FX Week Ahead - Big week for US data

The focus will be on the US economy next week as the latest non-farm payrolls are released and could steer the Fed closer to raising rates, while data on personal consumption expenditure will also be closely watched. Also to attract attention are flash inflation figures from the Eurozone, manufacturing PMIs out of China and the UK, as well as household spending and industrial output data from Japan.

Japan data expected to be fairly upbeat

The week will start with Japanese data on Monday, which is expected to be relatively quiet as the UK market will be closed for the summer Bank Holiday. After this week’s disappointing inflation numbers, there is still a strong case for the Bank of Japan to loosen monetary policy at its September meeting. However, household spending data could provide some relief as it’s expected to rebound in July. Household spending, out on Monday is forecast to increase by 1.1% m/m in July after falling by the same amount the prior month.

Also released the same are the latest unemployment and industrial output numbers. The unemployment rate will likely hold steady at 3.1% in July but industrial production is expected to slow from 2.3% m/m growth in June to 0.8% in July’s preliminary reading. However, this is still a fairly upbeat number given the impact the strong yen is having on Japanese manufacturers.

US non-farm payrolls and consumption data in focus

The US week will get off to a busy start with the release of the July personal consumption and income figures. As always, these will be watched closely by policymakers as consumption comprises the largest component of US GPD. Personal income is expected to rise by 0.4% m/m in July, which compares with 0.2% in June. Personal consumption is forecast to ease slightly though, from 0.4% to 0.3% m/m in July. Also released in conjunction is the Fed’s preferred inflation gauge, the PCE price index. The core PCE price index has been stuck at 1.6% y/y for the past four months and any sign of acceleration would likely fuel expectations of a Fed rate hike in the near future.

The next big data for the US is Thursday’s ISM manufacturing PMI. But before then, the August consumer confidence index on Tuesday, as well as the ADP employment report and pending home sales on Wednesday, should keep investors busy. The ISM manufacturing PMI is expected to follow the Markit PMI in pointing to slowing activity in August. The index is forecast to decline from 52.6 to 52.0 in August.

Lastly, the latest non-farm payroll figures are due on Friday and are expected to show the US economy continuing to add jobs at a healthy pace. Non-farm payrolls are forecast to rise by 185k in August. This is slower than the 200+ rate seen in the previous two months but still sizeable given that the US economy is nearing full employment. The unemployment rate is expected to dip slightly from 4.9% to 4.8% in August, while average hourly earnings are forecast to rise by 0.2% m/m.

Canada’s economy expected to contract in Q2

Recent data suggests Canada didn’t have such a good start to the third quarter and GDP data out on Wednesday is expected to confirm that the economy contracted in the second quarter of the year. GDP is expected to have shrunk at an annualized rate of 1.5% in the second quarter as the Canadian economy takes a hit from the wildfires that broke out in May, which disrupted the country’s oil output.

The stronger Canadian dollar has only added to the downside pressure, however, higher oil prices should provide some relief as the trade deficit (out on Friday) is expected to have narrowed in July.

Eurozone inflation to tick up but business sentiment to worsen in August

Economic sentiment across the Eurozone is expected to deteriorate slightly in August. Data out on Tuesday is forecast to show the index falling from 104.6 in July to 104.1 in August. Like with the Markit PMI, the services sector is thought to be the strongest component of the sentiment indicator, according to the forecasts.

Also due from the Eurozone are flash inflation and unemployment figures out on Wednesday. The flash estimate of euro area inflation is expected to show annual CPI edging higher from 0.2% in July to 0.3% in August, which would make it the strongest figure since January. Meanwhile, the unemployment rate is forecast to fall from 10.1% to 10.0% in July.

UK PMI set for small rebound in August

The July PMI indicators for the UK heightened fears that the British economy is heading for recession after the Brexit shock as they fell sharply in the immediate aftermath of the referendum. The manufacturing and construction components for August are released on Thursday and Friday respectively. The manufacturing PMI is forecast to improve from 48.2 to 49 and the construction PMI from 45.9 to 46.1. Although the expected readings are below 50, they will likely indicate that business sentiment and activity is rebounding after the initial shock of the Brexit vote.

Finally, China will also see the release of the latest PMI numbers on Thursday. The official manufacturing PMI is expected to stay unchanged at 49.9, while the private Caixin survey is forecast to show a decline in the manufacturing PMI from 50.6 to 50.2 in August. While the figures are not expected to point to any recovery being in sight, they should however provide further evidence that the manufacturing sector is stabilizing.