 2017  

After both Markit PMIs as well the Ifo reported mounting capacity pressures, there is a good chance that the ECB will cut back asset purchases...

Global economic activity has surprised16 Oct, 2017  

And while there are a number of potential geopolitical headwinds that could slow, if not derail the momentum, recent economic reports from the U.S. suggest...

Hawkish tone from core central banks3 Jul, 2017  

The surprisingly hawkish tone from core central banks recently has weighed sharply on bonds and stocks, with losses exacerbated Friday amid duration...

Economic week ahead26 Jun, 2017  

Quarter-end will bring a day of reckoning at least for Q2, as portfolios are adjusted this week. Equities continue to loiter just below historic highs...

UK labour data positive - sterling lower18 May, 2016  

UK labour data showed an unexpected rise in pay, Average household income (excluding bonuses) lifting to a +2.0% y/y rate in the three months to March, up from 1.8% at the last measure...