Monday:

New Zealand
Services PMI for July plunges into contraction to the lowest level since
January 2022:

• 47.8
  vs. 50.1 prior (revised from 49.6).

Tuesday:

Japan Preliminary
Q2 GDP beat expectations, but the deflator has also jumped substantially:

• GDP
  Q/Q 1.5% vs. 0.8% expected and 0.7% prior.
• GDP
  Y/Y 6.0% vs. 3.1% expected and 2.7% prior.
• Deflator
  Y/Y 3.4% vs. 2.0% expected and 2.0% prior.

The deflator
reading is the highest since 1981.

The PBoC
surprised with rate cuts as China is in strong need of expansionary
policies:

• MLF
  rate cut by 15 bps to 2.5% vs. 2.65% prior.
• RRR
  cut by 10 bps to 1.8% vs. 1.9% prior.
• SLF
  rate cut by 10 bps to 2.65% vs. 2.75% prior.

We can expect the
LPR rate cuts to follow next week.

Australian Wages
data for Q2 missed expectations:

• Wage
  Price Index Y/Y 3.6% vs. 3.7% expected and 3.7% prior.
• Wage
  Price Index Q/Q 0.8% vs. 1.0% expected and 0.8% prior.

The RBA released
the minutes of the August 2023 policy meeting where the central bank kept the
cash rate unchanged:

• Board considered
  raising rates by 25bp or holding steady.
• Board agreed on case
  for holding rates steady was the stronger one.
• Board saw a “credible
  path” back to the inflation target with cash rates at current 4.1%.
• Board agreed it was
  possible some further tightening might be needed.
• Need for further
  hike would depend on data, evolving assessment of risks.
• Inflation heading in
  the right direction, though service inflation too high.
• Consumption had
  slowed significantly even as the full effect of past tightening yet to be
  felt.
• The labour market
  had been resilient, but early signs it might be at a turning point.
• Board saw
  “plausible scenarios” where inflation took longer than
  acceptable to return to target.
• Controlling
  persistent inflation would require more rate rises than otherwise.
• Staff inflation
  forecast had assumed one more hike, rates notably lower than in other
  countries.
• Rise in housing
  prices could mean financial conditions not as tight as assumed.

It looks like the RBA
prefers to keep the cash rate steady unless we see big surprises in the data
that forces the central bank to go higher.

We got another set
of weak data from China as Industrial Production and Retail Sales missed
expectations:

• Industrial
  Production Y/Y 3.7% vs. 4.5% expected and 4.4% prior.
• Retail
  Sales Y/Y 2.5% vs. 4.8% expected and 3.1% prior.

The UK July Jobs
Report showed another jump in wage growth with the unemployment rate rising
again:

• Unemployment
  Rate 4.2% vs. 4.0% expected and 4.0% prior.
• Employment
  Change -66K vs. 75K expected and 102K prior.
• Average
  Weekly Earnings 8.2% vs. 7.3% and 7.2% prior (revised from 6.9%).
• Average
  Weekly Earnings Ex-Bonus 7.8% vs. 7.4% expected and 7.5% prior (revised from
  7.3%.

The US July Retail
Sales beat expectations across the board:

• Retail
  Sales M/M 0.7% vs. 0.4% expected and 0.3% prior (revised from 0.2%).
• Retail
  Sales Y/Y 3.17% vs. 1.5% expected and 1.6% prior (revised from 1.49%).
• Retail Sales Control Group 1.0% vs. 0.5% expected and
  0.5% prior (revised from 0.6%).

The Canadian CPI
report beat expectations across the board with the Core measures remaining
elevated which is something that the BoC doesn’t want to see:

• CPI
  Y/Y 3.3% vs. 3.0% expected and 2.8% prior.
• CPI
  M/M 0.6% vs. 0.3% expected and 0.1% prior.
• Core
  CPI Y/Y 3.2% vs. 2.8% expected and 3.2% prior.
• Core
  M/M 0.5% vs. 0.4% expected and -0.1% prior.
• Common CPI Y/Y 4.8% vs. 4.7% expected and 5.1% prior.
• Trimmed CPI Y/Y 3.6% vs. 3.4% expected and 3.7% prior.
• Median CPI Y/Y 3.7% vs. 3.7% expected and 3.7% prior
  (revised from 3.9%).

The US NAHB
Housing Market Index missed expectations for the first time since December 2022
as higher yields are starting to bite again:

• NAHB
  Index 50 vs. 56 expected and 56 prior.

Fed’s Kashkari
(hawk – voter) acknowledged progress on inflation but remains wary of the risks
about letting go too early:

• I feel good about progress
  on inflation but it’s still too high.
• We have been
  surprised by the economy’s resilience.
• Question is whether
  we have done enough or need to do more.
• On average the
  banking system is stable and well capitalized.
• The March banking
  event was a wake-up call for banks.
• Housing market
  resilient has been one of the biggest surprises.
• We underbuilt in
  housing and there’s a structural deficit.
• The last couple
  inflation readings have been positive.
• I want to see
  convincing evidence that inflation is on its way to 2%.
• We need to avoid
  1970s style outcome where we stop hiking too soon.
• We’re a long way
  from cutting rates because core is still close to 4%.
• At some point next
  year, the Fed may need to lower rates.
• Economy keeps exceeding expectations.
• I’m not seeing any
  signs of a crisis in China, it’s something we’re watching.

