As August enters its final trading week, the market has experienced an unusual level of volatility and activity for this time of year. While awaiting insights from Fed Chair Jerome Powell's upcoming speech, which could impact the tone of next week's trading, a substantial amount of data is on the horizon for September. Among the key data points are US PCE inflation, GDP figures, and the ISM manufacturing survey. Additionally, final PMI reports are expected from major economies, including the US, UK, Europe, Japan, and Australia. Australian data releases, including CPI, retail sales, home loans, and capex, along with a speech by incoming RBA Governor Bullock, are also anticipated.
Looking back to previous week, flash PMI reports exhibited disappointments in both manufacturing and survey data, leading to declines in composite indices for major economies such as the US, Europe, UK, and Australia. These weaker PMI figures influenced discussions about the potential for a peak RBA rate of 4.1%. However, they also prompted a reduction in bets for additional rate hikes, whether from the RBA or the Bank of England. The impact of these reports was also evident in the weakening of the US dollar and yields, which were compounded by the anticipation surrounding Jerome Powell's Jackson Hole speech. Notably, Nvidia's robust earnings report initially drove a 10% surge in shares, though subsequent risk-off trade led to the retracement of gains.
Looking forward, the upcoming week places considerable emphasis on US PCE inflation, a crucial factor influencing market sentiment and global monetary policies. Given the Federal Reserve's preference for PCE data, this report's significance is heightened. Its impact could be influenced by the tone of Jerome Powell's speech at Jackson Hole. If inflation accelerates more slowly, the Fed's hawkish stance could ease, potentially leading to a weaker US dollar. Last month, core PCE dropped to a 21-month low of 4.1%, its sharpest decrease since the pandemic. The trend in services PCE, which has risen consistently for the past four months, suggests that a print of 0.2% or lower in the upcoming report would be welcomed.
Despite concerns regarding weakness in various employment metrics, the overall headline employment data in the US doesn't appear to warrant immediate rate cuts by the Federal Reserve. With an unemployment rate of 3.5%, a recessionary scenario seems unlikely based on the Fed's evaluation criteria. The nonfarm payroll report, due on Friday, remains an essential data point. Other employment indicators, such as job openings, ADP payroll, and jobless claims, will also contribute to shaping market sentiment and expectations.
The condition of the US manufacturing sector is under scrutiny as the ISM manufacturing PMI data is anticipated. The sector has been in contraction for nine months, and any change in its trajectory, particularly in new orders, could impact future prospects. Moreover, the final PMI reports for various economies, including the US, UK, Europe, and Japan, hold importance. Although final PMIs typically remain close to flash estimates, the ongoing trend of deterioration in manufacturing and services PMIs could attract additional attention from traders.
The second revision of US GDP is expected, following the preliminary release that surpassed expectations. This release will shed light on the economic trajectory and its potential implications for the Fed's future decisions. In Australia, data releases including CPI, retail sales, home loans, and capex are in focus, with particular attention on the inflation report. The RBA's suspected peak rate of 4.1% could be influenced by these figures. Incoming RBA Governor Bullock's speech on climate change and central banks carries significance, offering insights into the future direction of the Australian central bank under her leadership.