Week Ahead 23-27th Aug - highlights include Jackson Hole, US PCE; PMIs; ECB mins

NOTE: Previews are listed in day-order

UK FLASH PMI (MON)

Expectations are for the services metric to slip to 59.0 from 59.6 with manufacturing set to decline to 59.3 from 60.4, leaving the composite at 58.7 vs prev. 59.2. The August report will be one characterised by a fading of some of the reopening euphoria seen in July as the UK government implemented the final stage of its unlocking plans. Given the timeframe for the collection of survey responses, and the fact that isolation rules in the UK were only adjusted as of August 16th, respondents will likely continue to flag the impact of the "pingdemic" on operations; an effect that will hopefully dissipate by the September release or possibly the final report issued later in the month. The report will likely have little follow-through for the BoE's September policy decision following the August MPR and guidance adjustment as the MPC remains on track to carry out the remainder of purchases under its APF until the end of the year.

EZ FLASH PMI (MON)

Expectations are for the Eurozone-wide services PMI to remain at 59.8 with manufacturing seen falling modestly to 62.2 from 62.8, leaving the composite metric a touch softer at 60.0 vs prev. 60.2. The broadly unchanged expectations from July are largely a by-product of stable lockdown measures compared to the prior month, with the unwinding of restrictions having acted as a driving force behind recent reports. In terms of regional effects, RBC notes that some of the southern states will have benefited from a pick-up in tourism activity. However, broadly stable service growth across the broader Eurozone will likely act as a cap on upside for the report. From a policy perspective, if consensus materialises, the report will likely have little bearing on the ECB September decision with source reports last month having already tempered expectations for any policy shifts. That said, market participants await any further clarity on what to expect next month as policymakers return from their summer break.

NEW ZEALAND RETAIL SALES (MON)/Trade Balance (TUE)

Q1 saw retail spending rise by some 2.5%, with the momentum expected to reverberate into Q2 - as displayed by the monthly retail spending metrics. Westpac forecasts Q2 retail spending at +2.0%. In terms of Tuesday's Trade Balance, exports are expected to slow following a strong rebound in June but imports are expected to remain robust. Westpac sees the July metric at -390mln vs prev. +261mln.

US DURABLE GOODS (WED)

Durable goods orders are seen declining by 0.8% M/M in July; the ex-transport measure is seen rising 0.5% M/M, however, as is the non-defence capital goods ex-aircraft component.

ECB MINUTES (THU)

As expected, the ECB stood pat on rates and the sizes of its bond buying operations (PEPP and APP). In its newly formatted policy statement, the Governing Council adjusted forward guidance on interest rates to reflect its new symmetric 2% inflation target vs its previous “close to, but below 2%” approach.

One of the more interesting nuances of the statement was the revelation that the central bank’s inflation mandate will be targeted via actual inflation outcomes, and that rates will remain at present or lower levels until “it sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon.” Emphasis on the projection horizon and on a durable basis was received dovishly by the market alongside the ECB stressing that the medium-term outlook for inflation is still well below the Governing Council’s target.

Sources in the immediate aftermath noted dissent from Weidmann and Wunsch on the new guidance due to the length of the commitment and lack of clarity on a potential exit strategy. Any further detail on these objections could be of note if it leads to a compromise further down the line on unwinding PEPP.

Those looking for any clues on the future of the PEPP and APP purchases were left disappointed, with the statement reaffirming that PEPP will run until at least the end of March 2022 and, in any case, until it judges that the coronavirus crisis phase is over whilst forward guidance was maintained on APP.

Sources the following day noted that policymakers were not expecting to make a decision on the future of PEPP bond purchases in September given the persistent uncertainty posed by the pandemic. Instead, a decision in October or December was seen as more likely.

On the economic outlook, the ECB judged that the economic recovery remains on track with activity seen returning to pre-crisis levels by Q1 2022, that said, the Delta variant poses a source of uncertainty for the outlook. As ever with the release of the accounts, commentary on the economic outlook can often be viewed as stale given the lag between the meeting and publication.

JACKSON HOLE ECONOMIC SYMPOSIUM (THU-SAT)

The market will be looking to Fed Chair Powell’s remarks (27th August at 10:00EDT/15:00BST) for any signal about when and how the Fed will begin scaling-back its asset purchases. The Fed has been buying USD 120bln of Treasury and mortgage-backed securities per month, and has said that it will provide advance notice to the market about its intentions to taper these purchases, when ‘substantial further progress’ towards its inflation and labour market goals has been satisfied.

However, some desks are suggesting that Powell’s remarks may be a damp squib for those expecting a rich amount of detail. Moody’s, for instance, argues that the Fed chair will not want to front-run the FOMC’s September 22nd meeting, while some senior Fed officials have also said that they want to see the August jobs report (out on September 3rd – after Jackson Hole) before crystalising their view.

