Saxo Spotlight: What’s on investors and traders radars this week?
APAC Strategy Team
Summary: August begins with another busy week on economic data and corporate earnings. The market’s main focuses will be the ISM surveys in the U.S. and PMIs from the eurozone and China, plus Friday’s U.S. employment report. Bank of England, Reserve Bank of Australia, and Reserve Bank of India are expected to raise policy rates hoping to put inflation under control. Investors will monitor Fed speaks scheduled for this week for further insights into the inflation vs. Recession debate, while the OPEC+ output schedule will be on watch.
July nonfarm payrolls to re-confirm a tight labor market
The continuous increase of the four-week moving average of initial and continuous claims may be pointing to somewhat moderation in job growth but the increases in claims are still below the levels that are generally associated with job losses or a rise in the unemployment rate. The labor market remains tight. Bloomberg survey forecasts a 250,000 gain in non-farm payrolls for July, unemployment rate unchanged at 3.6%, and average earnings rising at 0.3% MoM or 4.9% YoY. The higher-than-expected PCE data on Friday has once again boosted the case for higher-for-longer inflation, and a steady surge in wage inflation will only just push that rhetoric further.
Looking for insights into the Fed’s thinking on the post July FOMC market reactions
Equity markets soared and financial conditions eased after the July 27 FOMC, continuing the trend that has been in place since the June Fed meeting. The market has since been pricing in lesser rate hikes for the remainder of the year and higher probability for cuts in early 2023. This is contrary to what chair Powell’s repeated reference to the policy rate path in June Summary of Economic Projections during the press conference after the July meeting. Chicago Fed president Charles Evans (non-voter this year) and St. Louis Fed president James Bullard (voter) are scheduled to speak on Tuesday and Fed governor Loretta Mester will speak on Thursday. Investors are likely to pay close attention to their remarks for insights into the Fed’s thinking, and to build further views on the inflation vs. Recession argument.
US ISM manufacturing and services surveys
The S&P flash manufacturing PMI moderated 0.4pp to 52.3 and regional Fed surveys were mixed. Bloomberg survey for July ISM manufacturing index – scheduled for release on Monday – has a median forecast from economists at 52.0, down from 53 a month ago. ISM services index – scheduled for release on Wednesday – may come with an even bigger decline as the S&P flash services PMI and surveys from regional Fed were weak. Bloomberg survey for July ISM services index has a median forecast of 53.7, down 1.6pp from June. That will continue to suggest that the post-pandemic services demand is easing, further weighing on the growth outlook for Q3.
Bank of England, Reserve Bank of Australia, and Reserve Bank of India decisions ahead
Central banks are expected to chase from behind aggressively to tame inflation. Economists, as surveyed by Bloomberg, are expecting the Bank of England (BOE) to tighten its policy rate by 50bps to 1.75%. The Reserve Bank of Australia is expected to rate its cash rate by 50bps to 1.85% this week - but we think a hike of 0.75% is plausible given the hotter than expected ‘trimmed’ CPI data that was released (and the trimmed CPI data is what the RBA look at). Likewise, the Reserve bank of India is expected to raise the policy repo rate by 50bps, brining it the 5.40%.
Thursday’s Bank of England decision may see a split vote for a 25/50 bps rate hike, but with inflation touching 9.4% y/y in June and seen rising to 12% in the winter months suggests room for a stronger action. Growth outlook is softening, which may mean that the pace of tightening is set to slow after August.
China PMIs disappoint, Caixin PMI ahead
The official China NBS manufacturing PMI released on Sunday July 31 surprised to the downside and declined to 49.0 back to the contractionary territory (vs consensus: 50.3; June: 50.2). Non-manufacturing PMI came at 53.8 (vs consensus 53.9; June 54.7). The Caixin manufacturing PMI, being scheduled to release on Monday, is expected to moderate to 51.5 in July from 51.7 in June according to Bloomberg. Given the much weaker-than-expected NBS manufacturing PMI and the freight and logistic data indicating slow resumption of activities in the coastal regions, the Caixin manufacturing PMI may at risk of missing expectations and coming at a much weaker number. The median forecast from Bloomberg’s survey suggests that the Caixin services PMI to slightly decline to 54.0 in July from 54.5 in June.
