Macroeconomics: The Day Ahead for 5 September

A further barrage of US labour statistics and the overnight Japan Labour Cash Earnings top the data and events schedule along with central bank speakers, perhaps most notably BoJ’s Takata, RBA’s Bullock and BoE’s Pill. There are also South Korea’s revised Q2 GDP and Australian Trade to digest, while ahead lie UK Construction PMI, South Africa’s Q2 Current Account, and US ADP Employment, weekly Jobless Claims, Challenger Job Cuts and Services ISM. A busy day for government debt auctions has UK 5-yr, multi-tranche medium and long-dated sales in France and Spain, and Canada 31-yr. Crude oil’s rollercoaster ride continues, as highly unsurprising chatter about OPEC+ postponing its planned output increase in October put a very short-lived floor under the recent price rout, though ultimately this looks more like delaying the inevitable showdown, barring a currently unlikely looking upturn in demand, and has the delayed weekly EIA Inventories report to contend with today. The stronger than expected rise in Japan’s Labour Cash Earnings (nominal 3.6% y/y, real 0.5%) and BoJ’s Takata comments about tightening policy further as long as data meet expectations were another reminder that BoJ policy will remain as an important consideration as the Fed’s. Meanwhile, RBA’s Bullock remained unrelenting in her hawkish messaging: “If the economy evolves broadly as anticipated, the board does not expect that it will be in a position to cut rates in the near term”, and put a good deal of emphasis on the Q3 CPI outturn (though implying risks were two-sided).

** Germany – July Factory Orders **

– The unexpected 2.9% m/m rise following an upwardly revised 4.6% m/m in June on the back of strength in foreign orders offers some welcome good news, following the barrage of negative headlines in recent months. But with Orders ex-large transportation (Aircraft, Trains, Ships) down 0.4% m/m, and PMIs and the Ifo surveys suggesting a deepening contraction, it would be wise not to view today’s Orders as a potential signal of a turnaround. Notably, the IfW think-tank (one of the governments’ group of ‘Six Wise Men) revised down its GDP forecast for 2024 to -0.1% y/y yesterday, and slashed its 2025 GDP estimate to 0.5% from 1.0%, and warned that the current weakness is not just cyclical, but also reflects structural headwinds.

** U.S.A. – Aug ADP Employment, Services ISM **

– Following on from yesterday’s much weaker than expected JOLTS Job Openings 7.673 Mln, made all the worse by downward revision to June of -274K to 7.910 Mln, expectations will be skewed to the downside of expectations for today’s ADP (median 145K) and Friday’s Payrolls. That said the JOLTS report also saw an unexpected uptick in the Quits rate to 2.1%, and a rise in hirings to 3.5% from June’s 3.3%, per se begging the question of whether the Openings data perhaps reflect a decrease in the number of ‘phantom job openings’. Yesterday’s Beige Book noted “Employment levels were generally flat to up slightly in recent weeks. Five Districts saw slight or modest increases in overall headcounts, but a few Districts reported that firms reduced shifts and hours, left advertised positions unfilled, or reduced headcounts through attrition—though accounts of layoffs remained rare. Employers were more selective with their hires and less likely to expand their workforces, citing concerns about demand and an uncertain economic outlook.” Be that as it may the final Services PMI is expected to be revised slightly lower (-0.2 pt) to a still buoyant 55.0, by contrast the Services ISM is seen slowing slightly to 51.1, as layoffs in public sector education weigh, which will presumably see the Employment sub-index drop from July’s 51.1. That said, the correlation between that sub-index and official measures of employment have a very poor correlation, above all in m/m terms. Challenger Job Cuts are also due, while Non-farm Productivity is expected to be unrevised at 2.5% q/q 2.7% y/y (holding above 2.4% y/y for a remarkable fourth quarter in succession), as are Labour Costs at 0.8% q/q.