August Week 5, Looking Back and Looking Forward
APAC Data Dominates Next Week's Calendar
Looking forward to upcoming week, the Asia-Pacific (APAC) region is set to deliver several significant data points. China will unveil its services PMI, trade data, and both consumer and producer prices. Additionally, the Reserve Bank of Australia (RBA) Governor Lowe will preside over his final RBA meeting before handing over leadership. Japan's bank lending and trade balance figures will also be released. While North America will provide limited data due to the Labor Day holiday, notable events include the ISM services PMI report and the Bank of Canada (BOC) meeting.
Highlights from the Past Week
Looking back to August week 5, the Australian inflation rate eased to a 16-month low of 4.9%, likely leading to the RBA maintaining rates in September. In the US, the JOLTS report indicated a softer labor market, suggesting the Fed might delay rate hikes. This news led to a drop in the US dollar and yields while supporting increased risk appetite. The US Q2 GDP was slightly revised lower, preserving expectations of a gradual economic slowdown. The Euro also faced downward pressure as ECB's Isabel Schnabel hinted at another rate hike due to underwhelming growth. China's market received support from its National Team, following equity market fluctuations.
Key Focus on ISM Services and China CPI
The ISM non-manufacturing PMI has drawn attention after the ISM manufacturing survey showed a decline in July. The services sector, having weakened recently, remains a significant data point as markets anticipate the trajectory of Fed rate adjustments. The ISM services PMI's performance, coupled with "prices paid," which expanded at a rapid pace recently, could influence market sentiment. China's consumer and producer prices are also in focus, with consumer prices experiencing deflation for the first time in over two years. The slowing pace of producer price deflation raises questions about the potential impact on inflation in the global economy.
RBA's Interest Rate Decision and Lowe's Exit
The RBA's upcoming interest rate decision is expected to result in a hold at 4.1%, following weaker employment figures and subdued inflation. This decision aligns with Governor Lowe's final meeting before stepping down from his role. While the transition is unlikely to impact policy, it marks a milestone in his seven-year tenure. With potential wage increases and rising petrol prices impacting inflation figures, the RBA is unlikely to deliver a dovish hold, setting the stage for future monetary decisions.
Market Attention on BOC Meeting and Japan's Revised GDP
Market focus will also center on the Bank of Canada's interest rate decision, with expectations of a hold at 5%. The recent uptick in inflation and signs of revival in house prices have led to speculation about the possibility of another rate hike. In Japan, revised GDP figures from Q2 will provide investors with insights into the nation's economic performance. After the impressive 6% annualized growth in Q2, attention will be on whether the revised figures sustain the positive momentum.