Macroeconomics: The Week Ahead: 26-30 August

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The new week’s schedule has inflation data from the Eurozone, US (PCE deflators), Japan, Australia and Brazil as its focal points, with the US also looking to Durable Goods, Consumer Confidence, House Prices, Pending Home Sales and the first revision to Q2 GDP. Surveys feature heavily in the Eurozone and UK (Ifo, EC, and CBI Retailing), while Japan has the end of month rush of activity data, along with Unemployment, which is also published in Germany, while Canada and India have Q2 GDP. The UK has a long weekend due to the August Bank Holiday, while the ECB dominates in terms of scheduled central bank speakers. Nvidia, whose stock has rebounded 30% from the recent lows and up 150% year to date, will be the focal point for next week’s corporate earnings (dominated by China and Canadian banks). It will not just be a question of Nvidia beating EPS and revenues estimates, but a lot will also rest on its outlook expectations for corporate AI related spending plans, and likely set the tone for equities for the often tricky month of September. In the commodity space, Canada has the StatCan agricultural inventories, and Brazil’s Unica issues its monthly sugar and ethanol output data, and miner BHP reports earnings on Tuesday.

– U.S.A.: While markets have grown accustomed to focussing on US inflation data, but it was clear from Powell’s Jackson Hole speech that the pace of rate cuts will be heavily influenced by labour data. Be that as it may headline and core PCE deflators are seen up a very average 0.2% m/m, which would edge up y/y rates by 0.1 ppt to 2.6% and 2.7% respectively, with housing and financial services the main drivers of higher prices (as per CPI and PPI), while autos drag. Ahead of Friday’s inflation data, there are the generally volatile Durable Goods Orders, expected to surge 4.9% m/m on the back of aircraft orders, after sliding 6.7% m/m in June, with core measures seen flat to up 0.1% m/m, slowing from a 0.4% m/m pace in June, which would fit with the recent stagnating trend in the Manufacturing ISM and PMI. Given the Fed’s focus on labour market conditions, Consumer Confidence that is seen marginally higher at 100.6 from July’s 100.3, will primarily be eyed for the Labour Differential, which has fallen every month from January’s 2024 peak of 31.7 to 18.1 in July, as well as the sub-indices on consumer plans for major purchases. Q2 GDP is expected to be unrevised at a solid 2.8% SAAR, while FHFA House Prices are seen barely changed at 0.1% m/m after an unchanged reading in May, per se indicative of a sluggish housing market, while the Goods Trade Balance is forecast to widen modestly to $-97.9 Bln. The risk on the latter for Q3 is for a wider deficit, given indications from port and logistics traffic of importers front loading purchases, in anticipation of increased trade tariffs.

– Eurozone: Surveys dominate the start of the week, with Germany’s Ifo Business Climate expected to fall for a fourth month to a very weak 86.0, with Expectations seen at 85.8 from 86.9, echoing the poor flash PMIs last week. By contrast, the EC’s Confidence surveys are likely to paint a mixed picture, with Services getting a likely short-lived boost from the Olympics in France, with Consumer Confidence edging back to -13.4 after reaching a cyclical high of -13.0 in July, but Industrial Confidence easing to -10.9 from -10.5 echoing national sector surveys. But all eyes will be on Thursday and Friday’s CPI data, with Eurozone headline seen up just 0.2% m/m, restrained by falling petrol prices (above all in Germany) and base effects above all in package holidays, which would see the y/y rate slide close to target at 2.2% from July’s 2.6%. That said core CPI is only expected to dip 0.1 ppt to 2.8%, though there are some downside risks from hotels, restaurants as well as the aforementioned package holidays. German Unemployment is forecast to post another rise (+16K), though not enough to push the Unemployment Rate up from 6.0%, while the highly erratic German Retail Sales are expected to remain sluggish at 0.1%, after slipping 0.2% in May. While both the ever hawkish Holzmann and ECB chief economist Lane warned that inflation was not yet under control over the weekend, Lane did echo many recent Fed speakers in warning about the danger of keeping rates high for too long.

– U.K.: While economic data have generally been more encouraging in recent months, there remain a lot of questions about the new government’s economic and fiscal policies, with PM Starmer expected to warn that things will get worse before they get better in a keynote speech on Thursday, just before Parliament reconvenes after the summer break. This week’s run of data includes the BRC’s Shop Price Index, which will remain very subdued, but edge higher thanks to base effects from July’s 0.2% y/y. The Lloyds Business Barometer will be of interest after rebounding sharply to 50 in July, with some risk that the new government’s threat of higher taxes and spending cuts may curb the recent optimism. Friday brings Nationwide House Prices, forecast to rise a modest 0.2% m/m, which would see the y/y jump to 2.9% from 2.1% thanks to base effects, while Consumer Credit is likely to maintain a steady expansion at £1.3 Bln, and Mortgage Lending to drop back to a reasonably solid £2.0 Bln after unexpectedly jumping £2.7 Bln in June, the latter being the strongest rise since the Truss debacle.

