Macroeconomics: The Week Ahead: 29 August to 2 September

Written by Marc Ostwald, ADMISI’s Global Strategist & Chief Economist

The Week Ahead – Preview: 

The new week brings month end, which in the aftermath of Powell’s hawkish speech on Friday could prompt some rebalancing flows from equities to bonds, though credit may be less of a beneficiary given the extent of the Q3 spread tightening. It also has Eurozone provisional August CPI readings, US labour data, Consumer Confidence, Auto Sales and House Prices; Manufacturing PMIs around the world, China NBS PMIs and a further array of other surveys, along with the usual run of month end Japan readings, Japan and Australia Q2 CapEx, and Canadian Q2 GDP. Central bank speakers are relatively plentiful, but unlikely to signal any shift in their views on the outlook for rates, with specific guidance remaining minimal, while Hungary’s MNB is expected to hike rates a further 100 bps to an eye watering 11.75%, and Banco de Mexico publishes its Q3 inflation report. China dominates the corporate earnings schedule, with particular focus on the handful of banks reporting, and the impact of the property sector crisis and a weak economy on loan portfolios; a minimalist run in North America features Best Buy, Campbell Soup, HP and Lululemon Athletica. While there is no govt bond coupon issuance in the US or Germany, there are auctions in the UK, EU, France, Italy, Spain and Ireland, and Japan sells 2 & 10-yr.

The overarching themes remain the energy and drought crises, above all in Europe and China, and accompanying acute cost of living challenges and social and labour unrest in so many countries, along with the Russian invasion of Ukraine. There remains an all too palpable sense that the political fraternity in most countries are inept, incompetent and clueless about how to deal with any of the problems that they face, with now deep seated polarization adding to the many impasses. As is well documented, seasonal patterns for equities in September are the least favourable for the year, for example the S&P 500 has an average return of -0.6% since 1945, and has posted an overall gains only 44% of the time. Per se, the summer lull in volatility (relative above all to a stormy H1 2022) looks unlikely to last.

In the commodity space, energy prices will remain choppy, as markets chop between worrying about the impact of recessionary forces on demand, and on the other hand ongoing supply constraints and latterly the threat of an OPEC output cut. The impact of drought and extreme weather on agricultural output will continue to be a key focal point, with the International Cocoa Association holdings it annual conference in Indonesia this week.

In terms of this week’s data, the focus will be on:
a) China’s NBS PMIs that are expected to see Manufacturing still contraction (49.0 vs. 49.2), and Services weakening (52. vs 53.8);
b) Eurozone CPI readings that are forecast to see headline and core measures edge up 0.1 ppt to 9.0% and 4.1% in y/y terms;
c) Whether the US Manufacturing ISM is less bleak than the flash PMI, and how much deterioration there is elsewhere, with US Consumer Confidence expected to recover to 97.7 from 95.7; and
d) Friday’s US labour data, where a lower but still robust 300K Payrolls gain is seen, with Average Hourly Earnings only expected to ease modestly to 0.4% m/m, to leave the y/y pace unchanged at 5.2%

The corporate earnings run is likely to see the following among the highlights according to Bloomberg news: Baidu, Bank of China, Bank of Montreal, Beijing-Shanghai High Speed Railway, Broadcom, China Construction Bank, China Pacific Insurance Group, Citic, Cosco Shipping, Crowdstrike, Fortescue Metals Group, Hormel Foods, HP, Industrial & Commercial Bank of China, Lululemon Athletica, Luzhou Laojiao, Midea Group, Muyuan Foods, Partners Group Holding, Pernod Ricard, Pinduoduo, Poly Developments & Holdings Group, SF Holding, Shaanxi Coal Industry, Shanghai Pudong Development Bank, Tianqi Lithium, Veeva Systems & Woodside Energy Group

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