Key events this week – Jackson Hole Symposium, FOMC, RBA, & ECB minutes, Japan & Canada CPI, S&P prelim PMIs Aug
Recap from last week
Data last week provided important inputs for the FOMC as it considers the case for rate cuts. At the last meeting, Fed Chair Powell outlined his criteria for a rate cut: whether the totality of the data, the evolving outlook, and the balance of risks support growing confidence in controlling inflation while maintaining a solid labor market. We expect this framework to be discussed at the Jackson Hole Symposium this week. For now, inflation is easing, and early, limited Q3 data suggests that the growth rate at the start of the quarter slowed to around 2%, driven by weakness in housing investment and manufacturing.
The latest CPI was in line with expectations and likely added to confidence that inflation is continuing to move towards the 2% target. The CPI is not the Fed-preferred measure, but together with the PPI provides a guide for the PCE inflation measure (due next week). Headline CPI eased to +2.9% in Jul, while core CPI also eased to +3.2%. While the monthly rates increased from lower levels, they remain consistent with lower inflation readings. Core goods prices continued to decline, while core services inflation also eased. Although core services CPI remains elevated at +4.9%, the more recent 3-month and 6-month annualized rates are well below that level, indicating more recent progress in reducing inflation. The PPI for Jul came in lower than expected.
Data on the growth of the US economy remained mixed, overall highlighting that growth likely slowed in Jul. The exception was retail sales, which recorded stronger-than-expected growth in Jul. This was partly due to a revised lower Jun result and a rebound from the fall in motor vehicle sales in Jun. But even excluding motor vehicles, retail sales growth remained moderate at around +0.4% over the month in nominal terms. However, housing investment and manufacturing data reflected further weakness in Jul. At the end of the week, the Atlanta Fed GDP Nowcast, based on limited data, had the early Q3 growth run rate slowing to +2%. The FOMC is likely to be sensitive to the risk of slowing growth concerning its full employment mandate. For now, US initial claims data continued to improve with claims easing to +227k over the week from a peak of +250k two weeks ago. Even the elevated continuing claims have started to recede.
The RBNZ cut rates by 25bps for the first time in this cycle. The Committee cited rising confidence about inflation returning to the target band and a concern regarding a “marked weakening in economic conditions over the last few months” as the key reasons behind the decision. New guidance indicated that further easing was likely, but that the pace of that easing was “dependent on the path of price setting behaviour” now that inflation is close to the target band.
There was a lot to unpack in the Aus labour market report for Jul. The unemployment rate increased more notably to 4.22% in Jul – but still below the year-end projection of 4.3%. Mitigating that negative point was the stronger (and accelerating) growth in employed persons – which remains above pre-pandemic levels of growth. This month, the participation rate reached another new all-time high, contributing to the faster increase in the size of the labour force. How this increase in labor supply is absorbed over the next few months—whether through further employment gains or rising unemployment—will be crucial for the RBA as it navigates the ‘narrow path’.
Outlook for the week ahead
Central bank policy will be in focus this week with the annual Jackson Hole Symposium. Inflation, central bank minutes, and the latest Aug prelim PMIs will also be released.
The Jackson Hole Symposium will commence on Thur this week and the focus will be on US Fed Chair Powell’s speech on Fri. This should provide further shape around recent data, the evolving outlook, and the balance of risks as the FOMC prepares to start cutting rates. The extent of the rate-cutting cycle may not be made clear at this meeting as the Fed waits for further payroll and unemployment data before the next meeting in Sept.
The FOMC, RBA, and ECB minutes will all be released this week.
Inflation data for Canada and Japan will be released this week. Canadian CPI is expected to continue to ease in Jul with the headline rate slowing to +2.5% over the year. The BoC core trimmed mean rate is also expected to slow further to +2.8% over the year. At its last meeting, the BoC noted that further rate cuts could be expected if inflation continues to ease in line with expectations.
The Japanese National CPI for Jul is expected to increase slightly. The BoJ preferred measure of core CPI ex fresh food is expected to increase from +2.6% in Jun to +2.7% in Jul. Some firming in inflation could be consistent with the rebound in Japanese GDP growth in Q2 of +0.8% over the quarter from a fall of -0.6% in Q1. The improvement was led by a solid increase in private consumption spending after falls in the four quarters prior.
Finally, the latest prelim PMIs for Aug will be released for the major economies. This will provide a further update on the pace of activity through Q3.
The US Democratic Convention will also take place this week. Vice President Harris will formally become the Democratic nominee for President.
This week, the US Treasury will auction and settle approx. $466bn in ST Bills, raising approx. $36bn in new money. The US Treasury will also auction the 20-year Bond and 30-year TIPs this week – both will settle at the end of the month.
QT this week: Approx $11.5bn in ST Bills will mature on the Fed balance sheet and will be reinvested.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
We will be taking a short break next week w/c 26 Aug and will return with the next installment of the Macro Outlook on w/c 2 Sep.
