The coming week sees the setup for the two-day Fed meeting later this month and another big rise in interest rates, a possible countrywide strike by US railway workers that could bring the economy to a halt and more pressures in Ukraine.
The US Consumer price Index for August is out Tuesday and the Producer Price Index a day later, along with US retail sales for last month and that will be the last key data for the Fed to consider after the strong jobs data a week ago last Friday.
As well there’s an interest rate decision from the Bank of England to go with the new Prime Minister and the pressures on the UK economy, plus the final August economic data for China which will show a weak economy stuttering.
But it will be the US inflation reading that will dominate because it is the driver of the Fed’s rate rise decisions this year.
Moody’s economists wrote on Friday that August’s employment report didn’t settle the debate on whether the Fed will hike the target range for the Fed Funds Rate by 50 or 75 basis points later this month.
“Financial markets view it as a toss-up. They are pricing in 65 basis points of tightening at the September meeting of the central bank’s Federal Open Market Committee,” Moody’s economists wrote.
“The Fed needs to tighten monetary policy sufficiently to slow GDP growth to a below- potential pace to rebalance supply and demand in the labour market enough to bring down wage growth and inflation.
“The July Job Openings and Labor Turnover Survey data suggest that the weakness in GDP hasn’t helped rebalance labor supply and demand. Monetary policy can’t directly affect labor supply, but it can impact demand.
“What will determine the size of the rate hike is the September consumer price index.
“Odds are that the headline CPI fell slightly in August because of the drop in gasoline prices. Excluding food and energy, the CPI is likely to have risen because of added upward pressure from rents.
“On a year-ago basis, the headline CPI will still be up more than 8% for August (after an 8.5% reading in July). Growth in the core CPI likely accelerated from July’s 5.9%, which may not sit well with the Fed, according to Moody’s.
Other data include initial claims for unemployment insurance benefits, the Producer Price Index, retail sales (a small rise of 0.1% is forecast), import prices and industrial production.
In Europe the Bank of England’s decision this Thursday dominates – a rise of 0.50% is expected by many in the markets.
UK GDP, employment and retail sales figures for July are expected as well.
Moody’s says “We are pencilling in a 50-basis point hike of the bank rate to 2.25%. However, in this environment the unemployment rate was likely unchanged with the labour market remaining tight.
“We anticipate that the rate held at 3.8% for the July quarter. In the midst of the summer tourism season, firms are still having trouble filling vacancies particularly in the consumer services sectors. But we expect to see some more upward pressure toward the end of the year.”
The EU sees the release of industrial production data and the latest external trade figures, along with the final report on August inflation which rose to 9.1% in the flash report two weeks ago.
In Asia, China’s industrial production, retail sales and fixed-asset investment will be released on Friday, with property data on Saturday.
Moody’s says “We expect the prints to be softer than in July for all bar retail sales. Private sector infrastructure investment remains weak because of China’s zero-COVID policy. Infrastructure spending is ramping up, and this will provide some relief later this year and into 2023.”
In Australia, the August jobs data will be out this Thursday and the unemployment rate will be steady at 3.4%, according to forecasts.
July saw a contraction in the labour force; a further decline in August, could suggest a turning tide for the labour market. Forecasts are for a fall of 15,000 in the number of new jobs after the surprise 40,000 fall in July.
The August National Australian Bank business confidence and conditions survey is out tomorrow as is the Westpac consumer confidence survey.
Only one result of any note – the full figures from department store chain, Myer for the year to July 30. The partial results were in an update in late July. A final dividend from the retailer is a possibility to go with the 1.5 cent per share interim.
In New Zealand, June quarter GDP will be released midweek. Moody’s economists say growth is expected to have grown 1.4% q/q in the June quarter after contracting in the March quarter.
