Saxo Spotlight: What’s on investors and traders radars this week?
Macro

Saxo Spotlight: What’s on investors and traders radars this week?

APAC Strategy Team

Summary:  After a hawkish message from Fed Chair Powell at Jackson Hole on Friday, and the focus is squarely on the US jobs report this week and August CPI due on September 13 to move the needle on the magnitude of the September rate hike. Still, the deliberation will now move to where the terminal rates are seen and how long they would be held there. We also get a further update on US economic momentum from the ISM indices and consumer confidence on the radar. European energy crisis situation and the ECB rate hike expectations will develop with the Eurozone CPI prints and the progress on Nord Stream maintenance. China’s manufacturing PMI will be key given the recent heatwaves, as will be Australia’s final manufacturing PMI.

From Powell to jobs

After a hawkish message by Fed Chair Powell at the Jackson Hole conference on Friday, focus shifts to the August jobs report in the US to steer between a 50 vs. 75 basis points rate hike at the September meeting. Last month’s robust employment gains of 528k outperformed market expectations boosted the dollar, although the gains were reversed a few days later with a soft CPI report. Both of these reports have to send out a consistent message this time to seal the deal on a 75bps rate hike at the September meeting. Consensus expectations are for gains of 300k on nonfarm payrolls for August, with a steady unemployment rate of 3.5% and slight weakness in average earnings to 0.4% MoM from 0.5% earlier. Meeting or slightly exceeding these forecasts would put the ball in the court of the CPI release, but another strong outperformance could bump up the tightening expectations. Still, our sense is that that the deliberation should now move to how long the Fed will stay at the peak rate, as well as Quantitative Tightening which goes into full gear from September.

US economic momentum has likely improved with lower gasoline prices

Lower prices at the pump has seemingly helped the US economy reverse from the slowdown concerns, with Chairman Powell also getting the confidence to say that the economic momentum is strong. Consumer confidence, due on Tuesday should likely show a pickup with lower gasoline prices. The easing of financial conditions last month, in contrast to the Fed’s goal of tightening, may also have supported consumer sentiment. ISM manufacturing, which is scheduled to be reported on Thursday, may reflect the weakness seen in the S&P survey, but will still be lifted by the backlog in auto vehicle production. Housing sales may continue to moderate, but housing prices continue to rise and no systemic risks are seen.

China manufacturing PMIs expected to decelerate in the midst of heatwaves

The median forecasts of economists surveyed by Bloomberg expect China’s official NBS manufacturing PMI to edge up to 49.3 in August from 49.0 in July but remains firmly in the contractionary territory and the Caixin manufacturing PMI to slide to 50.1 in August from 50.4 in July, approaching the threshold between expansion and contraction. The heatwaves and drought-induced power curbs caused Sichuan and Chongqing to shut-down manufacturing activities for six days and eight days in August respectively. The province of Sichuan accounts for 4.2% of China’s industrial production and is an important manufacturing hub for semiconductor and solar panel industries. Both Sichuan and the municipality of Chongqing, which accounts for 2.1% of China’s industrial production, are crucial manufacturing centres for industrial components, including auto parts. During the month, a Covid outbreak hit Yiwu, an export-focussed manufacturing hub in Zhejiang, and could have contributed to dragging on the Caixin manufacturing PMI, which has a higher weight for SMEs in the eastern coastal region. The median forecast for the August official NBS non-manufacturing PMI is 52.2, down from last month’s 53.8 but remains in the expansionary territory. 

The key Australian economic data to watch, and why key stocks will move in response

On the same day China releases manufacturing data, which will be watched closely by commodity investors and Australian investors alike, given key commodities such iron ore, copper, nickel, coal are essential to Chinese manufacturing, investors will then quickly turn their attention to Australia’s August manufacturing indicators. Although Australia is not manufacturing economy, given services contribute 70% to GDP, manufacturing is still closely looked at as many top ASX companies are key producers and manufacturers. This includes energy companies like Woodside, Caltex, Viva Energy, as well as global packaging company, Amcor and global vaccine maker CSL, as well as global mining juggernauts BHP, Rio Tinto and Fortescue. So, when manufacturing data comes out, if its stronger than expected, (above a read of 51), then you might see an increase in buying in some of Australia’s key manufacturers. That being said, it’s really important to note that last month’s gauges pointed to slower growth in factory activity with higher interest rates, higher wages, and a lack of workers slowing activity. So it will be key to see if manufacturing continues to slow.