Southeast Asia inflation to show broadening price pressures
Key southeast Asian countries like Indonesia, the Philippines and Thailand report inflation numbers for July in the week ahead. Headline inflation has been running hot across the region, with Indonesia’s headline inflation above the target of 2-4%. While food and fuel remain the key drivers, inflation pressures are broadening with demand-pull factors in play as well given the regional reopening. Thailand is experiencing strong price pressures from high commodities costs, weaker baht, reopening and return of more tourists.
OPEC+ spare capacity questions linger
With the demand destruction fears somewhat at ease, the focus is shifting back on supply constraints in commodities. OPEC and its allies meet on August 3 to decide on the group’s output levels for September. With the group having under-impressed on the production roadmap for now, any increases in targets may remain underwhelming. A decision not to raise production would also disappoint, especially after President Joe Biden visited Saudi Arabia this month hoping to strike a deal on oil production.
More earnings to come
While the busiest earnings week for the season may has passed without any major shocks, we have another heavy week ahead of us. In the week ahead, there are 148 S&P 500 companies reporting earnings in a variety of sectors including energy (Occidental, Cheniere Energy), travel (Uber, Airbnb, Booking Holdings, Expedia), semiconductors (Advanced Micro Devices), ecommerce (Starbucks, eBay) and healthcare (Moderna, Eli Lilly, Gilead Sciences, Amgen). Key themes to focus on will include consumer demand patters, supply chain issues and the impact from a stronger dollar.
Key economic releases & central bank meetings this week
Monday Aug 1U.S.: ISM manufacturing (Jul)Eurozone: PMI manufacturing (Jul)
Eurozone: Unemployment rate (Jun)
China: Caixin manufacturing PMI (Jul)
Hong Kong: GDP (Q2, Adv)
South Korea: Exports (Jul)
Indonesia: CPI (Jul)
Tuesday Aug 2
U.S.: JOLTS job openingsn
Australia: RBA policy meeting
South Korea: CPI (Jul)
Wednesday Aug 3
U.S. ISM servicesn(Jul)
Eurozone: PMI services (Jul)
Eurozone: Retail sales (Jun)
Thursday Aug 4
U.S. Initial & continuous jobless claims
U.S. Trade balance (Jul)
U.K.: BOE monetary policy committee meeting
Friday Aug 5
U.S.: Nonfarm payrolls, unemployment rate & average hourly earningsn (Jul)
Japan: Consumer spending (Jun)
Japan: Total cash earnings (Jun)
Japan: Economic coincident index (Jun)
Singapore: Retail sales (Jun)
India: RBI policy meeting
Taiwan: CPI (Jul)
Indonesia: Real GDP (Q2)
Philippines: CPI (Jul)
Thailand: CPI (Jul)
Sunday Aug 7
China: Exports, imports & trade balance (Jul)
Key company earnings releases this week
Monday Aug 1HSBC(00005:xhkg/HSBA:xlon), Activision(ATVI:xnas), Heineken(HEIA:xams), Baidu(09888:xhkg/BIDU:xnas), Devon Energy(DVN:xnys), Shimao Services(00873:xhkg), Raffles Medical(BSL:xses)
Tuesday Aug 2Advanced Micro Devices (AMD:xnas), S&P Global(SPGI:xnys), Caterpillar(CAT:xnys), PayPal(PYPL:xnas), Starbucks(SBUX:xnas), BP(BP:xlon), Gilead(GILD:xnas), Airbnb(ABNB:xnas), Uber(UBER:xnys), Occidental Petroleum(OXY:xnys)
Wednesday Aug 3CVS Health(CVS:xnys), Moderna(MRNA:xnas), AXA(CS:xpar), BMW(BMW:xetr), Nintendo(7974:xtks), MetLife(MET:xnys), AP Moeller-Maersk(MAERSKb:xcse), CK Infrastructure(01038:xhkg)
Thursday Aug 4Eli Lilly(LLY:xnys), Novo Nordisk(NOVOb:xcse), Alibaba(09988:xhkg/BABA:xnys), Toyota Motor(07203:xtks), Amgen(AMGN:xnas), Conocophilip(COP:xnys), Ceniere Energy(LNG:xnys), Glencore(GLEN:xlon), DBS Group(D05:xses), CK Hutchison(00001:xhkg)
Friday Aug 5EOG Resources(EOG:xnys), London Stock Exchange(LSEG:xlon), Deutsche Post (DPW:xetr), Suncor Energy(SU:xtse)
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