Macroeconomics: The Week Ahead: 2-6 September

The Week Ahead – Preview: 

The new  week brings a very familiar start of month data schedule, with PMIs (including Saturday’s China’s official NBS PMIS) and the array of US labour market indicators from JOLTS Job Openings to Friday’s monthly Payrolls, Unemployment & Wages, accompanied by Japan’s Q2 CapEx, Australian and South Korea Q2 GDP; US Auto Sales, Construction Spending and Fed Beige Book; German Orders, Production and Trade, final Eurozone Q2 GDP and UK BRC Retail Sales. The Bank of Canada is expected to cut rates by a further 25 bps to 4.25%, and there are a good number of ECB, Fed and BoE speakers. The corporate earnings season is largely completed, and while S&P 500 companies Q2 2024 yr/yr earnings are expected to be 13.0% y/y and Revenues a more modest 5.5% y/y, and excluding energy sector 13.8% and 5.2% y/y respectively , and despite early August short-lived meltdown, the forward P/E ratio (Q3 2024 – Q2 2025) for the S&P 500 is 21.5, well above the 5-year average 19.4 and even more so the 10-year average 17.9. The weekend state elections in the former East German states of Saxony and Thuringia will also be much discussed, and are likely to see a large increase in the votes for the extreme right AfD and BSW, a somewhat better performance by the CDU and a hammering for all the governing coalition parties (SPD, FDP and Greens); as much as neither state is representative of national trends, it will underline the unpopularity of the coalition, and a continued large divide between the former West and East Germany, 34 years after reunification. Those in the East resent still substantially lower wages and above all pensions, while those in the West continue to tacitly resent the sheer cost of reunification. As such this context must be borne in mind, and it would be foolish to lump this in with the overall shift to the right in the EU, which is far from uniform.

– World: PMIs/ISMs: With the US and Canada on holiday on Monday, their surveys will be published the day after the rest of the world. The weekend China official NBS Manufacturing PMIs dipped yet again to 49.1, while Services edged up to 50.2, with the Caixin versions seen at 50.0 (+0.2) and 52.1 (unch), unsurprisingly indicative of a very sluggish economy. Japan’s flash readings are seen confirming a slight improvement from July, and India’s remained very but, the question is how the rest of the Asian Manufacturing PMIs perform, with July seeing considerable divergence, with particular weakness in Indonesia and Malaysia, and by contrast strength in South Korean and Taiwan, eminently boosted by high end tech sector demand. For the Eurozone, Manufacturing appears to be trapped in a spiral of structural contraction, while the boost to Services from the Paris Olympics may prove to be a short-lived blip, though still expanding modestly; by contrast preliminary UK readings for Manufacturing and Services were solid, with the Construction seen posting another robust expansion at 54.5, even if lower than July’s 55.3, very encouraging, except that the new PM’s doom and gloom narrative threatens to scupper the overall much better than expected performance year to date. Last but not least the US ISM surveys are expected to see Manufacturing improve slightly, but still contracting at 47.5, while Services ISM is seen slowing slightly to 51.1, as layoffs in public sector education weigh, in contrast to the buoyant 55.2 for the Services PMI. 

– U.S.A.: The week is dominated by the various labour market indicators, which will as ever need to be assessed as a whole rather than just focussing on Frdiay’s Payrolls, and in respect of the latter bearing in mind the net 818K annual (avg -68.2K per month) downward revision for the year to March. 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 Mln, and per se below the pre-pandemic average. ADP Employment is forecast to edge up to 140K from 122K, while Private Payrolls are seen at 140K vs. July’s 97K, and many will doubtless highlight that if the annual revisions 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%. Average Hourly Earnings are forecast to tick up to 0.3% m/m 3.7% y/y, though the uptick is typical for August. 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. Construction Spending and Factory Orders are also due. Overall the week’s data will likely raise some doubts about the ‘goldilocks’ soft landing scenario for the economy.

– Eurozone: outside of the state elections, Germany also has key activity indicators, with Orders seen resuming their downward spiral, falling -1.5% m/m after an unexpectedly sharp 3.9% m/m rebound in June, while Industrial Production is forecast to ease -0.4% m/m after rising 1.4%, with the weaker Ifo and PMI implying some downside risks, and the likelihood of a further drop when August data are published; a similar trend is seen for French Production. Trade data should be less downbeat, with Exports expected to post a modest 1.1% m/m rebound after sliding -3.4% m/m in June, with Imports seen up 0.7% m/m.

– Japan: Monday’s Q2 CapEx will dictate the direction and size of any revisions to Q2 GDP, with forecasters looking for an acceleration to 10.0% y/y from Q1 6.8%, though Corporate Profits are expected to slow sharply to 6.2% y/y from 15.1%. But the focus will above all fall on Labour Cash Earnings, which are expected to slow to just 3.0% y/y after surging 4.5% in June, despite benign base effects (July 2023 1.1% y/y after 2.3% in June), but probably a better indication of the pace of the improving trend. By contrast, and just as importantly for the BoJ policy outlook, Household Spending is forecast to bounce to 1.2% y/y from June’s -1.4%, even if base effects will serve to flatter the outcome.

– Canada: 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, and 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 migration trends.

– Australia: Q2 GDP is seen improving on Q1, but remaining tepid at 0.2% q/q (vs. prior 0.1%), as weak personal consumption and residential construction continue to weigh, though offset by stronger govt spending and a strong contribution from trade (Current Account as a % of GDP seen at +0.6 ppt vs. Q1 -0.9 ppt). Along with the slowdown in CPI, this should temper the RBA’s hawkish rhetoric.

– Commodities: the roller coaster ride in crude oil markets continues, as concerns about demand (above all in China) vie with heightening tensions in the Middle East and in Ukraine’s conflict with Russia, and this week will likely see OPEC+ members offer some hint about whether an easing in output cuts from Q4 will proceed. There are a number of conferences this week, with particular focus on the Steel conference in China, as plans to replace (renew) existing capacity are pared back.

– There are just 6 S&P 500 companies reporting this week, with worldwide corporate earnings highlights as compiled by Bloomberg News likely to include: Alimentation Couche-Tard, Ashtead Group, Broadcom, Partners Group Holding, Sun Hung Kai Properties, Zscaler.