Macroeconomics: The Day Ahead for 4 September

A busy day for data awaits, with Services PMI, US JOLTS Job Openings and the Fed’s Beige Book in focus, as Australia’s Q2 GDP is digested, with Eurozone PPI, US and Canada Trade, and US Auto Sales also on tap. There are rate decisions in Poland and Canada accompanied by ECB and Riksbank speakers. Germany sells 14 & 17-yr, with a smattering of corporate earnings featuring Dick’s Sporting Goods, Dollar Tree and Alimentation Couche-Tard. But the sour market mood music yesterday was above all dictated by US DoJ’s subpoena for Nvidia as part of its rather unsurprising investigation into potential anti-trust practices, as has been the case with the likes of Google and Microsoft for many a year. It serves as another pinprick to deflate the AI euphoria bubble. But one also has to observe that nowhere are fears about a slowdown in global growth more evident than in crude oil prices at the moment, with news that the halt in some Libyan output will likely prove short-lived, as its rival East and West governments put aside their feud over the sacking and then likely reinstated central bank governor, sent oil futures into a tailspin yesterday, as the prospective modest (180K) increase in OPEC+ output looms. Equally it should also be clear that while everyone is focussed on the Fed, indulging in wishful thinking about the BoJ not tightening policy further is unwise, as what was essentially nothing more than a written restatement of Ueda’s testimony to the Diet should prompt yesterday’s JPY rally, even if they obviously will not tighten when markets are volatile and sentiment fragile. Lower interest rates will in any case not be a cure for skewed and imbalanced portfolios, and assuming rates do not fall dramatically as seems likely in the absence of yet another financial crisis, the lagged effects of the rate hike cycle will continue to work their way through refinancing cycles.

** Asia / Europe – August Services PMIs **

– Asian PMIs, outside of the rather unsurprising drop in China’s Caixin Services PMI, picked up on the month, with India picking up to a 5-month high, and solid increases seen in Australia, Singapore and UAE. For the Eurozone, the Olympics related jump in France contrasts with the setback in Germany, while Spain and Italy are both seen accelerating as the summer tourist season continue to underpin, and the UK measure seen is unrevised at a solid 4-month high of 53.3. Price components will be a key point of interest given the stubborn pace of Services CPI, which continues to temper the prospects for both ECB and BoE rate cuts.

** U.S.A. – JOLTs Job Openings, ADP Employment, Auto Sales & Factory Orders **

– JOLTs Job Openings appear to be basing out just above 8.0 Mln, with the consensus looking for 8.10 Mln, but it will be the ‘quit’ rate that gets more attention, with expectations that this will fall to around 1.15 from June’s 1.2, and per se below the pre-pandemic average. ADP Employment is forecast to edge up to 140K from 122K, while Friday’s Private Payrolls are seen at 140K vs. July’s 97K, and many will doubtless highlight that if the recent annual revisions for the year to March data were applied, then this is well below the Fed’s equilibrium rate of 100K. A weaker than expected ADP print would hint at a risk that the Unemployment Rate edges up from an expected no change 4.3%, given that the ADP data is more closely aligned with the Household than the establishment data. The Beige Book will also be combed for anecdotal evidence on labour demand, and above all for outlooks, even if the overall assessment of the economy remains that it is seeing ‘slow to modest’ expansion. After recent gyrations Auto Sales are seen easing down to a 15.40 Mln SAAR pace, with discounts and incentives struggling to offset the impact of higher interest rates, and the overall pace still well below the pre-pandemic average of around 17.0 Mln. Factory Orders are also due, and will get a similar strong boost from aircraft orders that was evident in Durable Goods Orders (seen confirmed at 9.9%), but Core Durables measures edged lower on the month. Of perhaps greater note was yesterday’s Construction Spending, down -0.3% m/m, with most focussing on the -0.4% m/m on Residential, but perhaps of more interest was the sign that the huge boost from the CHIPS act may be fading in Manufacturing Construction, with a rise of just 0.1% m/m after a 0.4% m/m rise in June, even if the y/y rate still stands at 20.4%, given that this has doubled in USD terms since the CHIPS act was written into law in August 2022.

** Canada – BoC rate decision **

– |The Bank of Canada is expected to deliver a third 25 bps rate cut to 4.25%, with data since the July meeting on balance pointing to a further weakening in the economy, as well as seeing a further dip in core inflation, though it may hint at a slower pace ahead, with one further cut expected before year end. It should have sight of the August labour data, expected to see the Unemployment Rate pick up again to 6.5% (+0.1 ppt), despite Employment rebounding from July’s -2.8K to +25K, as labour supply continues to grow largely due to rising migration trends.