Monday marks a quiet start to the week ahead. The main release during the early European session will be the Eurozone’s Final Consumer Price Index (CPI). The measure of price growth is now above the European Central Bank’s (ECB) target; however, it’s what is under the hood that counts. Underlying price pressures remain characteristically subdued, with still slow wage growth. If the recent weakening in activity continues, it risks slowing what price momentum the Eurozone has. The US Empire Manufacturing Index will be released in the afternoon. Although the index registered a multi-month high in August, a drop in new orders and shorter delivery times suggest that high will be short-lived. The Prices Received sub-index will be watched to see if manufacturers are still struggling to pass on higher input prices to consumers, especially after last week’s inflation print misses.
Australia’s Reserve Bank of Australia (RBA) September meeting minutes will provide insight into the policy predicament of the central bank. The RBA is trying to manage a slowdown in the housing market and a lack of core inflation pressures, with wage growth still slow. The National Association of Home Builders (NAHB) Housing Market Index has trended lower since the start of 2018. The sector has been the exception of the US stellar growth, hampered by higher mortgage rates, elevated costs from lumber tariffs, and increasing affordability problems. The July Treasury International Capital System report will provide insight into foreign holdings of the US Treasury. Canada July Manufacturing Sales will also be released.
Japan’s August Trade Balance (and key export figure) and Australia’s August Westpac Leading Index will be released in the early hours overnight. The UK’s August Consumer Price Inflation (CPI) will be the day’s main release. Both the core and headline indexes are expected to continue to moderate as Sterling’s past devaluation continues to fall out of calculations. However, price pressures are building in the real economy; particularly wage growth. This should prevent CPI inflation from slipping below the Bank of England’s 2.0% target.
In the afternoon, the US data releases focus on the housing sector, with the Mortgage Bankers’ Association (MBA) Mortgage Applications index for September 14th, August Housing Starts, and Building Permits. The sector is fighting opposite forces. Pay rises and increased personal wealth is supporting demand; however, elevated house prices, higher mortgage rates, increased building costs and a shortage in construction labour is leading to a moderation in the sector. July’s leading Building Permits suggests we’ll see a boost to August Housing Starts. However, we expect the overall housing sector story to be continued moderation.
The Bank of Japan’s (BoJ) policy decision will receive heightened focus after Prime Minister Shinzo Abe’s comment last Friday on the BoJ’s prolonged quantitative easing: ‘I don’t think at all it’s alright to continue it forever’. Abe admitted, however, that the decision is BoJ Governor Haruhiko Kuroda’s. Protracted policy easing poses a severe risk. One among them is that a flattened yield curve forces banks to take excessive risks, which could crystallise in a downturn. Despite this, we expect the BoJ to keep policy unchanged.
BoE Chief Economist Andy Haldane will also give a speech at the Bank of Estonia on Wednesday. We can usually count on Haldane to be relatively hawkish but the event, a 100th anniversary celebration, means it may be an academic lecture and not touch on current policy. The ECB’s Draghi gives the keynote lecture at a conference titled Making Europe’s Economic Union Work. After being publicly rebuked for his comments alluding to Italy’s budget, his remarks could provide some controversy.
Thursday’s Swiss National Bank (SNB) interest rate decision is expected to be a non-event as currency intervention remains the Bank’s main tool to limit Swiss Franc appreciation. UK August Retail Sales will be a key read on the health of the UK consumer before the economy heads into the Brexit vortex. Brexit uncertainty may hold back retail spending, but positive real wage growth means an increased ability to spend. August Retail Sales growth is expected to slow after unusually hot weather and extended discounting boosted purchases in July. US Initial Jobless Claims and Continuing Claims will provide a timely read on the roaring US labour market. The afternoon sees the release of August’s US Existing Home Sales and Leading Index. The Eurozone’s September Consumer Confidence number will also be revealed.
A key indicator in Abenomics policy, Japan’s August CPI, will be released. The rate of price growth has made progress, albeit slow, since late 2016. Japan’s bond purchase data will also be released, along with the country’s Manufacturing Purchasing Managers’ Index (PMI) and All Industry Activity Index. Eurozone Services, Manufacturing and Services PMI will provide one of the earliest reads on how the economy performed in September. At the latest ECB meeting, President Mario Draghi explained that the recent weakening in Eurozone data is nothing more than the economy returning to its growth potential, after overexerting itself for the last few years. The indices have fallen steadily since late 2017. The market will be looking for signs of stabilisation to confirm Draghi’s optimistic view.
The Manufacturing PMI will be particularly in focus after a sharp decline in Eurozone Industrial Production and German Industrial Production and Manufacturing PMI in August, driven by a decline in export orders. This begs the question; how much of a risk is the US trade war for the Euro Area? UK Public Finance data will also be released on the morning session, though GBP is much more reactive to Brexit headlines these days.
Canada’s July Retail Sales and August CPI figures will be released in the afternoon. Followed by the Markit PMI’s for the US. They are important because they are one of the first reads on how the US economy is performing in September. After a strong print in the Institute of Supply Management’s equivalent indices for the month of August, expectations are likely to be high.