Key Events: Could Payrolls Prompt Fed Frontloading?

Key Events

G10

In the US, the main data points are:

1. NFP – Friday. If the print shows no marked improvement on July and is below consensus for UE falling to 4.2%, the Fed will likely frontload rate cuts, starting with 50bp in September.
2. JOLTS – Wednesday. The U/V ratio is more important than headline. Influential FOMC member Waller follows U/V closely; a further increase would add to risks of a 50bp cut in September.
3. ISM: Manu/services – Tuesday/Thursday. Consensus sees manufacturing at 47.5 vs 46.8 in July and services at 50.9 vs 51.4 in July. But these are more trading than economic events as the ISM surveys have decoupled from GDP growth – our Event Monitor reveals market impact.

In the Eurozone and UK, it is a quiet week:

1. Final services PMIs – Wednesday. Could be the highlight in data releases. Output price and employment cost details are informative; headline readings less so.

Elsewhere in G10:

1. Switzerland August CPI – Tuesday. The SNB are in cutting mode. Headline inflation is expected to remain at +1.3% YoY, 0.2pp below the SNB’s forecast. We think core disinflation will continue absent housing inflation.
2. Switzerland Q2 GDP – Tuesday. We think there is a risk GDP could undershoot expectations of +1.6% YoY, based on survey outturns.
3. Australia Q2 GDP – Wednesday. Despite expectations for continued economic expansion, adjusting for the surge in population, the economy is in a weak position.
4. Switzerland August Unemployment – Thursday. We expect the unemployment rate to increase NSA and see a risk the SA figure increases, too. Increases are likely to continue into year-end.
5. Japan Wage Growth – Thursday. Same sample wage data is expected to slow marginally from last month’s elevated 3.5% YoY growth rate driven by strong bonuses. However, the BoJ will likely see any outturn above 3% positively.
6. Canada Employment – Friday. While consensus expects employment to increase following two months of losses, we see further loosening of the labour market as employment growth lags the labour force increase.

EM

1. China PMI – Weekend/Monday. NBS PMIs will be released over the weekend and Caixin on Monday. We expect the mixed/sideways trend to continue in manufacturing but would focus more on further weakening in the services PMIs.
2. Korea exports – Weekend. Partial data for exports printed very strong, especially in non-tech sectors. Exports and trade balance should continue to support KRW.
3. Korea CPI – Monday. Market expects a rise in MoM from 0.3% to 0.4% due to gas tariff hike. But core should soften further to ~2% YoY.

Central Banks in Action

1. Fed Waller barometer for 50bp – Friday. Waller will be speaking post JOLTS and NFP, likely the last speaker before the pre-meeting blackout and could give a hint on 25 vs 50bp. Williams, who wanted to cut in July, will also be speaking Friday.
2. ECB speakers include Nagel (Tuesday), Villeroy (Wednesday) and Holzmann (Thursday), although none are speaking explicitly on monetary policy. We see current ECB pricing as too dovish.
3. BoE’s Breeden – Tuesday. Unlikely to touch much on monetary policy, given speech relates to banking supervision.
4. BoC to cut by 25bp – Wednesday. With July’s dovish inflation data annualising below 2%, the BoC is expected to continue its rate-cutting cycle.
5. BNM to stay on hold at 3% – Thursday. BNM is in no rush to cut. GDP was robust in Q2, and CPI remains around 2%. Recent reports say the government is considering a GST hike, which skews CPI risks to the upside.
6. BCCH (Chile) to stay on hold – Tuesday. BCCH rate cut cycle is winding down to a pause. Forward guidance is likely to reiterate little room for further cuts this year.
7. BoE DMP Survey – Thursday. Will provide an update on inflation expectations and hiring intention from businesses.

Markets to Watch

• USD/CHF should bounce ahead as extreme dollar bearishness is unwound. We are in a one-month USD/CHF 0.85×0.87 call spread.
• Pro-cyclical currencies are at highs against the dollar; however, PMIs are yet to point to a breakout. We think they can come under pressure ahead.

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)