Macroeconomics: The Day Ahead for 08 September

RECAP: The Week Ahead – Preview: 

 The new week sees a flood of major data (headlined by US, China and a slew of other national inflation readings and UK monthly GDP), an ECB meeting, numerous national and geo-political events, while energy markets contend with the OPEC+ production decision, OPEC, EIA and IEA monthly reports and a number of major conferences (APPEC, Gastech, Baghdad Energy) and agricultural commodities look to a slew of monthly S&D reports including the USDA’s WASDE. Risk appetite is increasingly mixed and very fluid, with the S&P 500 and tech stocks trading sideways since mid-August but still close to all-time highs; Gold breaking higher in the past fortnight, while Bitcoin recovers from a late August correction (see chart), and govt bond yields have been choppy, but USTs driven lower by Friday’s weak labour data. It is worth bearing in mind that while H1 2026 will see US consumers benefitting from sizeable tax rebates thanks to the ‘Big Beautiful Bill’, markets face fiscal headwinds for the remainder of this year from tariffs (assuming that the Supreme Court does not rule against them), govt cuts with the Treasury’s balance at the Fed soaring in recent months (draining liquidity), and the Fed continuing to reduce the size of its balance sheet (see chart). The Q2 earnings season is largely done, with worldwide corporate earnings highlights as compiled by Bloomberg News likely to include: Adobe, Inditex aka Industria de Diseno Textil, Kroger, and Synopsys.

Politically: French PM Bayrou faces a vote of confidence on Tuesday that he looks set to lose, throwing France deeper into political turmoil, with the potential for another general election, and France’s fiscal position deteriorating rapidly. A near-term resolution looks improbable, above all with the political fraternity across the spectrum more focused on the 2027 presidential election than tackling the many pressing problems. France is anything but unique in terms of facing a political crisis and a leadership vacuum, as Japan’s PM Ishiba’s resignation ahead of a key vote this week on whether to bring forward an LDP leadership vote (currently due in 2027). The UK government remains in turmoil, and it is doubtful that last Friday’s cabinet reshuffle will put a lid on the ruling Labour party’s internal divisions, and its already woeful record on policy implementation. In the US, tariff policy remains ambiguous, as the latest Executive Order on reciprocal tariffs , which excludes various minerals, industrial supplies, electric and medical components and other items from tariffs. It also includes a list of other commodities which may be excluded depending on trade negotiations. It should be added that the US tariff regime is now extraordinarily complex, and it will be costly to administer both for the government and for corporates, and doubtless lead to a ballooning of related legal cases, not only challenging the legality, but also for implementation failure – in other words a great deal of wasted government and private sector time and money. At some point in the not too distant future, the spectre of next year’s mid-term elections will likely prompt some Republicans to reconsider their willingness to support the administration’s policy implementations. Finally, this week will also see the annual weeklong meeting of Standing Committee of China’s National People’s Congress to review draft laws, which will doubtless seek to address key economic issues such as trade tensions, excess productive capacity in many sectors, involution (ie. deflationary forces driven by excessive competition), as well as the long-standing woes of the property sector.

– U.S.A.: CPI, PPI, the BLS’ preliminary annual revisions to Payrolls and Friday’s provisional Michigan Sentiment top the run of data, as the Fed goes into its purdah period of the September 16/17 FOMC meeting. The July PPI ‘shocker’ (0.9% m/m on headline and core) is not expected to be repeated, but both CPI and PPI are seen up 0.3% m/m on headline and core measures, i.e. higher than the 0.2% pace that would be consistent with inflation getting back to its 2.0% target. In annual terms, that would see headline PPI unchanged at 3.3% y/y, and core easing 0.2 ppt to 3.5%, while headline CPI would edge up 0.2 ppt to 2.9%, and core unchanged at a relatively lofty 3.1%. That would in effect rule out the chance of a more aggressive 50 bps rate cut. PPI is likely to see a greater impact from tariffs ‘pass through‘ than CPI and will likely also see further pressure from portfolio management fees, and more modestly from hospital costs. For CPI, there will be some upward pressure from autos, leisure services, with airfares a further upside wildcard, but there may be some easing from tariff related pressures on clothing, and home furnishings and electrical equipment (in part due to consumer pushbacks). The BLS annual revision to Payrolls is expected to be in the range of -400K to -620K, i.e. substantial, but lower than last year’s -818K, which was in the end revised to just -500K. Michigan Sentiment is seen little changed at 58.0 after a larger than expected setback to 58.2 in August from a 5-month high of 61.7 in July, with an equally unexpected jump in 1-yr inflation expectations seen easing back to 4.5% from 4.8% (still well below the April & May peaks of 6.5%/6.6%); earlier in the week the less volatile NY Fed 1-yr Inflation Expectations (last 3.09%) will also bear some scrutiny.

