Fed’s data-dependent mode puts a heavy focus on PCE, NFP, ISM reports
The commentary out of the Jackson Hole symposium has kept the policy options open for the Fed. While markets still expect the Fed to pause, Fed Chair Powell continued to sound cautious on inflation, maintaining the 2% inflation target and saying that another interest rate hike may be considered. He also stood ready to respond in case the economic conditions deteriorated. This has again meant central banks, and consequently the markets, are in a data-dependent mode. Several key data points will be released this week, from PCE inflation (due on Thursday) to NFP jobs report (due on Friday) to ISM manufacturing (also due on Friday). Tuesday’s JOLTS job openings and consumer confidence data, as well as Wednesday’s Q2 GDP revision may also be key, but these are unlikely to signal any near-term challenges to growth.
July PCE deflator, which is the Fed’s preferred measure of inflation, will likely continue to reaffirm disinflation trends that have been highlighted in the recent CPI report as well. Bloomberg consensus expects July PCE to stay firm at 0.2% MoM on both the headline and core. August jobs report will likely show some further loosening of the labor market with headline jobs growth expected to slow to 168k from 187k previously, but unemployment rate is expected to stay at the low of 3.5% and will spell no immediate panic for the Fed. ISM manufacturing will perhaps give a better look at the growth picture and further contraction in the August print from July’s 46.4 could signal caution with S&P PMIs suggesting slowdown in services as well.
China's manufacturing and non-Manufacturing PMIs expected to decline further, exports remain a concern
The median forecasts from Bloomberg's survey indicate a further deceleration in China's NBS manufacturing PMI, NBS non-manufacturing PMI, and Caixin manufacturing PMI. The projection for NBS manufacturing PMI suggests a drop to 49.1 in August from 49.3, while Caixin manufacturing PMI is also anticipated to decline to 49.0 from 49.2. Both indexes are expected to move deeper into contractionary territory. Despite the recent stabilization of the Emerging Industries PMI and steady steel production, the persistently weak trend in exports is projected to continue exerting a drag on manufacturing activities. Furthermore, NBS non-manufacturing PMI is forecasted to slow down to 51.1 in August from July's 51.5, attributed to weaknesses in the property sector and disruptions to infrastructure construction due to flooding and stress on local government funding.
China PMIs in near-term focus as green demand drives structural bull market for copper
Industrial metal traders have their eyes on China’s PMI data this week and continue to look out for signs of economic stimulus. We would argue that, stimulus or not, green demand for industrial metals, especially, will propel a structural bull market. Last week, copper managed to somewhat stabilize with a 1.2% uptick to $3.78 per pound. While concerns about the downward risks in China's real estate sector persist, it's noteworthy that in the construction cycle of real estate, the focus is shifting towards completion rather than new groundbreaking. As of July, even though new construction starts have significantly decreased, completed projects have seen a 20% year-on-year increase. Furthermore, China's copper demand related to the green economy, such as renewable energy sources like solar power, has surged by more than doubled in the first seven months of this year. Despite a slowdown in copper demand within the new energy vehicle industry, there is still a growth rate of over 20% compared to the previous year, supporting overall copper demand.
Sticky core Eurozone CPI may not spell relief for ECB
Base effects could bring energy inflation to drop in Eurozone in August despite the recently higher global oil prices, but will lift the core reading. Meanwhile, holiday demand as well as the effects of government subsidies could bump up the services inflation further in the month, keeping overall core CPI sticky. Bloomberg consensus expects headline CPI for the Eurozone to slow to 5.1% YoY from 5.3% YoY in July and core to ease to 5.3% YoY from 5.5% previously. The European Central Bank may still take comfort in these readings at its September meeting because the push higher on services inflation is expected to unwind from September and economic outlook is deteriorating quickly. This means EUR may continue to remain under pressure this week, absent a significant upside surprise in the inflation metrics.
Australia’s July inflation relief may not last
Australia’s July CPI is scheduled for release on Wednesday and may show some signs of cooling. The headline CPI is expected to slow to 5.2% YoY from 5.4% previously as higher electricity tariffs and higher rents are more than offset by lower goods and gasoline prices. However, the risk of a surge higher in inflation again later in the year cannot be ruled out amid the increases in gasoline prices and an upswing in travel and leisure activity demand. Quarterly inflation prints still carry more weight in Australia and monthly prints can be volatile, so a sustained boost to AUD can only likely come from more China stimulus measures announcements or a further improvement in global risk sentiment. Building approvals, lending indicators and some pre-GDP partials are also out this week.
BYD and NIO report this week
BYD (01211:xhkg), the largest Chinese EV maker with a 36% market share, is scheduled to report Q2 results on Monday. The street consensus as per the Bloomberg survey is projecting a 70% Y/Y surge in revenue to RMB142 billion. EPS is expected to grow 64% Y/Y to RMB1.81 on strong volume growth and lower lithium carbonate costs which help mitigate some impacts from the intensification of price competition. NIO (09866:xhkg), a smaller vendor that has a 3.2% market share as of July in the Chinese EV market, is reporting on Tuesday. The street consensus is calling for an 11% Y/Y decline in revenue to RMB9.15 billion and an adjusted net loss doubled to CNY4.7 billion.
Earnings this week:
MON: Fortescue Metals, HEICO, BYD, COLI
TUE: HP, Hewlett Packard Enterprise, Best Buy, Xiaomi, NIO, Country Garden Services, Jiangxi Gangeng Lithium, Haidiliao, Agricultural Bank of China, Ping An Insurance, PDD, Public Bank, RHB Bank, Tenaga Nasional
WED: Prudential, Salesforce, Crowdstrike, Pure Storage, Great Wall Motor, Tianqi Lithium, Haier Smart Home, ICBC, Postal Savings Bank of China, LONGi Green Energy, Fosun, China Vanke, Shenzhou, Maybank
THU: UBS, Broadcom, VMware, Lululemon Athletica, Dell Technologies, Dollar General, MongoDB, Ke Holdings,
FRI: Telekom Malaysia
Key economic events this week:
MON: Australian Retail Sales (Jul)
TUE: German GfK Consumer Sentiment (Sep), US Case Shiller (Jun), JOLTS (Jul) & Conference Board Consumer Confidence (Aug)
WED: Australian CPI (Jul), Spanish Flash CPI (Aug), EZ Sentiment Survey (Aug), US GDP 2nd Estimate (Q2), US ADP National Employment (Aug)
THU: ECB Minutes, Japanese Retail Sales (Jul), Chinese Official PMI (Aug), German Retail Sales (Jul)/ Unemployment (Aug), EZ Flash CPI (Aug), US Challenger Layoffs (Aug), US Personal Income, Personal Consumption & PCE Price Index (Jul)
FRI: Chinese Caixin Manufacturing PMI (Aug), Swiss CPI (Aug), EZ/UK/US Final Manufacturing PMI (Aug), US ISM Manufacturing PMI (Aug), US NFP Labour Market Report (Aug), Canadian GDP (Q2)