The highlights include the Flash PMIs, the US Consumer Confidence, the RBA and SNB rate decisions and the US PCE.

EZ FLASH PMI (MON)

Expectations are for September’s manufacturing PMI to slip to 45.5 from 45.8, and services to decline to 52.3 from 52.9, leaving the composite at 50.5 vs. prev. 51.0. As a reminder, the prior report saw the manufacturing print hold steady at 45.8, and services rise to 52.9 from 51.9, leaving the composite at 51.0 vs. prev. 50.2. The accompanying report noted “the positive vibes from the [French Olympic] Games and the ongoing Paralympics might carry through into September in part, but we expect the slowdown in growth, which started in May, to likely resume in the coming months". This time around, analysts at Investec anticipate an unwinding of the “Olympic effect” seen in the August data, which would see the Composite metrics continue its gradual moderation seen since May. The desk adds that the slowdown in activity has been “underlined by a slowing in new orders and evidence of a loosening in labour market conditions”. Investec holds a Q3 Q/Q EZ growth forecast of 0.2%, albeit with increasing downside risks. From a policy perspective, despite the cautious tone of President Lagarde in the September press conference and subsequent commentary from ECB officials that has downplayed the odds of a rate cut next month, markets assign a circa 68% chance of a 25bps reduction. This appears to be more a by-product of events surrounding the FOMC rather than any EZ-specific developments. However, a soft outturn for the PMI report could see ECB comms begin to align more with market pricing dynamics.

UK FLASH PMI (MON)

Expectations are for September’s services PMI to decline to 53.5 from 53.7, manufacturing to hold steady at 52.5, leaving the composite at 53.5 vs. prev. 53.8. As a reminder, the prior report saw the services print rise to 53.7 from 52.5, and manufacturing rise to 52.5 from 52.1, leaving the composite comfortably in expansionary territory at 53.8 vs. prev. 52.8. The accompanying report noted "Although GDP growth looks set to weaken in the third quarter compared to the impressive gains seen in the first half of the year, the PMI is indicative of the economy expanding at a reasonably solid quarterly rate of around 0.3%." For the upcoming release, economists at Oxford Economics note that the August manufacturing report highlighted “strong increases in new orders and hiring, while business expectations for future production remained upbeat”. As such, the consultancy expects production levels to edge up and the manufacturing print rise. For the services sector, Oxford Economics looks for a pullback on account of the prior services report noting a “softening in new orders and business sentiment”. From a policy perspective, the release is unlikely to have much-sustained sway on market pricing for the November meeting with the MPC more focused on services inflation and real wage dynamics.

RBA ANNOUNCEMENT (TUE)

The RBA is likely to keep the Cash Rate Target unchanged at 4.35% at its meeting next week with all 45 economists surveyed by Reuters unanimously forecasting no change in rates, while money markets are pricing in around a 92% probability for no adjustment in rates and just under an 8% chance of a 25bps cut. As a reminder, the central bank refrained from any policy adjustments at the last meeting in August and stuck to a hawkish tone in which it noted that the Board remains resolute in its determination to return inflation to the target and is not ruling anything in or out, while it reiterated that inflation remains above target and is proving persistent. Furthermore, the central bank said policy will need to be sufficiently restrictive until the board is confident that inflation is moving sustainably towards the target range, and it raised its view for GDP, CPI and the Unemployment Rate with its forecasts assuming the cash rate will be 4.3% in December 2024, 3.6% in December 2025, and 3.3% in December 2026. RBA Governor Bullock also provided a hawkish tone at the post-meeting press conference where she stated that the board considered a rate increase and that a cut is not on the near-term agenda, as well as commented that they are ready to raise rates if needed and that the pricing of cuts for the next six months does not align with the board. The minutes from the meeting also noted that it is possible the Cash Rate would have to stay steady for an extended period and members agreed it is unlikely rates would be cut in the short term. The rhetoric from officials since then continued to support the case for a pause as Governor Bullock repeated that it is premature to be thinking about rate cuts and the board does not expect to be in a position to cut rates in the near term with bringing inflation down remaining the central bank’s highest priority, while she stated that they need to see results on inflation before lowering rates and that the board is not going to focus on one inflation number. This suggests the central bank is far from cutting rates, especially given that the latest monthly inflation data for July topped estimates and remained above the central bank’s 2%-3% target with Weighted CPI YY at 3.5% vs. Exp. 3.4% (Prev. 3.8%).

