This week appears relatively light in terms of economic indicators. The only releases worth mentioning are Norway’s and Canada’s GDP data for Q2, as well as Germany’s Ifo survey for August. Having said that though, on Thursday and Friday, we have the Jackson Hole economic symposium, with investors perhaps locking their gaze on a keynote speech by Fed Chair Powell, looking for clearer hints with regards to the Fed’s future course of action.
On Monday, there are no major events or indicators on the calendar.
On Tuesday, during the Asian morning, the only release worth mentioning is the BoJ core CPI for July, but no forecast is currently available.
During the European morning, from Norway, we have GDP data for Q2. No forecast is available for the headline qoq rate, but the mainland one is forecast to have slid to -6.1% from -2.1%. At last week’s gathering, the Norges Bank decided to keep interest rates unchanged at 0.0%, repeating that the outlook and balance of risks suggest that they will most likely stay at that level for some time ahead. Officials acknowledged that the economy is in the midst of a deep downturn, and added that new information largely confirms the picture of the economic developments presented in the June report. In that report, the Bank’s estimate for the Q2 mainland GDP was -6.1%, exactly the same as the analysts’ forecast, and thus, we don’t expect such a contraction rate to alter the plans of the Norges Bank. In our view, this means that the reaction in NOK is unlikely to be a major one.
Germany’s Ifo survey for August is also coming out. Both the current assessment and expectations indices are expected to have risen to 87.0 and 98.0 from 84.5 and 97.0 respectively, something that will drive the business climate index up to 92.0 from 90.5. Having said that though, bearing in mind that the current conditions index of the ZEW survey slid further into the negative territory, instead of rebounding as the forecast suggested, we would consider the risks surrounding the Ifo current assessment index as tilted to the downside. With the number of infected cases in Europe accelerating lately, while at the same time, cases in the US have started to slow somewhat, a deteriorating view with regards to Germany’s current economic condition will not come as a surprise to us. The nation’s final GDP for Q2 is also coming out, which is expected to confirm the preliminary estimate that Eurozone’s economic powerhouse has contracted 10.1% qoq.
From the US, we have the Conference Board consumer confidence index for August and the new home sales for July. The CB index is expected to have risen fractionally, to 93.0 from 92.6, while new home sales are anticipated to have slowed to +1.3% mom from +13.8%.
On Wednesday, during the Asian trading, New Zealand’s trade data for July are due to be released, but no forecast is available.
Later in the day, the only release worth mentioning is the US durable goods orders for July. Both the headline and core rates are expected to have declined to 4.3% mom and 2.1% mom, from 7.6% and 3.6% respectively.
On Thursday, the spotlight is likely to fall on the virtual Jackson Hole annual economic symposium, where Fed Chair Powell will deliver a keynote speech on the opening day. The conference will be held virtually for the first time due to the pandemic. The minutes of the latest FOMC gathering revealed that several participants suggested that additional accommodation could be required, but added that fiscal support would also be necessary. On the other hand, they saw only modest benefits from adopting a yield curve control strategy, and thus, this was “not warranted” now, which may have been the reason behind the pullback in equities and the rebound in the dollar after the release.
With no clear picture as to what form any potential additional easing may take, investors may lock their gaze on Powell’s speech for more clarity on that front. They may also be looking for clues on the timing of any additional action, especially if the White House and Congress Democrats stay deadlocked in agreeing over a new coronavirus-aid package. If the Fed Chief suggests that further stimulus is on the cards, perhaps as early as next month, equites are likely to extend their uptrends, while the dollar is likely to continue tumbling. The opposite may be true, if Powell appears less dovish than anticipated, something that could scale back expectations over fresh accommodative measures before the end of this year.
As for the rest of Thursday’s events, Switzerland’s GDP for Q2 is coming out, as well as the 2nd estimate of the US GDP for the quarter. Swiss activity is anticipated to have contracted 8.5% qoq after sliding 2.6% in the first three months of the year, while the 2nd estimate of the US figure is forecast to show a modest upside revision to -32.6% from -32.9%. Initial jobless claims for last week and pending home sales for July are on the agenda.
Finally, on Friday, during the Asian morning, Japan’s Tokyo CPIs for August are due out. No forecast is available for the headline rate, while the core one is anticipated to have ticked down to +0.3% yoy from +0.4%.
Later in the day, from the US, we get personal income and spending data for July, alongside the core PCE index for the month. Personal income is expected to have declined 0.2% mom after falling 1.1% in June, while spending is forecast to have slowed to +1.5% mom from +5.6%. The core PCE index, the Fed’s favorite inflation metric, is expected to have increased to +1.2% yoy from +0.9%, something supported by the rise in the core CPI rate for the month. The final UoM consumer sentiment index for August is also coming out and is expected to be revised fractionally up, to 72.8 from 72.5.
From Canada, we have GDP data for June and Q2 as a whole. The monthly rate for June is forecast to have increased further, to 5.3% from 4.5%, after tumbling to -11.7% in April. That said, no forecast is available for the qoq annualized rate. At its last meeting, the BoC decided to keep interest rates unchanged at +0.25%, and noted that they will stay there until the 2% inflation target is sustainably achieved. Officials also added that they will continue with their QE program until the economic recovery is well underway, and that they stand ready to adjust their programs if market conditions change. With all that in mind, we believe that further improvement in economic activity during the month of June may allow policymakers to stand pat for a while more. On top of that, with oil prices staying in an uptrend mode and the broader market sentiment staying supported, the Loonie may stay relatively strong for more. If risk appetite continues to improve, we would expect it to perform better against the safe havens, like the US dollar, the Japanese yen, and maybe the Swiss franc.
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