After last week’s central bank and GDP fireworks, we have another busy week on deck culminating with Friday’s jobs report.
This morning in Europe the early focus is on the final revisions to those July manufacturing PMI’s, along with a first look at the data for the periphery. Shortly we will provide a full breakdown of global PMI by country. Today we’ll also get the manufacturing PMI in the US which is then closely followed by the ISM manufacturing for July, along with construction spending data.
Early on Tuesday morning there’s some central bank focus in the Asia session with the RBA decision (a 25bps cut is expected). It’s possible that we also get the Japan Cabinet decision on the stimulus package announced by PM Abe last week. In Europe the only data is the June PPI report for the Euro area. In the US there’s important data in the form of the personal spending and income reports (both expected to increase +0.3% in June), while the PCE core and deflator readings for June will also be released. July vehicle sales data follows this in the evening.
In Asia on Wednesday we’ll get the Caixin services and composite data for July in China. The European session will then see the remainder of those July PMI’s (services and composites) along with Euro area retail sales data. In the US the ADP employment change print will be important to watch in light of Friday’s employment report. The ISM services reading will also be released, along with the rest of the PMI’s.
With a lack of data on Thursday morning in either Asia or Europe, it’s all eyes on the BoE at midday where a 25bps cut is expected. The inflation report will also be released. In the US session we’ll get initial jobless claims, factory orders data and the last revisions to the June durable and capital goods orders data.
Closing the week on Friday in Europe will be Germany factory orders and UK house price data. In the US it’s all about the July employment report where payrolls expectations are for a 175k print. The June trade balance reading is also due along with the June consumer credit data.
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BofA previews the week’s key events:
BoE: we expect a 25bp cut and £50bn QE
Our base case for next week’s Bank of England meeting is a 25bp cut to Bank rate, £50bn QE and some broader credit easing measures. With BoE inaction in July disappointing expectations we see the risks skewed to an under-delivery next week, although the capitulation of MPC member Martin Weale this week gave us more confidence in our call. On QE we expect it to include some private sector asset purchases, but with our credit analysts estimating a maximum of £2bn per month available to the BoE, we see at least £40bn of this being gilt-based. With the scale of the shock currently hitting the UK economy post-Brexit unknown, our economists see the best course of action as acting early and ‘over-egging’ stimulus, given the downside risks faced when monetary policy is close to the zero lower bound.
NFPs to adjust downwards
Nonfarm payroll growth likely slowed to a still healthy 165,000 for the month of July, down from the robust 287,000 clip in June. Our forecast would leave the 3-mo moving average at 154,000, indicating progress in the labor market, albeit at a slower pace. An employment report that indicates job growth above the 150,000 3-month moving average and expansion of the labor force participation rate should sustain the Fed’s narrative that continued economic improvements will warrant a further interest rate increase later this year.
RBA could cut 25bp
The Reserve Bank of Australia Board meets on Tuesday 2nd August. We expect a 25bp rate cut to 1.50%, not only to support inflation but also to improve future growth prospects in light of a weak labour market. We then expect the Bank to remain on hold for the rest of 2016, as it steps back to observe how the easing this year flows through to the data. Easing in August looks more likely in New Zealand, in light of recent developments there, which should underline a AU NZ spread compression.
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Here is just a summary of the key events in the US in the coming week, courtesy of Goldman Sach:
Monday, August 1
- 09:45 AM Markit Flash US Manufacturing PMI, July final (consensus 52.9, last 52.9)
- 10:00 AM ISM manufacturing, July (GS 53.0, consensus 53.0, last 53.2); Manufacturing surveys were mixed in July, and we expect ISM manufacturing to stay roughly flat. The Philly Fed survey weakened (-7.6pt to -2.9) more than expected, but most components looked stronger on net. The Kansas City Fed (-8.0pt to -6.0) and Empire State (-5.5pt to +0.6) surveys saw declines in the headline number and underlying components as well. The Richmond Fed survey rebounded in July (+20.0pt to +10.0), and the Dallas Fed survey strengthened for the second month (+17.0pt to -1.3), but remained in slightly negative territory. On net, our manufacturing survey tracker—which is scaled to the ISM index—edged up to 52.4.
- 10:00 AM Construction spending, June (GS +0.4%, consensus +0.5%, last -0.8%); We expect construction spending to improve in June following a modest decline in the May report.
- 2:00 PM Senior Loan Officer Opinion Survey
Tuesday, August 2
- 06:15 AM Dallas Fed President Kaplan (FOMC non-voter) speaks; Federal Reserve Bank of Dallas President Robert Kaplan will speak on economic conditions and the implications for monetary policy at an Official Monetary and Financial Institutions Forum City Lecture in Beijing, China. Media Q&A is expected. Last Friday, President Kaplan suggested that the soft Q2 GDP report was not surprising given sluggish global demand. At the same time, he added that the Fed should not overreact to just one data point and must “look for opportunities to hike, but can’t force it.”