The central bank’s latest meeting minutes noted that the ‘substantial further progress’ threshold had not yet been met, although most see the conditions being satisfied before the end of the year. The street generally expects that the taper will begin in Q4, although some doves have suggested there are risks of early next year; with this starting point largely accepted as consensus, the main focus is on the tapering process itself – at what rate will the Fed taper (many desks think around USD 15bln/month), over what time period (many think it will take a year or so), and what the composition of the taper will be (many think that MBS and Treasury purchases will be rolled-back proportionately).

Many of these questions will not be fully answered at Jackson Hole, and analysts suggest it is more likely that they will be revealed after the Fed has announced its intention to taper.

BOK POLICY DECISION (THU)

There are mixed views on whether the Bank of Korea will maintain or hike its 7-Day Repo Rate from the current 0.50% at its meeting next week, as the central bank’s hawkish stance contends with the worsening domestic virus situation that recently saw the largest increase in daily COVID-19 cases.

The BoK has made its intentions to hike rates very clear and was said to be preparing to normalise policy to ease the side effects of low rates, which BoK Governor Lee suggested could begin if the economic condition improves. Governor Lee also stated after last month’s decision that they need to review if a policy adjustment is needed from the next meeting and reiterated that he thinks rates can be increased this year, as well as noted an undesirability for prolonging low rate expectations.

Furthermore, despite there being just one lone dissenter that called for a hike among the seven monetary policy board members at the last meeting, the Minutes hinted that more policymakers were in favour of a hike this month which has prompted JPMorgan (NYSE:JPM) to bring forward its rate increase forecast to the upcoming meeting and it also forecasts a further hike in Q4 this year, as well as another increase in Q3 2022.

Conversely, SocGen sees it difficult for the central bank to downplay risks by beginning to lift rates now amid a worsening of the domestic virus situation and instead its base case is for a hike at the October meeting with the assumption that daily COVID infections peak this month and social distancing restrictions are relaxed in September, while it also anticipates 100bps of hikes next year on the view that “the economy escapes the impact of the pandemic”.

US GDP (THU)

Analysts expect that the second estimate of US GDP in Q2 will be revised up a little, to 6.6% from the 6.5% initial estimate. As a point of reference, the Atlanta Fed’s GDPnow model is tracking Q2 growth at 6.1%, suggesting that there is some potential for downside relative to the consensus.

AUSTRALIAN Q2 CAPEX SURVEY (THU)

Desks expect another Q/Q lift in private investments amid continued strong momentum likely being carried into Q2 as the economy re-opened. For context, firms rolled back CapEx spending thrice in 2020 in response to the pandemic. Equipment spending is expected to rise firmly whilst Building & Structure expenditures are forecast to moderate - reflected by a decline in approvals. Desks have downplayed the significance of the survey of future business capex intentions at such a fluid time as these will likely shift in tandem with lockdowns lifting.

AUSTRALIAN PAYROLLS (THU)

The July payrolls will offer insight into the labour market during Sydney lockdown. Analysts unsurprisingly expect a sharper deterioration given the COVID situation Down Under. However, desks caution against putting too much weight on the reports as they are not seasonally adjusted and are also prone to revisions.

AUSTRALIAN RETAIL SALES (FRI)

The headline M/M is forecast at -2.9% for July vs -1.8% in June. The June decline was a by-product of the extended 14-day lockdown in Melbourne coupled with a lockdown in Sydney at the end of July - which has now been extended through to the end of September. The greater decline expected in July is due to the intensifying COVID situation in the region prompting harsher restrictions. However, analysts at Westpac caution of volatility in the metric, citing stockpiling and opening rebounds. Westpac, citing its Card Tracker, suggests that consumer spending held up reasonably well during the extended New South Wales lockdown - "By way of comparison, retail sales nationally declined 4.1% as Vic entered its 'second wave' lock-down back in Aug last year and by a further 1.1% in Sep.", the bank said.

US PERSONAL INCOME, SPENDING, PCE (FRI)

Core PCE prices are expected to rise 0.4% M/M in July, matching the June rate. The annual measure is seen picking up to a fresh pandemic high at 3.6% Y/Y from June’s 3.5%. Credit Suisse (SIX:CSGN) says that "as was the case in the CPI report, most of the strength in PCE inflation should be concentrated in reopening services and new vehicles, with some acceleration in labour-intensive services industries as well."

Personal income is seen rising +0.2% M/M in July, and consumption is seen rising +0.5% M/M. After the downside surprise seen in the July retail sales report, CS is cautious about the consumption metrics, and believes they could even decline slightly in the month. "The retail sales report suggested overall goods consumption fell sharply as vehicle and other large household durable spending declined, in-line with our view that goods consumption would decline through the rest of the year," the bank writes, "however, part of the weakness should be offset by some upward revisions to spending figures in June."

For the income measure, CS is looking for an above-consensus +0.6% M/M, arguing that the July jobs report signalled that labour income remains solid; "Half of the child care tax credit started reaching households in July, and this should help boost current transfer receipts," the bank writes, and "this boost would be partially offset by a continued decline in unemployment benefits."