Weekly Market Outlook (21-25 August)

UPCOMING EVENTS:

• Monday: PBoC LPR.
• Wednesday: NZ
  Retail Sales, AU/JP/EZ/GB/US PMIs, Canada Retail Sales.
• Thursday: US
  Jobless Claims.
• Friday: Fed
  Chair Powell speaks at the Jackson Hole Symposium (24-26 August).

Monday

The PBoC is expected to cut the LPR
rates by 15 bps as it did the last week with the MLF. The rate cuts follow
the promise of Chinese authorities to deliver more on the stimulus side to
propel its ailing economy. The markets didn’t react positively to rate cuts as
they probably want to see a stronger action.

Wednesday

New Zealand Retails Sales Q/Q is expected
at -2.6% vs. -1.4% prior, while Core Retail Sales Q/Q is seen at -2.5% vs.
-1.1% prior. Unless we see huge surprises, this data point is likely to be
disregarded by the RBNZ as it made clear that they are comfortable with the
current level of interest rate, and they are “ready to work through noisy data
in the near term”.

We will also see the Preliminary PMIs for
many advanced economies that are likely to lead the sentiment for the rest of
the day:

• Australia Manufacturing
  PMI 49.6 expected vs. 49.6 prior.
• Australia Services PMI
  47.9 expected vs. 47.9 prior.
• Japan Manufacturing PMI
  49.5 expected vs. 49.6 prior.
• Japan Services PMI no
  forecast vs. 53.8 prior.
• France Manufacturing PMI
  45.2 expected vs. 45.1 prior.
• France Services PMI 47.3 expected
  vs. 47.1 prior.
• Germany Manufacturing PMI
  38.6 expected vs. 38.8 prior.
• Germany Services PMI 51.5
  expected vs. 52.3 prior.
• Eurozone Manufacturing
  PMI 42.4 expected vs. 42.7 prior.
• Eurozone Services PMI 50.4
  expected vs. 50.9 prior.
• UK Manufacturing PMI 45.0
  expected vs. 45.3 prior.
• UK Services PMI 50.8
  expected vs. 51.5 prior.
• US Manufacturing PMI 49.4
  expected vs. 49.0 prior.
• US Services PMI 52.3
  expected vs. 52.3 prior.

The Canadian Retail Sales M/M is expected
at 0.0% vs. 0.2% prior, while the Core Retail Sales M/M is seen at 0.3% vs.
0.0% prior. Although another BoC rate hike in September is seen as a close
call, the recent surge in wage growth and higher than expected core
inflation data might be enough for them to proceed with another hike.

Thursday

Every Thursday is important because of one
key data point: the US Jobless Claims. The Fed and the Market are
particularly focused on the labour market data due to the fear that
continued tightness might lead to a wage price spiral (as it’s likely happening
in the UK) and it will be harder to bring inflation back to target sustainably.
Initial Claims are expected at 244K vs. 239K prior, while Continuing Claims are
seen at 1700K vs. 1716K.

Friday

Fed Chair Powell is scheduled to speak at
the Jackson Hole Symposium at 14:05 GMT. Given that the Fed will have
another month of key data points before the next meeting, it’s unlikely to see
Powell deviate from the recent comments and he should reaffirm once again their
data dependency and keep all the options on the table. Some say that Powell
is likely to be dovish because of the recent selloff in the stock and bond
markets, but he’s been trying for a year to see higher yields and lower equity
prices and now that the market might be finally doing the job for them, it
would be a bad strategy to say something.