US CPI print will point to higher and stickier price pressures
With the labor market remaining strong in the U.S. over the last few months, the focus has remained on the inflation data to predict the path of the Fed’s rate hikes. Clearly, all of the Fed’s members have had a unified hawkish stance since the Jackson Hole conference, and many have clearly hinted at a 75bps rate hike for September. Tuesday’s US CPI report is the one to watch, as it can move the market pricing of the Fed’s rate path and is the last key data point scheduled to release ahead of the September 21 Fed meeting. After some softening in July, it can be expected that the headline print may ease further in August as well given the decline in gasoline prices. Still, the inflation print is likely to stay elevated due to the stickier shelter and services costs, as well as still-high energy and food prices. Consensus estimates point to a mild decline of 0.1% MoM while the core remains strong at 0.3% MoM.
A host of UK economic data is due, but the central bank decision shifted to September 22
We get a snapshot of the state of the UK economy this week. UK inflation has already touched double digits last month with a 10.1% YoY print. Price pressures are likely to remain elevated this month as well, despite some softening in fuel prices, as food and services costs continue to rise. Further gains in inflation can be expected in October, but the capping of household energy bills may help to soothe inflationary pressures thereafter. Labor market data for three months to July is also due, and unemployment rate and wage data will be on the watch. Retail sales for August, due on Friday, will continue to show the impact of the cost-of-living crisis that has been seen in the UK due to the rising energy bills. UK consumer confidence is at record lows, and this will likely show up in the retail sales print this week. Bloomberg consensus estimates point to a 0.5% MoM deceleration in retail sales (including auto fuel). However, the pain on the economy from energy costs will likely ease towards the end of the year due to the government support, but that suggests further tightening in monetary policy may be on the cards. The Bank of England decision is now due on September 22, which would give the central bank time to assess the fiscal measures as well as the Fed’s rate hike path.
Slower export growth, power shortage, and pandemic controls would probably have taken their toll on China’s August activity data
China’s activity data for August, scheduled to release on Friday, would probably be at risk of missing the median forecasts in the Bloomberg survey, which has industrial production at 3.8% YoY in August (vs 3.8% YoY in July), retail sales at 3.2% YoY in August (vs 2.7% YoY in July), and fixed asset investment year-to-date 5.5% YoY (vs 5.7% YoY). The heatwave-induced power shortage caused disruption to production in Sichuan and delays in infrastructure construction. The pandemic control measures affected the manufacturing and export hub of the city of Yiwu in Zhejiang province in August. The much weaker than expected export growth data for August released last week and the continuously weak data in the property market also pointed to potentially downside surprises to these forecasts.
Japan producer prices to remain high
Japan’s August producer prices for August are scheduled to be released on Tuesday, and gains are likely to extend further as oil and commodity prices remained elevated and the Japanese yen weakened further. Bloomberg consensus expectations are for producer prices to reach 8.9% YoY in August from 8.6% YoY previously. While a high base from last year may justify some cooling in input prices into the end of the year, demand pressures are picking up as well as the latest wave of Covid in Japan seems to get under control, and higher global prices and weaker currency continue to underpin further price pressures.
Can the USD momentum extend further?
We saw the USD cool-off slightly last week following the uptick in the hawkish rhetoric from other global central banks. The European Central Bank went ahead with a 75bps rate hike, while also guiding for more jumbo rate hikes to come. The Japanese authorities also got more stern with their warnings against the fall of the yen, but there were no signs of the accommodative policy being tweaked. The recovery in the yen and the euro helped to cool off the recent gains in the greenback, as dis some positioning ahead of the US CPI release for this week. However, Reserve Bank of Australia Governor Lowe hinted that the pace of rate hikes may slow. The Fed will likely stay more aggressive than other global central banks, given the ammunition provided by the resilience of the US economy. Only a big miss in US CPI could move the needle on Fed rate hike expectations for now, and consequently on the US dollar. But for the most part, there are reasons to believe that the USD gains are likely to continue for now.
