Macroeconomics: The Day Ahead for 6 September

The US monthly labour report tops the day’s schedule, along with final Fed speakers before the FOMC enters its ‘purdah’ period via way of Waller and Williams. There are Japan’s Household Spending, German & French Industrial Production & Trade and the run of monthly indicators from Vietnam to digest. Ahead lie the UN FAO’s World Food Price Index, final Eurozone GDP, Brazil and Chile inflation, and Canada’s labour data. Japan’s weak Household Spending (-1.7% m/m 0.1% y/y) puts a substantial spoke in the BoJ’s rate hiking plans, which to a large extent rest on the assumption that rising wages will revive what has been an abject trend in Household Consumption, but given that the m/m fall followed a 2.7% m/m surge in June, it is perhaps just a case of ‘mean reversion’, though it requires continued scrutiny. Germany’s worse than expected Industrial Production (-2.4% m/m -5.3% y/y) was a timely reminder (if even needed) following the better than expected Orders, though heavily transport order distorted Orders that Germany’s industrial might is withering. A sharp reversal in auto output (-8.1% m/m vs June +7.9%) accounted for much of the weekaness. As for the stronger than expected Exports (1.7% m/m) and Imports (5.4% m/m) readings, these have to be seen in the context of prior sharp m/m falls, and on a 3-month comparison Exports remain sharply lower and Imports stagnant.

** U.S.A. – August Non-farm Payrolls, Unemployment & Hourly Earnings **

– Given the drop in JOLTS Job Openings, the undershoot in ADP Employment and the sluggish labour demand picture in the Beige Book, risks look to be to the downside of the forecast rebound to 165K for headline and 140K for Private Payrolls, though revisions will as ever require attention, and rehiring of workers temporarily laid off during annual re-tooling closures could provide an offset. Even if around the median estimate, many will note that they should really be adjusted for the net 68K in the annual revisions for the year to March, they would be somewhat below the Fed’s equilibrium rate of 100K, which some Fed speakers have recently suggested should be higher given immigration effects on the labour force. The ADP survey hints at a risk that the Unemployment Rate edges up from an expected no change 4.3%, and the FOMC will be particularly attentive to any further rise in the Underemployment Rate, which has jumped to 7.8%, from a low of 6.7% in July 2023. Average Hourly Earnings are forecast to tick up to 0.3% m/m 3.7% y/y, though the uptick is seasonally typical for August. There appears to be a lack of market conviction about today’s report, per se laying the ground for some heightened volatility post release, above all in FX markets, and even more so if there are divergent signals.

** THE WEEK AHEAD **

– A busy week for major data in the US, China and UK accompanies a much anticipated ECB meeting, which is expected to see the Depo rate cut 25 bps to 3.50%, while it was already announced in March that the spreads to the Refi and Marginal Lending rates will be tightened an additional 35 bps (3.65% and 3.90% respectively). Given well aired and quite profound differences of opinion among ECB council members about further policy easing, the stubborn level of Services CPI, in part offset by the sharp drop in its negotiated wages to 3.6% y/y (with Q2 Compensation Per Employee due to be published with final Q2 GDP), forward guidance will likely again be limited to being ‘data dependent’. Staff forecasts for 2024 GDP and Inflation are expected to be shaded slightly lower, longer-term forecasts may well be left unchanged.

US CPI is seen up 0.2% m/m on headline and core, with headline set to fall to 2.6% y/y from 2.9% due to base effects, but core will be little changed at 3.2% y/y. PPI is also seen up 0.2%, and NFIB Small Business Optimism will be watched closely having seen a surge in its economic outlook expectations in recent months, which has run counter to many other surveys. Preliminary Michigan Confidence, Consumer Credit and Import Prices are also due.

China’s inflation has adverse base effects to contend with, above all for PPI that is seen falling to -1.4% y/y from -0.8%, given August 2023 PPI rose to -3.0% from -4.4% y/y, with tumbling metals prices, a stronger CNY adding to downward pressures. CPI also faces some adverse headline base effects, but is still seen rising to 0.7% from 0.5% y/y, mostly due to food prices (above all pork). Trade data are forecast to see Export growth slow modestly to 6.7% y/y, while much of July’s sharp base effects driven improvement in Imports will be reversed with a tepid 2.3% y/y rise. Last but not least credit aggregates, which have been woefully weak in recent months, are also due, with a rebound in Aggregate Social Financing of CNY 3.33 Trln, and a still sluggish CNY 1.064 Trln rise in New Yuan Loans expected, the latter above all still signalling a dearth of credit demand, thanks to the lack of business and consumer confidence, that is further exacerbated by rising youth unemployment, and flat ot falling wages.

In the UK, labour data gets the week under way, with the KPMG/REC survey to start the week, the July survey suggested less hiring, but higher starting salaries, while other surveys hinted at a pick-up in hiring after the general election. Official data for July & August should see a base effect driven further dip in Average Weekly Earnings after June’s steep fall to 4.5%, and some further easing ex-Bonus from a still very high 5.4%. While July HMRC Payrolls (+24K) and June LFS Employment (+97K) showed solid gains, this contrasted with a very sharp 135K increase in the Claimant Count, which requires close monitoring, though often very hefty revisions to Payrolls and Claimant Count data may alter the picture in terms of underlying trends. Wednesday’s monthly GDP and accompanying business activity data should see an overall modest expansion in GDP, that sustains 0.6/0.7% q/q pace seen in the first half of the year, with a warm weather boost perhaps giving a boost to the Index of Services, while PMIs suggest Industrial Production and Construction Output maintained the improving trend of recent months. Per se they would make the case for continued BoE caution on rate cuts, given that inflation remains elevated, above all Services CPI, growth reasonably healthy and labour demand reasonable.

It will be a very busy week for monthly reports in commodities. Energy markets will be considering whether the 2-month delay to the planned 180K increase in output that had been scheduled for October is anything more than an exercise in can kicking. They will also look to OPEC and IEA monthly Oil Market reports on Tuesday and the EIA’s on Thursday. Agricultural commodity markets will be watching monthly S&D reports in the US (WASDE), China (CASDE) and Brazil (CONAB), and Canada’s Statcan reports on grains and oilseeds inventories.