AUSTRALIAN CPI (WED)

The monthly CPI indicator for August is expected to cool to 2.7% from 3.3% in July and 3.8% in June. This comes after the RBA policy announcement which is expected to keep its Cash Rate unchanged at 4.35% after the Board telegraphed that it does not expect to begin policy easing until next year. Nonetheless, the monthly CPI will be eyed given the RBA’s warnings and caution on inflation. In terms of the release itself, analysts at Westpac suggest “The cost-of-living relief measures are expected to have a significant impact in August. The Commonwealth energy bill relief rebates flowed to Qld and WA in July, with other jurisdictions to follow in August” as the desk expects an August print of 2.7% - in line with market forecasts.

SNB ANNOUNCEMENT (THU)

Expected to continue its easing cycle via another 25bps cut which will take the Policy Rate to 1.25%. Market pricing assigns a circa 63% chance of such an outcome with a larger cut of 50bps priced at 37%. Further easing is justified by the ongoing moderation of inflation with August’s Y/Y CPI printing at 1.1%, shy of the 1.2% forecast by markets and well below the SNB’s overall Q3 forecast of 1.5%. The continued faster-than-expected moderation of inflation may well provide the SNB with more confidence on the pricing front and will likely see downward tweaks to their inflation forecasts, though the magnitude of the adjustment remains unclear. Additionally, such confidence could enable the SNB to allow the CHF to weaken a touch, as called for by the Swissmem group who in early August outlined their fair value EUR/CHF view of 0.98 vs circa. 0.92 at the time and 0.9450 at the time of writing. Furthermore, the impact of currency strength on domestic industry was acknowledged by Chairman Jordan in a speech towards the end of August. As a reminder, this is the last policy meeting for Chairman Jordan who is to be replaced by current Vice-Chairman Schlegel.

JAPANESE TOKYO CPI (FRI)

There are currently no expectations for the Tokyo CPI metrics, although, barring a surprising release, it is difficult to predict how much impact this release will have on Japanese assets following the latest BoJ policy announcement - and particularly after Governor Ueda’s press conference. To recap, Ueda’s most notable comments were that upside price risks have decreased given recent FX moves, and risks of an inflation overshoot have somewhat diminished, whilst markets remain unstable. In terms of last month’s release, Core Tokyo CPI printed above forecasts and accelerated for a fourth straight month, rising 2.4% Y/Y (exp. 2.2%; prev.2.2% in July). The nationwide metrics released on Friday saw accelerations across all points, albeit mostly matching expectations.

US PCE (FRI)

Writing after the release of PPI and CPI data for August, WSJ Fed watcher Nick Timiraos said economists who map the CPI and PPI into the PCE think core PCE will be around +0.13-0.17% M/M in August, extending a streak of mild, target-consistent monthly readings, and cooler than the August core CPI figure. The FOMC's September policy statement said inflation has made further progress towards its 2% objective, though remains 'somewhat elevated', but it has gained greater confidence in inflation moving sustainably toward target, and judges risks to employment and inflation goals are roughly in balance. Crucially, it said that while labour force participation is at high levels, and wage increases are still a bit above being consistent with 2% inflation, it does not need to see further loosening in the labour market in order for inflation to return to 2%. Still, the Fed is not declaring victory on inflation; it is close to target, but not yet there. In its updated economic projections, members lowered their forecasts for headline PCE both this year and next year (to 2.3% Y/Y in 2024 vs its previous view of 2.6%; and to 2.1% Y/Y in 2025 vs 2.3%), and also lowered its core PCE view (sees 2.6% Y/Y in 2024 vs 2.8; and sees it at 2.2% Y/Y in 2025 vs 2.3%).

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