Key Events: DNC, Jackson Hole and EM Central Banks

Key Events

G10

In the US, there is…

1. Democratic National Convention – Monday to Thursday. Harris is due to speak on Thursday, following Walz on Wednesday. This will follow her speech in North Carolina on Friday, where she put forward some of her economic agenda. History suggests her odds likely increase follow the convention, but markets will soon turn their attention to Harris’ debate with Trump.
2. Jackson Hole – Thursday and Friday. The Fed could put forward an updated view on r*. We are watching to see if the Fed put forward a number that differs from the market implied terminal (~3.25%). Political risks and their view on financial conditions could also be discussed.
3. Light data week – Given the Fed’s focus on labour market data, jobless claims on Thursday may be a focus. No major policy speeches from FOMC members.

In the Eurozone and UK, the main events will be:

1. Eurozone Q2 negotiated wages – Thursday. Q1 data, which the ECB had focused closely on, overshot. The question is whether this remained the case in Q2. Right now the market is quite dovishly pricing the ECB – a surprise here could reverse some of this.
2. Final Eurozone CPI – Wednesday. Expected to confirm the preliminary reading. We will be watching the detail, where we expect wage-intensive services momentum continues to slow.

Elsewhere in G10:

1. Canada CPI – Tuesday. Consensus expects the BoC’s preferred measures of core: CPI-Trim and CPI-Median measures to rise by c. 0.2% MoM. This would be enough to confirm a September rate cut.
2. Japan CPI – Friday. Core inflation will likely rise to 2.7% YoY from 2.6% prev. More importantly, the focus should be on services for signs of higher wages being passed through to consumers via higher prices.
3. Governor Ueda Speaks in Parliament – Friday. Watch for Ueda’s comments on the future path for consumption, the volatility in equities and JPY, and the need to lift rates further.
4. New Zealand PSI – Sunday. The RBNZ convinced themselves to cut on the back of weak survey data. We are watching for any signs of recovery that could slow the already excessively priced pace of cuts.
5. Swiss exports – Tuesday. EUR/CHF rallied hard in July. We are watching to see if exports slowed.
6. SNB’s Jordan – Tuesday. If exports were to slow, we would watch Jordan for signs he is concerned with deflation. Uh-oh!
7. New Zealand Retail Sales – Thursday. Electronic card sales (monthly data) have slowed markedly in recent months. It was another reason the RBNZ used to cut 25bps. Their relationship to retail sales has weakened throughout Covid, so we are watching for an stronger-than-expected release.

EM

1. South Africa disinflation to accelerate – Wednesday. July CPI is expected to dip below 5% for the first time since August, opening the door for a September rate cut from the SARB.
2. Banxico MPC Minutes – Thursday. The MPC cut rates in a split vote and the minutes will explain why. We dont expect new information as it is already clear that the debate is between those who think real rates are getting too high vs. Those who flag high uncertainty in inflation and exchange rate volatility.

Central Banks in Action

3. CBRT to remain on hold – Tuesday. Inflation at 61.8% and still-elevated inflation expectations points to continuation of the CBRT’s hawkish stance with rates firmly on hold.
4. PBoC may cut 7-day repo rate by 10bps – Tuesday. The PBoC cut the 7-day reverse repo rate by 10 bps on 22nd July, the day when banks were set to announce 1Y and 5Y LPR rate. and banks lowered the 1-year and 5-year LPR rates by 10 bps. This precedent suggests the LPR decision day is “live”.
5. BoT to stay on hold at 2.5% – Wednesday. BoT has noted that current policy rate is at its neutral level. Inflation is slightly below 1-3% target range, but BOT is waiting for government’s digital wallet scheme and base effects in fuel price cuts to fade and is no urgency to cut.
6. BI to stay on hold at 6.25% – Wednesday. The strong rally in IDR means BI will be feeling very comfortable about cutting rates soon. We think they will follow the Fed in Q4 in small 25bps increments.
7. BoK – dovish hold or 25bps cut – Thursday. We think this meeting is a close call, but on balance, BoK may skip this meeting and start cutting from October, effectively following the Fed and paying lip service to financial stability concerns like rising property prices.
8. ECB Minutes – Thursday. Minutes for the July meeting could provide a steer towards September’s decision.

Markets to Watch

• S&P500 has fully recovered the early August meltdown and VIX has pulled back to 15.0.
• Market pricing for ECB cuts could see some strong moves if Q2 negotiated wage data on Thursday fails to deliver the dovishness that is priced. We consider the Eurozone economy to be in a more hawkish position than priced.
• Iron ore is testing YTD lows. This is the most China-sensitive liquid base metal, and the read-through to the Chinese economy is sobering.

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