Eurozone inflation and Nord Stream maintenance will be key for the ECB

There is no question on the direction in Eurozone inflation, given the extensive reports on gas prices and power costs in the region over the last few days. However, some softening may be warranted after an all-time high of 8.9% was reached on the Eurozone inflation print in July, given the easing in pump prices in August. Still, gas supply concerns continue to remain top-of-mind for Germany with Gazprom announcing another leg of maintenance for the Nord Stream pipeline this week. Food prices are also seeing another pickup, and further gains in the headline print in Q4 cannot be ruled out. Calls for a 75 basis points rate hike by the European Central Bank have already picked up, and these could gain further traction if we see a strong CPI print this week. However, if Nord Stream supply comes back on time after its 3-day scheduled maintenance, and with some potential increases in capacity as has been hinted, that could mean a substantial decline in European gas prices and relief in utility costs in the months to come.

India/South Korea GDP will re-affirm Asia’s steady growth

India and South Korea GDP report GDP growth in Asia this week, along with inflation figures as well in South Korea. A double-digit GDP growth print is expected for India, with consensus at 15.2% YoY amid a strong recovery in services demand, albeit on a weak base. Commodity price gains are however likely to return and weigh on growth recovery going forward, as will slower global demand. But the RBI remains in a position to push further with its rate hikes to get a grip on inflation. South Korea’s Q2 GDP is however likely to remain steady, and focus will instead be on August inflation as that remains a bigger problem with over 6% prints being seen lately.

 

Key economic releases & central bank meetings this week

Monday 29 August

  • United Kingdom Market Holiday
  • Australia Retail Sales (Jul)
  • Japan Coincident Index Final (Jun), Unemployment rate (Jul)

     

    Tuesday 30 August

  • Thailand Industrial Production (Jul)
  • Germany Import Prices (Jul), Inflation (Aug)
  • Spain Inflation Rate (Aug), Business Confidence (Aug)
  • United Kingdom Mortgage Approvals (Jul)
  • Eurozone Consumer Confidence Final (Aug)
  • US House Price Index (Jun),
  • US Conference Board Consumer Confidence (Aug)

     

    Wednesday 31 August

  • South Korea Industrial Production (Jul)
  • Japan Industrial Production (Jul)
  • China NBS Manufacturing PMI (Aug)
  • France Inflation Rate (Aug)
  • Germany Unemployment Rate (Aug)
  • Hong Kong Retail Sales (Jul)
  • Eurozone Core Inflation Rate (Aug)
  • Italy Inflation Rate (Aug)
  • United States MBA Mortgage Applications (26 Aug),
  • United States ADP Employment Change (Jun)
  • India GDP (Q2)
  • Canada GDP (Q2)

     

    Thursday 1 September

  • S&P Worldwide Manufacturing PMIs
  • South Korea GDP Growth Rate (Q2), Exports (Aug)
  • Japan Capital Spending (Q2)
  • Australia Home Loans (Jul)
  • Indonesia Inflation Rate (Aug)
  • Germany Retail Sales (Jul)
  • United Kingdom Nationwide Housing Prices (Aug)
  • Italy GDP Growth Rate (Q2), Unemployment Rate (Jul)
  • Eurozone Unemployment Rate (Jul)
  • United States Jobless Claims (Aug)

     

    Friday 2 September

  • South Korea Inflation (Aug)
  • Germany Balance of Trade (Jul)
  • United States Non-Farm Payrolls (Aug) Unemployment Rate (Aug), Factory Orders (Jul)

     

    Key earnings releases this week

  • Monday: Haier Smart Home, Foshan Haitian Flavouring, Agricultural Bank of China, BYD, Pinduoduo, Trip.com, DiDi Global, CITIC Securities

  • Tuesday: Woodside Energy, ICBC, China Yangtze Power, Muyuan Foods, SF Holdings, Shaanxi Coal, Midea Group, Tianqi Lithium, Ganfeng Lithium, Bank of Montreal, China Construction Bank, Bank of China, Great Wall Motor, COSCO Shipping, Partners Group, Baidu, Crowdstrike, HP

  • Wednesday: MongoDB, Brown-Forman, Veeva Systems

  • Thursday: Pernod Ricard, Broadcom, Lululemon Athletica, Hormel Foods

  • Friday: BNP Paribas Fortis
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