– China: Trade data gets the week underway, with exports seen easing to a 5.5% y/y pace (from 7.2%), and Imports easing to 3.4% y/y from 4.1%, while its outsized Trade surplus is expected to edge up to $99.45 Bln. In recent months the sharp drop in exports to the US has been quite heavily mitigated by exports to Asia (both tariff avoidance via third countries, and increasing intra-Asian trade volumes), but high frequency data such as cargo throughput suggests this is likely to have moderated. Going forward, the question is how much other countries increase controls on ‘transshipments’ of exports. PPI is forecast to improve from -3.6% to -2.9% y/y, but given a very benign base effect from last year’s drop from -0.8% to -1.8% y/y, it would be premature to suggest that measures announced to curb ‘involution’ are getting traction (this will also be true in September, which in 2024 saw a further slide to -2.8% y/y). By contrast, CPI is seen slipping back into deflation at -0.2% y/y after a flat y/y reading in July, with lower food prices set to be the main drag. Credit aggregates will likely be published during the week, with New Yuan Loans expected to recover from the first overall drop in 20 years in July, and rise by CNY 700 Bln m/m, but still be lower in yr/yr terms. Overall Aggregate Financing is projected to rise by CNY 2.7 Trln m/m, with slower local govt borrowing weighing due to front loading earlier in the year. Private sector loan and mortgage demand remains tepid due to lack of confidence, amid muted wage growth and the ongoing and protracted property sector crisis. That said, attention should also be paid to Deposits, which have been growing rapidly, and if stimulus measures ever do get some traction, could unleash a meaningful rebound in spending.

– U.K.: July monthly GDP is expected to show that Q3 got off to a very weak start, with a flat m/m reading expected after June’s 0.4%, with monthly activity data forecast to show Industrial Production and Index of Services also unchanged, Manufacturing Output up 0.1% m/m and Construction Output dipping -0.2% m/m, and a modestly lower overall trade deficit of £-4.2 Bln (vs. June £-5.015 Bln). More timely data earlier in the week are projected to see BRC Retail Sales edge up 0.2 ppt to 2.0%, the RICS House Price Balance at -10 from -13. Though perhaps of more interest will be Monday’s REC/KPMG employment survey, July’s survey saw starting salaries rise at the slowest pace since 2021, and increasing numbers of job seekers chasing lower numbers of vacancies.

– Eurozone: Ahead of the ECB meeting, Germany is expected to see a modest 1.0% m/m recovery in Industrial Production, which would follow falls of -1.9%, -0.1% and -1.6% m/m in Q2, and seemingly unlikely to signal a short-term recovery given the sharp -2.9% m/m slide in Factory Orders reported last Friday. Trade data are forecast to show a 10.1% m/m rise in Exports, and a drop of –1.0% m/m in Imports after the latter jumped 4.2% m/m in June. France, Italy and Spain will also publish Industrial Production. The ECB is expected to hold rates (Depo 2.0% and Refi 2.15%), echoing many ECB speakers comments in recent weeks that have underlined that rates are at neutral levels, the need to see the impact of tariffs given the trade deal with the US poses considerable downside risks to the outlook for inflation and growth, and by contrast some concerns about ‘sticky’ services inflation (3.1% y/y). Updated ECB staff inflation forecasts are likely to be little changed from June (2025 2.0%, 2026 1.6% and 2027 2.0%), though upside surprises on recent activity data may prompt a slight upward revision to 2025 GDP forecasts from the June estimate of 0.9%. If the risks to growth and inflation start to crystallise as expected in coming months, a further 25 bps rate cut looks likely in December.

– Elsewhere: Monday’s final Japan Q2 GDP is seen unrevised at 0.3% q/q, while India’s CPI is expected to rebound to a still very muted 2.05% from 1.55% y/y as the drag from Food prices eases, with core CPI likely to be little changed from July’s 4.4% y/y. Inflation data will also dominate in Latin America, though aside from a largely base effect driven fall in Argentina to 33.7% y/y, readings are likely to be little changed in Chile (4.2% y/y), Mexico (3.56%) and Brazil (5.1% y/y). On the central bank front, Turkey’s TCMB and Russia’s Bank Rossiya are expected to cut rates by a further 200 bps to 41.0% and 16.0% respectively, as they continue to dial back previous aggressive rate hikes to counter inflation pressures.

– Energy: Sunday’s OPEC+ decision to start unwinding 1.66 Mln of production cuts that were originally scheduled to remain in place until the end of 2026, with a 137K bpd increase in October had been quite well flagged in last week’s preamble to Sunday’s meeting. While that increase will come in the face of an expected surplus in output, perhaps the more salient point is that many of the countries have little spare capacity to increase output (excepting Saudi Arabia and UAE), and some others are also under pressure to curb output to compensate for over production earlier in the year.