Sterling opened the week higher against other major currencies but pared back some gains after disappointing manufacturing data. The PMI manufacturing dropped to 52.5 in August comparing to expectation of 55.1. Mortgage approvals dropped to 67k in July versus expectation of 66k. M4 money supply rose 0.3% mom in July versus expectation of 0.5% mom. Also released today, Eurozone PMI manufacturing was finalized at 50.7 in August. German GDP was finalized at -0.2% qoq in Q2. Swiss SVME PMI dropped to 52.9 in August. China official PMI manufacturing dropped to 51.1 in August versus expectation of 51.3. HSBC manufacturing PMI was revised lower to 50.2. Japan capital spending rose 3.0% in Q2. New Zealand terms of trade rose 0.3% qoq in Q2.
SNB president Jordan said that the Swiss Franc is "still highly valued". And he emphasized that "enforcing the minimum exchange rate of 1.20 per euro is absolutely central to ensure adequate monetary conditions in Switzerland". While the central bank hasn't intervened to defend the EUR/CHF floor, Jordan noted it's ready to enforce it by unlimited buying of foreign currencies. Also, he said that SNB policy makers "exclude no measure that could be necessary to guarantee adequate monetary conditions." And "should monetary policy prove to be too restrictive, one would have to think about about what measures would be sensible to fulfill the mandate."
In Eurozone, French prime minister Valls called for actions from ECB to depreciate the euro. French president Hollande also said that is a role for ECB to tackle Eurozone's economic sluggishness. However, German chancellor Merkel called ECB president Draghi for question on whether ECB had changed course on austerity. German finance minister Schaeuble warned that while economic stimulus leads to short-term growth, "things go downhill in the long term."
Apart from economic data, we will have a number of central bank meetings starting with the RBA meeting on Tuesday. Policymakers are expected to make no change in the monetary policy. RBA Governor Glenn Stevens is scheduled to speak in the Committee for Economic Development of Australia Luncheon in Adelaide on Wednesday. The BOJ, ECB and BOE would be meeting on monetary actions on Thursdays. The ECB, BOE and BOJ meetings would be held on Thursday. The ECB meeting would clearly be in focus especially after President Draghi's dovish comments in Jackson Hole. Despite rising speculations of QE in September, we do believe this would happen before commencement of the TLTRO and as the procedures of ABS purchases are under discussion. The BOE would also leave the monetary decision unchanged although the July minutes indicated that there were dissents to the current policy stance. The BOJ would likely stand on the sideline.
Here are some highlights for the week:
- Tuesday: Australia building approvals, RBA rate decision; Swiss GDP; UK construction PMI; US ISM manufacturing
- Wednesday: Eurozone services PMI final; UK services PMI; BoC rate decision; Fed's Beige book
- Thursday: BoJ policy decision; BoE rate decision; ECB rate decision; Canada trade balance; US trade balance, ADP employment; ISM services
- Friday: Eurozone GDP revision; US non-farm payroll; Canada employment, Ivey PMI