- 8:30 AM Personal income, June (GS +0.3%, consensus +0.3%, last +0.2%); Personal spending, June (GS +0.4%, consensus +0.3%, last +0.4%); PCE price index, June (GS +0.15%, consensus +0.20%, last +0.20%); Core PCE price index, June (GS +0.12%, consensus +0.10%, last +0.20%); PCE price index (yoy), June (GS +0.9%, consensus +0.9%, last +0.9%); Core PCE price index (yoy), June (GS +1.6%, consensus +1.6%, last +1.6%): We expect personal income to rise by 0.3% and personal spending to rise by 0.4% in June, consistent with the solid retail sales report. We also expect core PCE prices to edge up by 0.12% in June following a 0.17% gain in the June core CPI. The core PCE price index likely rose by 1.6% over the past year.
- 4:00 PM Total vehicle sales, July (GS 17.8mn, consensus 17.1mn, last 16.6mn): Domestic vehicle sales, July (GS 14.3mn, consensus 13.0mn, last 12.8mn); Our auto analysts expect total vehicle sales to move up in July.
Wednesday, August 3
- 09:45 AM Markit flash US services PMI, July final (consensus 51.0, last 50.9)
- 10:00 AM ISM non-manufacturing, July (GS 56.5, consensus 56.0, last 56.5): Service sector surveys mostly improved in July, and we expect ISM non-manufacturing to stay flat at 56.5. The Philly Fed survey strengthened further (+18.0pt to +28.8), the Richmond Fed survey picked up as well (+6.0pt to +8.0), and the New York Fed survey—still a relatively new and not seasonally adjusted series—also increased (+2.3pt to +5.4). The Markit Services PMI declined a bit in June (-0.5pt to 50.9). Last month, the ISM non-manufacturing index rose +3.6pt to 56.5.
Thursday, August 4
- 06:15 AM Dallas Fed President Kaplan (FOMC non-voter) speaks: Federal Reserve Bank of Dallas President Robert Kaplan will give a second speech on economic conditions and implications for monetary policy at an Official Monetary and Financial Institutions Forum City Lecture in Shanghai, China. Media Q&A is expected.
- 08:15 AM ADP employment report, July (GS +180k, consensus +170k, last +172k): Based on our understanding of how ADP filters its own proprietary data with other publicly available information, we expect a 180k gain in ADP payroll employment in July.
- 08:30 AM Initial jobless claims, week ended July 30 (GS 250k, consensus 264k, last 266k): Continuing jobless claims, week ended July 23 (consensus 2,130k, last 2,139k): We expect initial jobless claims to edge down to 250k from 266k last week, near post-crisis lows. We continue to read the trend in claims as consistent with low layoff activity nationally.
- 10:00 AM Factory orders, June (GS -1.6%, consensus -1.9%, last -1.0%): Factory orders likely declined further in June, following a weaker-than-expected durable goods report.
Friday, August 5
- 8:30 AM Nonfarm payroll employment, July (GS +190k, consensus +180k, last +287k); Private payroll employment, July (GS +180k, consensus +170k, last +265k); Average hourly earnings (mom), July (GS +0.3%, consensus +0.2%, last +0.1%); Average hourly earnings (yoy), July (GS +2.5%, consensus +2.6%, last +2.6%); Unemployment rate, July (GS 4.9%, consensus 4.8%, last 4.9 %): Employment data have been mostly positive this month. Initial jobless claims have trended down, including in states not affected by auto plant shutdowns, and the Consumer Confidence survey’s labor differential measure improved. We anticipate a June payroll gain of 190k, following a 287k increase in June. While there were no strikes during the July survey period, we see a slightly lower trend pace of payroll growth compared to last year. We expect the unemployment rate to stay steady at 4.8% and average hourly earnings to rise at a pace of +0.3%.
- 08:30 AM Trade balance, June (GS -$41.8bn, consensus -$42.8bn, last -$41.4bn): We expect the trade balance to be a touch wider in June. The Census Bureau’s inaugural Advance Economic Indicators report showed a slightly wider trade deficit, primarily due to a boost in industrial supplies imports, a volatile component. Inventories showed less inventory accumulation than anticipated. Overall, we expect the total trade deficit to be -$41.8bn.
- 3:00 PM Consumer credit, June (consensus $16.0bn, last $18.6bn)
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The same but in table format.
And finally, a recap of all the main global events in the next 5 days.
