Macroeconomics: The Day Ahead for 3 September

Given the Fed taper decision speculation, the run of Services PMIs from around the world will have to take a back seat to the much anticipated August US labour data, with worse than expected Turkish CPI (now above the TCMB’s policy rate) and PPI being the other highlight of the day’s schedule. The anecdotal evidence about labour shortages and strength of labour demand in the UK (REC), German (Ifo) as well as the US (NFIB) underline the scale of labour skills shortages across the developed world. The day’s event schedule has nothing that is likely to be a major market mover, with Lagarde unlikely to touch on monetary policy in her speech at the World Conservation Congress. The long Labor Day holiday in the U.S. will likely prompt an early start to weekend book squaring, once the US labour report and Services ISM have been digested. Next week has a relatively modest run of US data, but a busier one in China, Eurozone and the UK, with the ECB (likely to be a case of ‘when’s a taper not a taper’) front and centre in terms of monetary policy meetings, which will also rate decisions in Australia, Canada and Russia. China will look to Trade, CPI, PPI and monetary & credit aggregates, while the UK has monthly GDP, Industrial Production, Trade, Index of Services, BRC Retail Sales and RICS House Price Balance. Germany awaits Factory Orders, Industrial Production and Trade (the latter two are also on hand from France and Italy), with JOLTS Job Openings, PPI and the Fed’s Beige Book on hand in the US, while elsewhere there are Canada’s labour data, Japanese Wages, Household Spending and final Q2 GDP. In the Agricultural commodities space, all eyes will be on the latest monthly USDA WASDE report.

** World – Aug Services PMIs **

– If the contrast between Europe and Asia was stark on the Manufacturing PMIs, then it is going to be even sharper on Services, as above all signalled in China (46.7 vs. exp. 52.0, prior 54.9) and Japan (42.9 vs. flash 43.5) depressed by the various lockdown measures, while India (56.7 vs. prior 45.4), Eurozone and to a lesser extent the UK see benefits from various stages of re-opening. Over in the US, the Services ISM is expected to drop back to 61.0 from the 64.1 pandemic high, still indicative of a very robust pace of activity, and contrasting sharply with the Services PMI tumble from its May high of 70.4 to the 55.2 Aug flash reading.

** U.S.A. – August Labour market report **

– For all that the read across from ADP to Private Payrolls has in effect been non-existent for 5 of the past 6 months, it is not able that the consensus estimates headline (725K) and Private (610K) were knocked down by 25K and 95K respectively following the ADP report. It is in any case a rather big stretch of the imagination to even call this a consensus, given the range of forecasts for headline is +400K/1.0 Mln and Private +350K/800K. Be that as it may, there will less of a skew from govt payrolls (public sector education hiring July +231K) to the headline reading, while the Unemployment Rate is forecast to drop to a new pandemic low of 5.2% from 5.4%. There will continue to be plenty of attention paid to the Underemployment Rate, which mirrored the headline with a sharp drop to 9.2% in July from 9.8%, while the Participation Rate is seen edging up marginally to 61.8%; however both of these are still a great distance away from pre-pandemic readings of 7.0% and 63.5% respectively. Average Earnings will also be getting closer attention, given the well documented labour shortages, but are forecast to ease to 0.3% m/m vs. June and July’s 0.4%. The question is then whether a Private Payrolls print around the consensus, still fits with Powell’s “clear progress toward maximum employment” assessment at Jackson Hole, and will it even matter, given markets appear to be locked into the rather daft ‘dovish taper’, which in principle means: higher, lower or as expected, just buy the dip – or so it would appear?