The Economic week ahead

Main Macro Events This Week

Tariff concerns continued to rattle equity markets, especially after President Trump surprised with an announcement he was readying an additional $267 bln in levies on Chinese goods. Many key stock indexes had their worst week in months and are likely to remain unsettled. Stocks and bonds around the world will remain sensitive to trade tensions, along with ongoing Brexit uncertainties. Also, economic data will be closely monitored for signs of growth and price impacts. Central bank meetings include the ECB, the BoE, and Turkey. No surprises are expected from the ECB and BoE. There will be a lot of interest in Turkey’s decision and whether it will hike rates.

United States: US markets posted some hefty losses last week. As for this week’s data, CPI and retail sales highlight. The stronger than expected 0.4% increase average hourly earnings in the August jobs report, and the concomitant acceleration in the pace of growth to 2.9% y/y, a new cycle high and the fastest since May 2009, will put the focus on August CPI. Looking ahead, y/y gains are expected in headline inflation moderating and stabilising at lower levels over coming months while gains in core prices should remain around 2.4% over the remainder of the year. That should keep the Fed on a gradual trajectory. August retail sales are forecast rising 0.4%, with a 0.6% gain in ex-auto sales. Other data this week includes the preliminary September Michigan sentiment reading, which should move up to 97.0, from a 7-month low of 96.2 in August. The August drop reflected a decline in the current conditions index and the expectations component, and in September both components are likely to get improved. In spite of the August drop, the measure continues to oscillate just below the 14-year high of 101.4 in March. August trade prices will be of interest. Tariffs will likely depress trade prices going forward despite upward domestic price pressure, as producers absorb some of the tax impact. And, headline and core PPI measures are seen rising 0.2%.

Fedspeak will be of interest. Several voting Committee members will take to the podium. And while all will support the likelihood for a tightening later this month, their outlooks on the economy down the road will be scrutinized.

Canada: The ongoing NAFTA talks this week, will be in focus. Stronger than expected reports could add to some angst over the BoC after Senior Deputy Governor Wilkins said in her economic update last Thursday that the Governing Council discussed whether the “gradual approach” remains appropriate. As for the data, August housing starts (Tuesday) are expected to improve to 220.0k from 206.3k in July. Capacity utilization (Wednesday) is seen climbing to 87.0% in Q2 from 86.1% in Q1, as real GDP surged 2.9% in Q2 (q/q, saar) after running at a tame 1.4% in Q1. The national balance sheet and financial flow accounts report for Q2 (Friday) will provide the Q2 household debt ratio. The July new home price index (Thursday) is seen rising 0.1% (m/m, sa) after the 0.1% rise in June, joining other evidence that Canada’s housing market has stabilized after contracting early this year. The Teranet HPI for August is due Wednesday.

Europe: The main focus this week is on Thursday’s ECB meeting. Official rates are likely to be left untouched and Draghi is expected to confirm the guidance on rates, which foresees no change through the summer of next year. That leaves the focus on QE and the future of net asset purchases. The data calendar is highlighted by German ZEW investor confidence (Tuesday), were a slight improvement to -12.5 is expected with the September number, versus -13.7 in August. This would still mean that pessimists continue to outnumber optimists, and confirm the prevailing view that downside risks are becoming more visible even if current growth trends remain robust. The rest of the week’s calendar features mainly final readings for August inflation numbers, which are not expected to bring major surprises. The Spanish HICP (Wednesday) should confirmed at 2.2% y/y, German and French readings (Thursday) at 2.0% and 2.6% respectively and the Italian number (Friday) at 1.7% y/y. The Italian number is still held back by positive base effects from changes to education charges last year, but these will fall out of the equation soon.

The Eurozone also has July trade (Friday) and production (Wednesday) data, and after the mixed German and French numbers, we are looking for a small change of 0.1% m/m in industrial production and a narrowing in the trade surplus. The latter remains very high compared to periods ahead of the financial crisis, and leaves the EU and Germany in particular vulnerable to charges of imbalances and an undue focus on exports.

UK: Attention will remain on Brexit negotiations, along with the September BoE MPC meeting (announcing Thursday) and a slew of data releases that are highlighted by the second estimate Q2 GDP, July production and trade figures (all due Monday), and the latest labor market report covering July and August (Tuesday). The BoE’s policy meeting should prove to be a non-event for markets with no changes expected to settings or guidance at this juncture. The “Old Lady” should reaffirm its commitment to a gradual tightening course, attaching the usual caveats about the risks stemming from enduring Brexit uncertainty and escalating global trade protectionism.

As for the data, Q2 GDP is expected come in unrevised at 0.3% q/q and 1.3% y/y, and both July industrial and manufacturing production to expand by 0.4% m/m, which would match the respective growth rates of the month prior. The labor report is anticipated to show a slight tick higher in the unemployment rate, to 4.1% from the multi-decade low rate of 4.0%, with average earnings unchanged at 2.4% y/y and 2.7% y/y in the respective with-bonus and ex-bonus figures in the three months to July.

Japan: The July tertiary industry index (Tuesday) is seen posting a 0.2% rebound after falling 0.5% in June. The Q3 BSI large all industry index (Wednesday) is predicted rising 1.0 after tumbling 5.3 points to -2.0 in Q2. July machine orders (Thursday) are forecast to rise 5.0% m/m versus the prior 8.8% decline. August PPI (Thursday) likely edged up to a 3.2% y/y pace from 3.1%. Revised July industrial production is due Friday.

China:T he August trade report was released Saturday and showed a new record surplus with the U.S. of $31.1 bln, as exports slowed to a 9.8% y/y clip from 12.2%, with imports slipping to 20.0% from 27.3%. That might not sit well with President Trump and could be the catalyst for the $267 bln in increased levies he’s debating. This week August industrial production (Friday) should remain steady at a 6.0% y/y clip, while August fixed investment (Friday) is penciled in at an unchanged 5.5% y/y pace. August retail sales (Friday) are estimated at a 8.7% y/y rate from 8.8%.

Australia: A thin docket is highlighted by August employment (Thursday), which is expected to rise 10.0k after the 3.9k decline in July. The unemployment rate is projected to hold steady at 5.3% in August.

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