Wednesday:

The RBNZ left its
cash rate unchanged at 5.5% as expected:

• The current level of
  interest rates is constraining spending and hence inflation pressure, as anticipated
  and required.
• Committee agreed
  that the OCR needs to stay at restrictive levels for the foreseeable
  future.
• New Zealand economy
  is evolving broadly as anticipated.
• Headline inflation
  and inflation expectations have declined, but measures of core inflation
  remain too high.
• In the near term,
  there is a risk that activity and inflation measures do not slow as much
  as expected.
• Committee is
  confident that with interest rates remaining at a restrictive level for
  some time, consumer price inflation will return to within its target range
  of 1 to 3% per annum.

RBNZ forecasts:

• Official cash rate
  at 5.54% in December 2023 (vs. prior at 5.5%).
• Official cash rate
  at 5.57% in September 2024 (vs. prior at 5.43%).
• TWI NZD at around
  71.0% in September 2024 (vs. prior at 71.5%).
• Annual CPI 2.7% by
  September 2024 (vs. prior at 2.7%).
• Official cash rate
  at 5.5% in December 2024 (vs. prior at 5.3%).
• Official cash rate
  at 3.38% in September 2026.

Moving on to the RBNZ
Governor Orr’s Press Conference:

• rise in OCR track is
  not forward guidance, not a strong signal out the Bank’s next move.
• wary about too much
  on rates.
• encouraged to see
  inflation fall.
• inflation is still
  too high.
• the risk in the next
  few months is that activity could be stronger than expected.
• ready to work
  through noisy data in the near term.
• there was not much
  talk of a rate cut, it was easy to reach consensus on the on-hold decision.
• we are very
  comfortable with where the cash rate is.
• still on a path to a
  soft landing.

The RBNZ seems to be done
with its tightening cycle and only big surprises that point to a trend are
likely to force them to do more. Note also that Governor Orr in an interview
with Bloomberg Television on Thursday admitted that a recession is the “bare
minimum” to tame inflation.

The UK July CPI comes in
line with expectations, but the Core measures beat the forecasts:

• CPI Y/Y 6.8% vs. 6.8%
  expected and 7.9% prior.
• CPI M/M -0.4% vs. -0.5%
  expected and 0.1% prior.
• Core CPI Y/Y 6.9% vs.
  6.8% expected and 6.9% prior.
• Core CPI M/M 0.3% vs.
  0.2% expected and 0.2% prior.

This doesn’t change
things for the BoE too much as the hike in September is already priced in, but looking forward it doesn’t look good.

The US Housing Starts
beat expectations with another downward revision to the prior data and Building
Permits missed forecasts:

• Housing Starts 1452M vs.
  1448M expected and 1398M prior (revised from 1434M).
• Starts 3.4% vs. -11.7%
  prior.
• Building Permits 1442M
  vs. 1463M expected and 1441M prior.
• Permits 0.1% vs. -3.7%
  prior.

The US Industrial
Production contracted again on a Y/Y basis, the first time since February 2021:

• Industrial
  Production Y/Y -0.2% vs. -0.4% prior.
• Industrial
  Production M/M 1.0% vs. 0.3% expected and -0.8% prior (revised from -0.5%).
• Capacity Utilization
  79.3% vs. 79.1% expected and 78.6% prior (revised from 78.9%).

The Federal Reserve released the Minutes of the July
FOMC Meeting:

• Uncertainty of U.S.
  economic outlook remains elevated; future Federal Reserve policy
  decisions to be driven by the totality of data from the July 25-26 meeting.
• Most participants
  said inflation risks could require further interest rate hikes.
• A number of
  participants warned of risks of accidentally tightening policy too much.
• A couple of
  participants favoured holding interest rates steady at the July meeting.
• A number of
  participants saw economic risks becoming more balanced.
• Most participants
  saw continued ‘significant’ upside inflation risks.
• Participants said
  inflation was ‘unacceptably high,’ and more evidence is needed to be
  confident that price pressures are ebbing.
• Participants said a
  gradual slowdown in economic activity appeared to be happening.
• Participants still
  saw below-trend growth and a softer labour market as necessary for
  restoring economic balance.
• Amid uncertainty
  about monetary policy lags, participants said rate hikes are working as
  intended.
• The banking system
  is ‘sound and resilient,’ but tighter credit conditions are likely to
  weigh on the economy.
• Staff no longer see
  the economy entering a mild recession this year and now predict
  below-trend growth in 2024 and 2025.
• Participants said
  the labour market is still ‘very tight,’ although signs are emerging that
  labour demand is in better balance.
• A number of
  participants noted that balance sheet runoff need not end when the
  Committee eventually begins to reduce the target range for the federal
  funds rate.