– Japan: Friday’s Tokyo CPI will likely reassure the BoJ that inflation continues to be broadly in line with its forecasts, and close to target, with headline seen up 0.1 ppt to 2.3% y/y, core unchanged at 2.2%, though ‘core core’ edging down to 1.4%. Activity data is expected to be mixed with Industrial Production continuing to fluctuate sharply due to output disruptions in the auto sector, with July seen posting a jump of 3.8% m/m after slumping -4.2% in June, above all thanks to semiconductor output. Retail Sales are however expected to ease back to 0.4% m/m 2.8% y/y, but given the continued boost from tourism, Household Spending will remain the key piece of evidence on whether Personal Consumption has finally turned a corner, above all thanks to this year’s pay hikes.

– China: Concerns about China’s economic outlook remain more than justified, though the PBoC’s 1-yr MTLF is likely to be conducted at an unchanged 2.3%. Data points are sparse, but Industrial Profits will continue to be closely monitored, above all for evidence of continued margin pressures, which will likely be echoed in this week’s deluge of corporate earnings, that includes a raft of banks, China’s oil sector behemoths and the likes of retailers PDD (PinDuoDuo) and Meituan. Saturday will also NBS PMIs published, with little change expected for either Manufacturing (49.5) or Services (50.0).

– India: This week’s Q2 GDP is likely to highlight the extent to which growth has been somewhat flattered by tax receipts and subsidies, with GDP seen slowing to 6.9% y/y from 7.8% (lower than the RBI estimate of 7.1%), and some downside risks, though the GVA measure (which strips out the distortion of taxes net of subsidies) is seen unchanged at a solid 6.3% y/y. The general election did see result in some constraints in govt spending, which will serve to dampen GDP, but a rebound should see this reversed in Q3, though the RBI’s continued restrictive stance is proving to be something of a headwind.

– Elsewhere: Australian July CPI will along with the week after’s Q2 GDP in determining whether the RBA starts to ease back on its hawkish rhetoric, with a drop back to the cyclical low of 3.4% y/y from 3.8% expected, which should see core measures also drop (Trimmed Mean last 4.1% y/y). Canadian Q2 GDP is forecast to accelerate modestly to 1.9% SAAR q/q and 1.4% y/y, though June monthly GDP is expected to slow to just 0.1% m/m, and the BoC’s concerns about slower growth imparts some very modest downside risks. Last but not least, a modicum of relief should be evident in this week’s Brazilian IPCA-15 inflation data, which is forecast to ease to 0.17% m/m 4.34% y/y vs. prior 0.30%/4.45%, which should continue to help restrain the BCB from hiking rates.

– There are 16 S&P 500 companies reporting this week, with worldwide corporate earnings highlights as compiled by Bloomberg News likely to include: Autodesk, Bank of China, Bank of Communications, Bank of Montreal, Bank of Nova Scotia, Beijing-Shanghai High Speed Railway, BHP Group, BYD, CIBC, China Citic Bank, China Life Insurance, China Merchants Bank, China National Nuclear Power, China Pacific Insurance Group, China Petroleum & Chemical, China Shenhua Energy, China State Construction Engineering, China Yangtze Power, Citic, Citic Securities, Cnooc, Cosco Shipping, Crowdstrike, Dell Technologies, Dollar General, Fortescue, Foshan Haitian Flavouring & Food, Gree Electric Appliances, Haier Smart Home, Heico, HP, Huaneng Lancang River Hydropower, Industrial & Commercial Bank of China, Lululemon Athletica, Luzhou Laojiao, Malayan Banking, Marvell Technology, Meituan, Nari Technology, National Bank of Canada, NetApp, Nongfu Spring, Novonesis (Novozymes) B, Nvidia, PDD Holdings, People’s Insurance Group of China, Pernod Ricard, PetroChina, PICC Property & Casualty, Royal Bank of Canada, Salesforce, Shaanxi Coal Industry, Shanxi Xinghuacun Fen Wine Factory, Shenzhen Mindray Bio-Medical Electronics, Trip Group, Veeva Systems, Wesfarmers, Woodside Energy Group, Woolworths Group, Wuliangye Yibin.