What Australia’s central bank will be watching this week. And if the data is stronger than expected, you could see the AUDUSD extend its short term run up
We’ve seen the RBA’s tone shift back to dovish of late, despite the RBA expecting inflation to peak later this year. And for the RBA to stay dovish, they’ll need to see falling inflation and falling employment. With that said, the next data set the RBA will be watching/assessing, ahead of their next interest rate decision (October 4), will be this unemployment data release for August on Thursday. Australia’s unemployment is at 50-year low, 3.4%. That’s where the rate is expected to remain for August. However, the other key data to watch is the employment change. This could give rise as to how much the RBA will be able to lift rates by, next month. In July data showed Australia’s employment fell from a record high, with 41,000 jobs being lost. While for August Bloomberg’s survey of economists suggests 35,000 jobs were added. Some forecasts are bleak though, estimating Australia lost 15,000 jobs. If the data is showing more jobs were lost, it will give the RBA less room to rise rates. Currently RBA interest rate futures expect the rates to peak at 3.6% next month. If more jobs were added than expected, we could see the AUDUSD extend its rally off its 2-year low.
Ethereum merge will draw attention
The Ethereum blockchain’s much-anticipated software upgrade, the so-called Merge, is expected to take place this week, according to its core developers. The new system, known as "proof-of-stake", will slash the Ethereum blockchain's energy consumption by 99.9%, developers say. Most blockchains, including bitcoin's, devour large amounts of energy, sparking criticism from some investors and environmentalists. We wrote about this here, and this is a key event to watch this week. The merge could make Ethereum more favourable to pension funds and other institutional investors that are under the scanner for environmental concerns, but there is also come scepticism an how scalable Ethereum could become and if it becomes more susceptible to attacks by hackers.
Oracle and Adobe are reporting results this week
The earnings calendar is light as most U.S. companies have reported and Q3 earnings releases will roll in a month from now. Oracle (ORCL:xnys) and Adobe System (ADBE:xnas) are the two most notable releases this week. The Oracle results will include the contributions for the first time from Cerner, a medical information technology provider for which it paid USD28.3 billion. On Oracle’s core business, investors will focus on how the company’s enterprise software business fared in competition with increasingly popular cloud services by providers such as Amazon and Microsoft.
Adobe System has surprised negatively in the past four earnings releases due to weaker than expected outlook and has seen its share price tumbling 45% since the beginning of the year. In the past couple of months, the share price has stabilised as expectations are no longer deteriorating. Analysts expect Adobe to report revenue growth of 12.6% y/y and expanding operating margin as a result of cost cutting. Adobe is part of the high quality pocket in the equity market with a high market share and double-digit organic growth rate expected over the coming years. Key risks to consider for Adobe are the strong USD, corporate spending slowdown on digitalization, and general weakness in the global advertising industry.
Key economic releases & central bank meetings this week
Monday, Sep 12 US: NY Fed Survey of Consumer Expectations (Aug)
UK: Monthly GDP (Jul)
Italy: Industrial Production (Jul)
Eurozone: ECB’s de Guindos and Schnabel speak
India: CPI (Aug)
India: Industrial production (Jul)
Tuesday, Sep 13 US: CPI (Aug)
Japan: PPI (Aug)
Australia: Consumer confidence Index (Sep)
Australia: Business confidence Index (Aug)
Germany: ZEW survey (Sep)
UK: Labour market report (Aug)
Wednesday, Sep 14 US: PPI (Aug)
Japan: Core machine orders (Jul)
UK: CPI (Aug)
UK: RPI (Aug)
UK: PPI (Aug)
Eurozone: Industrial production (Jul)
India: WPI (Aug)
New Zealand: Current account balance (Q2)
Hong Kong: Industrial production (Q2)
Hong Kong: PPI (Q2) Thursday, Sep 15 US: Jobless claims (weekly)
US: Retail sales (Aug)
US: Philly Fed manufacturing survey (Sep)
US: Empire State manufacturing survey (Sep)
US: Industrial production (Aug)
US: Business inventories (Jul)
Japan: Trade data (Aug)
Japan: Tertiary industry activity index (Jul)
Australia: Unemployment rate (Aug)
UK: Bank of England decision (Sep)
Eurozone: ECB’s Centeno speaks
Indonesia: Trade data
New Zealand: Real GDP (Q2)
Friday, Sep 16 US: University of Michigan consumer survey (Sep, preliminary)
UK: Retail sales
Eurozone: Harmonized CPI (Aug, final)
Eurozone: ECB’s Rehn speaks
China: Industrial production (Aug)
China: Retail sales (Aug)
China: Urban fixed-asset investment year-to-date (Aug)
Singapore: Non-oil domestic exports (Aug)
Key earnings releases this week
- Monday: Oracle (ORCL:xnys),
- Tuesday: DiDi Global (DIDIY:xnas)
- Wednesday: Industria de Deseno Texgtil SA (ITX:xmce)
- Thursday: Polestar Automotive (PSNY:xnas)
- Friday: Adobe (ADBE:xnas)