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The Economic Week Ahead

Market Analysis

 Main Macro Events This Week

The Jackson Hole symposium at the end of the week will be the focal point on the calendar, while U.S. politics and geopolitical factors may become sidebars. Friday’s agenda for the annual Kansas City central banker meeting (this year on “Fostering a Dynamic Global Economy”) includes two key speeches, one by Fed Chair Yellen and the other from ECB President Draghi. Despite being temporarily eclipsed by terror events and political machinations, perceptions about central bank policies remain a major force in market direction.

United States: the political fallout after the tragedy in Charlottesville and the cabinet reshuffling, instilled doubt in investors who began to price in doubts that President Trump will be able to effect his infrastructure plans and/or tax reforms this year, while the terror events in Barcelona, Spain and Turku, Finland added to anxieties. Worries that Cohn might resign shook stocks mid-week. Of global interest will be whether these moves bring some stability to the White House and an opportunity to move the agenda forward. The U.S. economic calendar is relatively light one this week, starting off (Monday) with the Chicago Fed national activity index, followed (Tuesday) by a ragtag mix of FHFA home prices, Markit flash manufacturing PMI and the Richmond Fed index. The schedule gets more interesting midweek with the release of housing data. New home sales are forecast to dip 1.3% to 602k in July (Wednesday), while EIA energy inventory and MBA mortgage market reports are due too. Initial jobless claims may rebound 6k to 238k (Thursday) for the August-19 week, while Markit services flash PMI is on tap. July durable goods orders are expected to give back -6.0% of June’s 6.4% jump (Friday).

Nevertheless, Fed Chair Yellen will speak at Jackson Hole on August 25 at 10 ET. Her topic is “financial stability.” It’s not clear that she’ll offer any surprises on the policy outlook given what we know from the recent minutes, Fedspeak, and data. The FOMC is now widely expected to announce balance sheet unwinding next month.

Canada: final inputs to the June GDP forecast are due out early this week. Wholesale shipments (Monday) are expected to fall. Retail sales values (Tuesday) are projected to rise 0.3% m/m in June after the 0.6% expansion in May. Another firm month is expected for seasonally adjusted vehicle sales. But CPI implies a drag on retail sales values from falling prices. Notably, falling gasoline prices should weigh on total and ex-autos retail sales. The exclusion of vehicle sales should leave a tiny 0.1% gain in June sales. Retail sales volumes have expanded in all but one month this year. Combined with the pick-up in total ondata and core CPI during July, the Bank of Canada is on track for another rate hike this year. However this week, there is again nothing on the docket from the Bank of Canada. The next scheduled event is the September 6 policy announcement.

Europe: Draghi’s speech at Jackson Hole on Friday will be taking center stage. But in the light of the fresh flare up in risk aversion and ongoing geopolitical tensions, he is unlikely to clarify the future of the ECB’s quantitative easing program just yet. The ECB has confirmed that Draghi will be speaking on the general theme of the conference rather than Eurozone specifics. Data releases this week focus on August confidence numbers, which should support the ECB’s view that the recovery continues to broaden. The German ZEW investor confidence (Tuesday) expected to be particularly impacted by the latest spell of risk aversion in markets and are looking for a decline in the headline August reading to 16.0 from 17.5 in July. The German Ifo Business Climate are out on Friday. On a Eurozone-wide level, the preliminary August Services PMI (Wednesday) is expected steady at 55.4. Eurozone preliminary consumer confidence numbers are also due. Detailed readings for Q2 GDP from Germany and Spain, meanwhile, are not expected to bring major surprises, with German rate likely to show strong domestic demand, driven by consumer and government consumption, as well as investments.

UK: The economy has slumped into relative stagnation this year, associated with Brexit concerns. The calendar this week is relatively quiet, highlighted by second estimate Q2 GDP data (Thursday), which is likely to confirm growth at 0.3% q/q , half the Eurozone growth figure for the same quarter. The August industrial trends and distributive sales surveys are also out from the CBI (Tuesday and Thursday, respectively).

New Zealand’s calendar has the trade balance (Thursday), expected to shift to a NZ$100 mln deficit in July from the NZ$242 mln surplus in June. The Reserve Bank of New Zealand meets next on September 28. We expect no change to the current 1.75% rate setting through year-end.

Japan: the June all-industry index (Monday) should rebound 0.5% m/m versus the prior 0.9% decline. The calendar then goes dark until Friday, when CPI figures are due. July national CPI is seen rising at a 0.5% y/y overall from 0.4 previously, and 0.5% y/y from 0.4% on a core basis. Tokyo August overall CPI is penciled in at a 0.2% y/y rate from 0.1%, while the core reading is expected unchanged at 0.2% y/y. July services PPI (Friday) is forecast accelerating to 0.9% y/y from 0.8% in June.

Australia: the week that is devoid of economic data and RBA events. The next report of interest is July building approvals, due August 30. The Reserve Bank of Australia meets on September 5. No change is expected to the current 1.50% policy setting, alongside a statement that remains consistent with no change in rates through the middle of next year.

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Andria Pichidi

Market Analyst

HotForex

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