The Economic week ahead

Main Macro Events This Week

A holiday-shortened week for the US and Canada will resume on Tuesday, rather appropriately as they both take a “time out” from trade talks, which will restart on Wednesday. The 90-day clock was set in motion by the Trump team, which notified Congress of an intent to sign a deal with Mexico, while still holding the door ajar for Canada. The deadline for public comment on the next round of $200 bln in tariffs on China also looms Thursday, keeping trade as a focal point for the ambivalent markets to kick off the month of September. Emerging markets remain fragile as well, as the firmer Dollar, rising rates and global protectionism fears take a toll on sentiment.

United States: Employment will be the focus for the markets in the week of September 3. For the US economic calendar front and center will be Friday’s employment report, which is estimated to rise at 210k payrolls in August, following a tepid 157k gain in July. The jobless rate should slip to 3.8% from 3.9%. Overall, conditions in the labor market continue to be solid. Other data will include the ISM index (Tuesday) estimated to slip to 58.0 in August from 58.1 in July, which will still leave the index close to a 14-year high of 60.8 in February. Also construction spending should rise 0.4% in July, partially reversing a weak -1.1% reading in June that followed strong gains of 1.3% and 1.7% in May and April respectively. Vehicle sales are expected to rise to 17.0 mln (Tuesday) from a 16.7 mln pace in July. The July sales rate reflected slowing car and truck sales, and in August we see a rebound in both. MBA mortgage data is due (Tuesday), along with the trade deficit expected to widen to -$49.8 bln in July, from -$46.3 bln. The ADP employment survey (Thursday) is forecast to rise 205k in August vs 219k in July. A boost is expected in Q2 productivity growth to 3.1% from 2.9%, with an associated upward revision to output growth to 5.0% from 4.8%, thanks to the upward revision to Q2 GDP growth to 4.2% from 4.1%, along with -0.8% in unit labor costs from -0.9%.

Canada: This week is highlighted by Bank of Canada’s announcement (Wednesday), which it is widely expected to result in no change to the current 1.50% rate setting. BoC Governor Poloz was dovish on the pop to 3.0% y/y CPI growth in July, saying it was in line with their projection and due to “transitory factors.” GDP came in close to expectations for Q2, expanding 2.9% (BoC expected +2.8%). Economic data features August employment (Friday), seen rising 10.0k after the 54.1k gain in July. The unemployment rate is projected at 5.8%, matching July. The July trade report (Wednesday) is anticipated to show a widening to -C$1.6 bln from -C$0.6 bln in June. Exports are seen falling 1.0% after the 4.1% surge in June. Productivity (Wednesday) is expected to rise 0.3% in Q2 (q/q, sa) after the 0.3% drop in Q1. Building permits values (Thursday) are projected to gain 3.0% in July (m/m, sa) after the 2.3% drop in June. The Ivey PMI for August is due Friday. BoC Senior Deputy Governor Wilkins speaks on Thursday, presenting an economic progress report. A BoC official now presents forecast updates a day or so after the four announcements per year that do not correspond with the release of the Monetary Policy Report.

Europe: Trade risks and tariffs are back in focus as ECB officials return from the holidays. With the recovery still on, but risks from tariffs and Brexit clouding over the outlook, the council seems increasingly split on the timing and speed of policy normalization. With the end of Draghi’s term coming into sight, support for a less dovish central bank head may be gathering strength against that background. For now though ECB speakers including Praet (Wednesday), Lautenschlaeger (Thursday) and Mersch (Monday) are likely to stick to the official line and promote patience, prudence, and persistence in monetary policy.

The data calendar this week includes final PMI readings as well German orders and production data for July, however data are not expected to fundamentally change the overall picture or outlook. Manufacturing (Monday) and services PMIs (Wednesday) are likely to confirm overall Eurozone readings at 54.6 and 54.4 respectively, leaving the Composite at 54.4. Both sectors continue to expand and job creation continues, although growth momentum is slowing down and uncertainty about the outlook is leaving its mark as export order growth in particular continues to slow down. German manufacturing orders (Thursday) already slumped -4.0% m/m in June and we expect at least a partial rebound with the July numbers and a rise of 1.8% m/m. Similarly, production (Friday), is seen rising 0.4% m/m, after the -0.9% m/m contraction in June. The July Ifo reading jumped higher and German PMIs remain at robust levels, which suggests a solid Q3 GDP number and the recovery in orders and production numbers if confirmed, will further confirm that the German recovery remains intact. More up-to-date survey and manufacturing numbers are likely to overshadow the detailed reading of Eurozone Q2 GDP (Friday), which is likely to be confirmed at 0.4% q/q, with the breakdown expected to confirm that domestic demand was the main driver of growth. Accelerating import growth meanwhile is keeping a light on net exports.

UK: Brexit will remain front and center as negotiations return to full swing this week following the summer holiday season. On the data front, the economic calendar this week is highlighted by the release of the August PMI surveys. The manufacturing PMI is expected (Monday) to come in at 53.8 after 54.0 in the month prior. Construction PMI (Tuesday) has us anticipating a dip to 55.0 following July’s 55.8. As for the services PMI (Wednesday), a rise has been forecast to 53.8 from July’s 55.5 reading. As-expected readings wouldn’t likely have much impact on markets, which are presently predisposed to be most sensitive to any downside surprises given the backdrop of prevailing Brexit uncertainties and worries about global trade protectionism.

Japan:In Japan, the August services PMI is due Wednesday. It fell to 51.3 in July, and was 51.6 a year ago. July personal income and consumption data are due Friday. The latter is expected post a 1.0% y/y decline versus the prior -1.2% and has been in contraction since February.

China: In China, the August services PMI (Wednesday) is forecast at 52.5 after tumbling 1.1 points to 52.8 in July. It was at 52.7 a year ago.

Australia: A sparse slate has private capital expenditures and building permits on Friday. Private capital expenditures are expected to grow 0.5% in Q2 (q/q, sa) after the 0.4% rise in Q1. Building permits are projected to fall 3.0% in July after the 6.4% gain in June. There is nothing scheduled from RBA this week. The next event is the September 4 policy meeting, where we expect no change to the current 1.50% policy setting.

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