Looking at the
Participant’s views on current conditions and economic outlook and organizing
by conviction showed:

1. Unanimous Views:

• Economic activity
  has been expanding at a moderate pace.
• The U.S. banking
  system is sound and resilient.
• The extent of the
  effects of tighter credit conditions on economic activity, hiring, and
  inflation remains uncertain.
• All participants agreed
  on the continuation of reducing the Federal Reserve’s securities holdings.

2. Majority/Many Participants:

• Real GDP growth
  showed resilience and momentum.
• A gradual slowdown
  in economic activity is in progress due to monetary policy tightening.
• Monetary policy
  tightening is working as intended.
• Inflation remains
  above the Committee’s 2% objective.
• Almost all
  participants judged it appropriate to raise the target range for the
  federal funds rate at the meeting.
• Most participants
  saw significant upside risks to inflation.

3. Some Participants:

• Observed that recent
  increases in home prices suggest the housing sector’s response to monetary
  policy may have peaked.
• Commented on
  conditions that could lead to higher or lower economic activity in the
  business sector.
• Noted that
  significant disinflationary pressures had yet to become apparent in core
  services excluding housing.
• Emphasized the need
  for banks to be ready to use Federal Reserve liquidity facilities.
• Commented on the
  continued downside risks to economic activity and upside risks to the
  unemployment rate.

4. A Few/Several Participants:

• Commented on the
  vulnerabilities of the CRE market and the ongoing weakness of
  manufacturing output.
• Observed that growth
  in payrolls had slowed but continued to exceed values consistent with an
  unchanged unemployment rate.
• Commented that
  significant disinflationary pressures were not yet apparent in core
  services excluding housing.
• Noted the
  susceptibility of some nonbank financial institutions to runs or instability.
• A couple of
  participants favoured leaving the target range for the federal funds rate
  unchanged or could have supported such a proposal.

5. General Observations:

• Participants
  discussed the uncertainty about the effects of monetary policy on the
  economy.
• They stressed the
  need for more data to be confident about the path of inflation.
• Participants
  emphasized the importance of clear communication about the Committee’s
  approach.
• They discussed
  risk-management considerations for future policy decisions.

Thursday:

The Australian Jobs Report missed expectations with a
negative full-time employment reading and a jump in the unemployment rate:

• Employment Change
  -14.6K vs. 15.0K expected and 32.6K prior.
• Full-time
  Employment -24.2K vs. 39.3K prior.
• Part-time
  Employment 9.6K vs. -6.7K prior.
• Unemployment Rate
  3.7% vs. 3.5% expected and 3.5% prior.
• Participation Rate
  66.7% vs. 66.8% expected and 66.8% prior.

The US Initial Claims beat expectations by very little margin while
Continuing Claims missed:

• Initial Claims
  239K vs. 240K expected and 250K prior (revised from 248K).
• Continuing Claims
  1716K vs. 1700K expected and 1684K prior.

The US Philly Fed Manufacturing Index jumped back into
the expansionary territory for the first time since August 2022:

• Philly Fed index
  +12.0 vs -10.0 expected and -13.5 prior.
• Six-month index +3.9
  vs. +29.1 last month.
• Capital expenditures
  index -4.5 vs. +8.6 last month.
• Employment index -6 vs.
  -1 last month.
• Price paid index
  +20.8 vs. +9.5 last month.
• New orders index
  +16.0 vs. -15.9 last month.

The US Leading Index declined
-0.4% vs. -0.4% expected and -0.7% prior. This is the 16^th
consecutive negative reading.

China’s second biggest
property developer Evergrande filed for Chapter 15 protection in a US
bankruptcy court. The health of Country Garden, China’s largest privately run
developer, is also worrying investors after the company missed some interest
payments this month.

Friday:

Japan July CPI data beat expectations with the
core-core reading rising back to the cycle high:

• Japan CPI Y/Y 3.3%
  vs. 2.5% expected and 3.3% prior.
• Japan CPI Y/Y
  ex-Fresh Food 3.1% vs. 3.1% expected and 3.3% prior.
• Japan CPI Y/Y
  ex-Food, Energy 4.3% vs. 4.2% prior.

The RBNZ Assistant Governor Silk said that the
slowdown in China is a risk for global growth:

• Said that there were
  “definitely reasons to be concerned” about the weakness in
  China’s economy:
• consumer spending down
• high
  debt in the property sector
• the
  levers China had used previously to keep growth going were going to be
  harder to pull.
• There are definitely
  some challenges there (in China), for sure.
• The pressures that
  we’re starting to see offshore around that global growth…that’s the risk
  that we see on the downside through the medium term.

China is New Zealand’s
largest trading partner.

The UK Retail Sales missed expectations across the
board with prior readings all revised lower:

• Retail Sales M/M
  -1.2% vs. -0.5% expected and 0.6% prior (revised from 0.7%).
• Retail Sales Y/Y -3.2% vs -2.1% expected and -1.6% prior (revised from
  -1.0%).
• Retail Sales ex autos, fuel M/M -1.4% vs -0.7% expected and 0.7% prior
  (revised from 0.8%).
• Retail sales ex autos, fuel Y/Y -3.4% vs -2.2% expected and -1.6% prior
  (revised from -0.9%).

The highlights for next week
will be:

• 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).

That’s all folks, have a great weekend!