PMI and payrolls will continue to steer direction

Markets are set for a quiet start to the week, with the LME having been closed on Monday for the summer bank holiday.

US monetary policy will continue to create price volatility, with ‘will-they-won’t-they?’ rate-rise speculation building up ahead of the next FOMC meeting on September 20-21.

Markets were still left somewhat unclear on the timing of the next increase by Federal Reserve chair Janet Yellen after she said in her speech at the Jackson Hole Symposium on Friday that increases were not on a set path.

Economic data from the US this week will be crucial to the wider assessment of economic activity and the likelihood of a September rise.

Key data this week includes the ISM manufacturing reading on Tuesday and the various jobs/employment readings, including the August non-farm payrolls reading Friday, forecast to show the addition of a further 186,000 jobs last month, with only a substantial undershoot likely to weaken the argument for a September increase.

The Conference Board consumer confidence reading is scheduled for Tuesday along with the S&P/Case-Shiller house price index. 

Pending home sales are due on Wednesday along with the ADP employment change, forecast to show the creation of 173,000 private sector jobs.  Weekly jobless claims and the Challenger job cuts readings are due on Thursday. Vehicle sales results for August are also due, which will lend direction to the base metals and also the PGMs but are also a good barometer of consumer confidence and household spending.

The overall tone emanating from Fed officials has become more hawkish of late, with Yellen stating on Friday that she believes “the case for an increase in the federal funds rate has strengthened in recent months”.

Market expectations are starting to reflect this – the CME Fedwatch tool implies a 33-percent probability of a September rate increase compared with a 21-percent probability on Thursday.

We have been somewhat ahead of market expectations for US rates for a while now although we still veer towards a December rise, mostly because this will allow a modest cushion against shocks from November’s presidential elections.  But there are other factors, particularly as the Fed risks losing face – policy to date has failed to reflect the more-hawkish sentiment from several officials.

As well, with the current business cycle now one of the longest on record, at 85 months of expansion, the Fed will need room for when the pendulum inevitably swings into contraction.

Looking at data elsewhere, figures from Japan include household spending, retail sales and the unemployment rate on Tuesday. Preliminary industrial production and capital spending are scheduled for Wednesday ahead of the final manufacturing PMI reading Thursday.

Bank of Japan governor Haruhiko Kuroda said the Japanese central bank was prepared to step up easing measures “without hesitation” to achieve its targets. Meanwhile, Kuroda continued to fend off the use of “helicopter money,” stating there were limits to that under Japanese law.

Looking at Europe, data this week includes the German CPI on Tuesday while data on Wednesday includes eurozone unemployment and CPI inflation readings, both of which are expected to show small but steady improvements. Other data includes German retail sales, unemployment change and French consumer spending.

PMI readings Thursday will give a steer on manufacturing activity within Europe and will help gauge ECB policy as markets continue to assess Brexit fall-out.  Meanwhile amongst various ECB policy makers due to speak this week include chief economist, Peter Praet, as well as Governing Council members Francois Villeroy de Galhau and Ewald Nowotny.

  

Date  Currency Economic Agenda Actual Expected Previous 
Monday       29 Aug AUD HIA New Home Sales m/m  -9.7%   8.2%
GBP Bank Holiday      
USD Core PCE Price Index m/m  0.1% 0.1% 0.1%
USD Personal Spending m/m  0.3% 0.3% 0.5%
USD Personal Income m/m  0.4% 0.4% 0.3%
Tuesday     30 Aug JPY Household Spending y/y   -1.30% -2.20%
JPY Unemployment Rate   3.10% 3.10%
JPY Retail Sales y/y   -0.90% -1.30%
AUD Building Approvals m/m   1.20% -2.90%
GBP Nationwide HPI m/m   -0.10% 0.50%
EUR German Prelim CPI m/m   0.10% 0.30%
GBP Net Lending to Individuals m/m   4.9B 5.2B
GBP M4 Money Supply m/m   1.20% 1.10%
GBP Mortgage Approvals   63K 65K
USD S&P/CS Composite-20 HPI y/y   5.10% 5.20%
USD CB Consumer Confidence   97.2 97.3
GBP GfK Consumer Confidence   -8 -12
Wednesday     31 Aug JPY Prelim Industrial Production m/m   0.70% 2.30%
JPY Housing Starts y/y   7.60% -2.50%
EUR German Retail Sales m/m   0.50% -0.10%
EUR French Consumer Spending m/m   0.30% -0.80%
EUR French Prelim CPI m/m   0.40% -0.40%
EUR German Unemployment Change   -2K -7K
EUR CPI Flash Estimate y/y   0.30% 0.20%
EUR Core CPI Flash Estimate y/y   0.90% 0.90%
EUR Unemployment Rate   10.00% 10.10%
USD ADP Non-Farm Employment Change   173K 179K
USD Chicago PMI   54.1 55.8
USD Pending Home Sales m/m   0.70% 0.20%
USD Crude Oil Inventories     2.5M
Thursday      1 Sep AUD AIG Manufacturing Index     56.4
JPY Capital Spending q/y   5.60% 4.20%
CNY Manufacturing PMI   49.9 49.9
CNY Non-Manufacturing PMI     53.9
AUD Private Capital Expenditure q/q   -4.00% -5.20%
AUD Retail Sales m/m   0.30% 0.10%
CNY Caixin Manufacturing PMI   50.1 50.6
JPY Final Manufacturing PMI   49.6 49.6
EUR French Final Manufacturing PMI   48.5 48.5
EUR German Final Manufacturing PMI   53.6 53.6
EUR Final Manufacturing PMI   51.8 51.8
GBP Manufacturing PMI   49.1 48.2
USD Challenger Job Cuts y/y     -57.10%
USD Unemployment Claims   265K 261K
USD Revised Nonfarm Productivity q/q   -0.60% -0.50%
USD Revised Unit Labor Costs q/q   2.00% 2.00%
CAD RBC Manufacturing PMI     51.9
USD Final Manufacturing PMI   52.1 52.1
USD ISM Manufacturing PMI   52 52.6
USD Construction Spending m/m   0.60% -0.60%
USD ISM Manufacturing Prices   54.5 55
USD Total Vehicle Sales   17.2M 17.9M
Friday            2 Sep JPY Monetary Base y/y   23.10% 24.70%
JPY Consumer Confidence   41.6 41.3
GBP Construction PMI   46.6 45.9
EUR PPI m/m   0.10% 0.70%
USD Average Hourly Earnings m/m   0.20% 0.30%
USD Non-Farm Employment Change   186K 255K
USD Unemployment Rate   4.80% 4.90%
USD Trade Balance   -43.0B -44.5B
USD Factory Orders m/m   2.10% -1.50%