The focus for the week ahead will be on US non-farm payrolls for Aug and growth momentum.
It will be a surprisingly quiet week on the central bank front ahead of key meetings next week (RBA, BoC, and ECB next week). Next Monday will be the US Labour Day holiday long weekend.
There was no taper announcement at the US Federal Reserve Jackson Hole symposium last week. As telegraphed in the recent minutes, the performance of the US labour market has yet to reach the ‘substantial further progress’ benchmark. However, Fed Chair Powell noted that employment has made ‘good progress’ and if the economy evolves as anticipated, then a taper could be announced this year (three meetings left).
This means an even greater focus on US non-farm payrolls over the next months – especially headline payrolls, participation, and the U6 measure. Growth in non-farm payrolls this week for Aug is expected to be +728k (prior was +943k). The Fed is also watching for a reduction in labour market slack – in particular, the participation rate (↓61.1%) and the U6 measure of underemployment (↑9.5%). Job openings indicate that demand for workers is strong, but labour market slack remains an issue. The Fed is looking for indications that workers are returning to the labour force especially as students go back to on-site schooling.
The Fed minutes and Chair Powell’s Jackson Hole speech also highlighted the risk to growth from the latest outbreak of the virus and especially the impact on the unvaccinated population. The final consumer sentiment readings for Aug remained weak amid concerns over inflation, slowing income gains (rolling-off of benefits), and the recurrence of covid outbreaks.
The extraordinary falloff in sentiment also reflects an emotional response, from dashed hopes that the pandemic would soon end and lives could return to normal. http://www.sca.isr.umich.edu/
The US ISM manufacturing and services surveys for Aug will provide some insight into any impact on growth momentum. Last month, the manufacturing ISM indicated more consistent growth while services recorded faster expansion. Themes around short supply of inputs, long lead-times, and rising prices have continued to play out in the regional (unrelated) surveys in Aug.
The final Markit PMI’s for Aug will be released this week covering the major economies.
In Australia, the two most populous states remain in strict lockdown and NZ had also extended its lockdown (related outbreak). Aus data out this week – Q2 GDP (mostly reflecting activity prior to the lockdowns) expecting +0.5% (QoQ), building permits expecting a -5% fall for Jul, and housing finance for Jul expecting a -2% fall.
This week, the US Treasury will settle $452bn in ST Bills, Notes, Bonds, and TIPS raising approx. $110bn in new money. Approx. $48bn in ST Bills and Notes will mature on the Fed balance sheet and will be rolled over.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf or scroll through the file below.
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
