Written Commentary
- Flash PMIs dominate busier data schedule, as FOMC minutes digested, ECB minutes awaited and focus turns to BoJ Ueda testimony and Fed Jackson Hole Symposium; Eurozone Q2 Wages, UK CBI Industrial Trends, US Existing Home Sales and weekly jobless claims, Mexico CPI and GDP; US 30-yr TIPS
- Flash PMIs: Eurozone to see further Manufacturing contraction, modest Services expansion, UK seen posting moderate expansion on both, US Manufacturing to post marginal decline, Services to lose some momentum
- Eurozone: Q2 Wages likely to remain uncomfortably ‘sticky’ for ECB, and suggest market rate cut pricing needs to be pared back
- ECB minutes likely to echo Lagarde press conference, express concern about pace of core CPI decline and wages, while noting downside risks to growth outlook, likely to be very cautious on rate outlook
EVENTS PREVIEW
As the FOMC minutes are digested, reaffirming expectations of a 25bps cut in September, ahead of today’s ECB minutes, today’s data schedule may prove to be a little more market sensitive than has been the case for much of this week, with G7 & India flash PMIs accompanied by the ECB’s Q2 Negotiated Wages, UK CBI Industrial Trends, US weekly jobless claims, Existing Home Sales and KC Fed Manufacturing, and Mexican CPI and final Q2 GDP. The KC Fed’s Jackson Hole conference gets under way and is, given much debate about central banks’ current policies, very aptly themed as ‘Reassessing the Effectiveness and Transmission of Monetary Policy’. As noted in the weekly preview, the speeches by ECB’s Lane and BoE’s Bailey (both after Powell tomorrow) may end up being as significant as Powell’s. A light day for govt debt auctions sees the US sell USD 8.0 Bln of 30-yr TIPS, while Toronto-Dominion Bank kicks off the run of Canadian bank earnings.
** G7/India – August ‘flash’ PMIs **
– PMIs and even the ISM surveys have had a patchy record of late as guides to official economic data trends, outside of the consistent and wholly unsurprising negative message on manufacturing in the Eurozone, which is not expected to see any material change. Japan’s PMIs were little changed as Manufacturing reverses much of the February-April recovery, while Services expand at a healthy pace echoing hte improving trend in Personal Consumption, and the local Economy Watchers survey. India’s PMIs remain very robust, close to July’s 57.9 and 60.3 for Manufacturing and Services respectively, though also signalling some easing in export demand. The Eurozone Services PMI is seen slipping slightly to 51.7, supported by summer tourism, but otherwise somewhat lacklustre. UK Manufacturing and Services are both expected to hold at levels indicating a continued modest expansion (51.1 & 52.8), while in the US Manufacturing is forecast to edge up to 49.8, while Services ease to 54.0, after a robust run from May through July.
** Eurozone – August ECB minutes, Q2 ECB Negotiated Wages **
– ECB’s Q2 Negotiated Wages indicator will perhaps be critical for the rate trajectory for the rest of the year, given that many ECB speakers have expressed concerns that wages have proven to be as sticky as Services inflation, with the Q1 reading having ticked up to 4.7% y/y vs. prior 4.5%. The latter was above all paced by settlements in Germany (likely to be strong again), with monthly surveys having seen considerable divergence at a national level. An unchanged or higher reading would raise doubts about a September rate cut. Lagarde was very cautious at the policy meeting press conference, putting a lot of emphasis on the data that would be published before the September meeting, and being careful not to pre-commit to a cut. Per se the minutes may merely highlight considerable differences of opinion on the path for inflation and rates, and placing rather more focus on Lane’s speech at Jackson Hole on Friday.
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