Written Commentary
Written by Marc Ostwald, ADMISI’s Global Strategist & Chief Economist
The Week Ahead Preview:
As markets move into the typically more volatile early autumn season, they are confronted with continued geopolitical risk, be that via the conflicts in the Middle East and Black Sea, where political rhetoric all too often is at odds with actual military action, as well as national politics: US mid-term elections, Germany’s Sachsen-Anhalt state election implications, initial manoeuvring ahead of France’s presidential election, and the reality of UK PM Burnham and Chancellor Healey formulating a very difficult Autumn Budget (October 28) after an initial summer honeymoon period. The latter serves as another reminder that government budgets are overstretched, debt levels on an unsustainable path, but demands for fiscal expenditure rising – perhaps most notably, rapidly diminishing capacity to shield consumers and businesses from elevated energy prices. All major central banks are building in greater optionality and flexibility into their policymaking, leaving markets struggling to formulate clear views (even if they prove to be wrong in the medium-term) on medium-term rate trajectories, and are thus prone to increased volatility, notwithstanding the challenges of assessing the benefits and potential pitfalls of outsized AI investment spending.
The week’s calendar has a mix of major data – US and China inflation; UK GDP; Japan final GDP, Wages and PPI; German Production; China Trade and Credit aggregates – and events with the ECB policy meeting (and the Fed, BoJ and BoE all meeting next week), an array of major energy meetings (APEC) and conferences (APPEC) to accompany monthly Oil Market Reports from EIA, IEA and OPEC following the expected ‘stand pat’ decision from OPEC+, and the USDA’s WASDE and China CASDE reports, in addition to El Niño updates from Japan and the US. Corporate earnings are very light as is seasonally typical, though both Apple and Huawei hold major product launches.
U.S.A.
Friday’s robust labour data offered both post hoc justification for Warsh’s Jackson Hole assessment of that pillar of the Fed’s monetary policy, as well as putting even more emphasis on this Friday’s CPI. Rising gasoline prices are expected to pace a much faster 0.4% m/m increase in headline CPI, after two benign readings, leaving the y/y rate at a very elevated 3.4%, while core CPI is seen steady at 0.2% m/m, edging down the y/y rate to 2.4%. PPI which precedes CPI for a change may prove to be more consequential and more uncomfortable for FOMC members wanting to see a clear path lower for inflation, with headline forecast at 0.4% m/m to send the y/y rate back up to 5.3%, while core is expected to rise 0.3% m/m to push the y/y rate up 0.5 ppt to 4.7%, and implying some limited upside risks for already high PCE deflators at the end of the month (leaving aside upcoming changes to deflator composition). This may not tip the balance of opinions on the FOMC decisively, and leave Warsh with a management challenge, i.e. how to avoid a deeper split in voting, with three dissents already high. Last week’s comments by Waller were especially unhelpful, seemingly arguing for a hold in September as long as inflation does not rise (though one has to question how much his views are heavily coloured by political pressure), and at odds with Warsh’s assertion that inflation is too high and has to fall, otherwise the Fed ‘has work to do’. That difference is anything but semantic, and per se both CPI and PPI would need to miss expectations on core measures to fundamentally shift market expectations, which effectively say the September meeting is a ‘coin flip’.
Eurozone
A heavily flagged additional 25 bps ECB rate hike to 2.50% this week is already discounted. As much as the ECB will stick with a ‘meeting by meeting’ stance, the accompanying staff forecast updates and Lagarde’s press conference will clarify the extent of its willingness to tighten further. A slight upward revision to GDP, a tweak higher to inflation forecasts, and casting risks on inflation to the upside would all point in that direction and confirm the ECB as the most (though not overly) hawkish of major central banks. Statistically, German Industrial Production and Trade are the only items of note, with Production seen up another 0.2% m/m, following gains of 0.2%, -0.7% and 0.2% m/m in Q2, and pointing to a sustained upturn, even if underlying momentum is quite sluggish. But the AfD’s clear win in Sachsen-Anhalt will be the primary talking point to start the week, even if initial exit polls imply that it has not got an absolute majority.
China
This week’s run of inflation, trade and credit aggregates are unlikely to change perspectives on where China’s economy currently stands and the outlook for the rest of 2026, i.e. weak domestic demand, a lack of inflation pressures outside of energy, and continued strong AI and green technology related external demand. Exports are seen accelerating to 27.6% y/y and Imports to 31.2%, the latter helped by a rebound in crude imports, and both somewhat flattered by benign base effects. The rebound in energy prices is expected to pace a modest 0.2 ppt rebound in PPI to 3.7% y/y, with its impact on airfares, road fuel and anything travel related seen pacing a sharper rebound in CPI to 0.9% y/y from 0.5%, along with an easing in Food price deflation.
Credit Aggregates will likely highlight that a slight acceleration in government borrowing (still below target) is the only bright spot, with New Yuan Loans seen falling, a slower CNY -150 Bln relative to July’s CNY -590 Bln, and overall Aggregate Social Financing expected CNY 1.08 Trln, wherein corporate bond financing is seen up less than CNY 100 Bln (vs. July 454 Bln).
Japan
All eyes remain on the BoJ’s September 16/17 meeting, with a further 25 bps hike almost fully discounted. The week’s run of data are all likely to add to the case for a hike, with better than expected Q2 CapEx seen pacing an upward revision to final Q2 GDP to 1.7% SAAR from 1.1%.
Labour Cash Earnings are forecast to rise 3.8% y/y in nominal terms, and at 1.8% y/y in real terms, though July readings for this series can often be wide of expectations due to changes in the composition of SME respondents. PPI is forecast to be unchanged on the month but accelerate to 7.4% y/y. BoJ’s Masu is the sole scheduled speaker on Thursday, but of greater interest will be whether the re-pricing of BoJ rate expectations and shifts in domestic portfolios prompt a break of the key 155 level vs. the USD, which has held every correction since March.
U.K.
A quite busy week for UK economic data has the KPMG/REC Employment survey, which has shown some signs of improving in the past couple of months, even if official data continues to point to continued modest job shedding in the private sector. Tuesday has August BRC Retail Sales, which slowed quite sharply in July after a World Cup and warm weather boost, while Thursday’s RICS House Price Balance is seen holding at -30. But Friday’s July monthly GDP will be the focal point, with the ‘sugar high’ of May and June expected to give way to a sluggish picture at the start of Q3, with a flat m/m reading seen for headline GDP and Index of Services, a slight -0.2% m/m contraction for Production, and Construction Output expanding just 0.1%. That will likely keep the dovish MPC majority from hiking rates near term, though they will also be watching the quarterly BoE/Ipsos Inflation Expectations, which had already rebounded sharply to 3.9% in Q2, and appears likely to have headed higher in the latest survey.
Tuesday will also see BoE’s Bailey, Ramsden, Greene and Taylor testify on the latest Monetary Policy Report to parliament’s Treasury Select Committee, which may offer some additional signals on the rate outlook.
S&P 500 companies
There are six S&P 500 companies reporting this week, with worldwide corporate earnings highlights as compiled by Bloomberg News likely to include: Adobe, Casey’s General Stores, FirstRand, Inditex AKA Industria de Diseño Textil, Kroger, Sun Hung Kai Properties, Sunbelt Rentals, VinFast.
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