Saxo Spotlight: Will US soft landing hopes continue to be bolstered? – Sep 4 - 8 Saxo Spotlight: Will US soft landing hopes continue to be bolstered? – Sep 4 - 8 Saxo Spotlight: Will US soft landing hopes continue to be bolstered? – Sep 4 - 8

Saxo Spotlight: Will US soft landing hopes continue to be bolstered? – Sep 4 - 8

Macro 8 minutes to read
APAC Research

Summary:  US labor market data last week has pushed back on Fed’s rate hike expectations, and near-term economic momentum will likely remain supported by one-off spending in Q3 before giving way to a pullback in consumer spending into the end of the year. Data-light week ahead with Labor Day holiday in US and Canada on Monday, but central bank meetings from Australia and Canada will be in focus early in the week. China stimulus measures have ramped up, and it remains to be seen if data disappoints and offsets the small uptick in sentiment coming through. Oil and metals also remain in focus with commodities coming back to life in late August.

US economic health check brings services PMI in focus

There was a deluge of economic data out last week, and while we had some signs of weakness, the NFP jobs data on Friday still remained strong, leaving markets confused and still on course for expecting a soft landing. This soft-landing narrative will however continue to be on test as more data is reported, and we expect further impact from the tightening cycle to become more evident in the coming weeks. This week’s key focus will be how the services side of the economy is doing, with ISM services data for August out this Wednesday. There are some signs that spending in the third quarter can remain supported by one-off items such as blockbuster Hollywood movies (Barbie and Oppenheimer) or large-scale live entertainment (Taylor Swift, Beyonce) events. However, the outlook for consumer spending in Q4 is starting to fade, especially if you consider the eroding pandemic savings or the end of student loan forbearances. Job market is also slowing, as evident in last week’s job openings, and wage pressures are likely to soften. Bloomberg consensus expects August ISM services to stay steady at July’s level of 52.7 despite these one-off spending items. A weaker-than-expected print, especially one below 50, could spark concerns about a slowing economy, further decreasing the possibility of another Fed rate hike in this cycle and weighing on the dollar.

China's economic snapshot - anticipated loan surge, inflation rebound, and trade moderation

The Bloomberg survey anticipates new Yuan loans in August to surge to RMB 1,100 billion, attributed to increased regulatory encouragement for banks to lend and favorable seasonal factors. Government bond issuance in August soared past RMB 1 trillion as local governments rushed to use up issuance quota, driving an expected substantial rebound in August's aggregate social financing data to about RMB 2.8 trillion, up from July's RMB 528.5 billion. Year-on-year growth in outstanding aggregate social financing is projected to slightly increase to around 9% in August.

Inflation forecasts based on a Bloomberg survey suggest a moderate rebound in August's CPI inflation to 0.2% year-on-year from July's -0.3%, supported by base effects and rising food prices. The PPI is expected to contract less at -2.9% year-on-year, compared to July's -4.4%, aided by a low base from the previous year and recovering domestic and global commodities prices.

The Caixin China PMI Services index is expected to decline to 53.5 in August from July's 54.1, following a 1-point drop in the official NBS Service PMI to 50.5. Despite weak export data in NBS and Caixin PMI reports, analysts in the Bloomberg survey anticipate a slower decline in China's August exports at -9.0% year-on-year, compared to July's -14.5%. Imports are expected to contract less as well, at -9.4% year-on-year in August, versus -12.4% in July.

Central banks of Australia and Canada may keep rates unchanged

Expectations from central banks are fairly clear cut now, with most expected to stay on hold as inflation is slowing and lagged effects of tightening are also starting to show in economic growth. As such, FX focus may turn to more than yield differentials and conversations around who will cut first will be center-stage from here. The Reserve Bank of Australia meets Tuesday and the Bank of Canada meets Wednesday. For the RBA, data on inflation and labor market has been tilting dovish. July CPI last week was at 4.9% YoY, the first sub-5% print since February 2022 and employment data for July was also weak. While there are expectations that inflation can see another spike into the end of the year, RBA’s comments to keep door open for further tightening may not be enough to support the AUD and focus will remain on China’s measures to support yuan and its economy. Likewise, Bank of Canada is expected to keep rates unchanged at 5% especially after Friday’s data showing Q2 GDP unexpectedly falling by 0.2% against the central bank’s expectations of 1.5% gain. The key thing to watch in BOC decision will be whether we get a hawkish hold or a dovish hold, with the latter likely fueling rate cut bets for H1 2024 and weighing further on CAD.

Japan’s labor cash earnings unlikely to prompt BOJ tweak calls

Japan’s wage data remains in focus with the Bank of Japan waiting to see wage pressures before considering any significant tweak in its monetary policy. July’s nominal and real wage growth will be reported this Friday, and expected to come in at 2.4% YoY and -1.4% YoY respectively from 2.3% and -1.6% respectively in June. June’s wage growth was below expectations despite the summer bonuses, and raised doubts if the underlying momentum in inflation is sustainable. Continued pressure on household budgets would give more reason to BOJ to maintain its accommodative monetary policy. Focus this week will also be on the auctions for 10 and 30-year Japanese government bonds (JGBs) after sluggish demand at the 2-year auction last week. While pressure on BOJ to tweak policy is rising again as it approaches the September meeting, the slide in Treasury yields may continue to give Bank of Japan some breathing room.

Commodities: Energy and metals regaining momentum

Energy markets saw a strong recovery last week, and focus for the upcoming week will likely again remain on supply tightness as demand is unlikely to show any immediate concerns, remaining supported by one-off factors as discussed above. Oil will likely get some support from Russia’s announcements, after Deputy PM Novak said that OPEC+ will unveil the “new main parameters” of the supply deal in the next week. It is expected that Russia may extend its September export reduction (300k barrels/day) into October, while Saudi Arabia is also expected to further extend its voluntary 1mn barrels/day production curb into October. There is no set timing for the announcement this week. Meanwhile, bets on further Fed tightening have also been coming off as labor data broadly cooled last week. This supports the outlook for precious metals like Gold and Silver, which will remain in focus again this week. China stimulus announcements are also ramping up, bringing Copper in focus.

Earnings this week:


Tue: Zscaler, Ashtead

Wed: Alimentation Couche, Swiss Life

Thu: Copart, Sun Hung Kai Properties, Sekisui House, Toro

Fri: Kroger


Key economic events this week:

MON: US & Canadian Labour Day; German Trade (Jul), Swiss GDP (Q2), EZ Sentix (Sep)

TUE: RBA Policy Announcement; Final Composite & Services PMIs (Aug), EZ Producer Prices (Jul), US Factory Orders (Jul)

WED: BoC Policy Announcement; German Industrial Orders (Jul), EZ & UK Construction PMIs (Aug), US ISM Services PMI (Aug), Canadian Trade Balance (Jul)

THU: China Trade Balance (Aug), Swiss Unemployment (Aug), German Industrial Output (Jul), EZ Final Employment & Revised GDP (Q2)

FRI: Japanese Revised GDP (Q2), German Final CPI (Aug), Canadian Labour Market Report (Aug)

SAT: China CPI and PPI (Aug)

Anytime from Friday to Next Week: China Aggregate Social Financing & Loans (Aug)

Quarterly Outlook 2024 Q3

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