Ostwald, Marc
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08:42 (9 minutes ago)
to Marc
- Services PMIs and Fed speak dominate schedule; US/Canada Trade data also
due; rate decisions in Canada, Poland, Malaysia & Georgia; politics,
trade and EM woes still the dominant themes; also digesting Merkel
and French Foreign Minister comments on Brexit & EU budget
- China/India Services PMIs disappoint, but caution advisable in terms
of interpretation
- UK Services PMI: seen posting modest gain, but Construction PMI
reversal suggests downside risks
- Canada rates: BoC on hold today, but should signal door firmly open
for an October rate hike
- Chart: China Caixin vs NBS Services PMIs
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** EVENTS PREVIEW **
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It's the third working day of the month and therefore the data schedule is dominated by Services PMIs from around the world, though the US Non-Manufacturing ISM will be published tomorrow due to Monday's holiday. The other items of note being the US & Canadian Trade Balance, and given the current EM turmoil, Philippines CPI, which again surprised on the upside at 6.4% y/y against forecasts for 5.9% y/y vs July's 5.7%, and underlines that the BSP still looks to be well behind the curve in terms of rate hikes, given that in August it left rates unchanged at 4.0%. Canada's BoC is expected to hold rates at 1.50%, though it will leave the door open to a widely anticipated rate hike in October, though this might not be crystal clear, in so far as this is a non-press conference meeting, though Wilkins will be speaking tomorrow and thus be able to rectify any market misinterpretations, if required. In the CEE/EM space, rate decisions in Georgia, Malaysia and Poland are also likely to see no change. There is a busy run of Fed speak via way of Bullard, Bostic, Kashkari and most importantly Williams. It is worth noting that Bullard's comments in his Fox Business interview yesterday were notably less dovish than usual, conceding that Fed rates are roughly where they should be and that most of his Fed saw a high probability of a September rate hike, which unlike a month or two ago he did not vociferously protest, nor did he express the strong concerns that he had previously voiced on the shape of the Treasury yield curve. Otherwise the various weak points in the EM space - Turkey, Argentina, Brazil, Indonesia and South Africa - will be closely monitored, while politics and trade tensions continue to offer plenty of occasional 'tape bombs'. Politically, there were also notable comments from Merkel warning of the risk of negotiations breaking down without an agreement, which is quite a sharp departure from her normally optimistic stance. Perhaps even more significant were the comments from the French Foreign Minister that France was no longer willing to "pay" for Poland and Hungary, which suggests a major battle looms on the post-2020 EU budget, above all in terms of allocation of development funds, which have been a key prop to growth above all for the 'Visegrad 4'.
** World - August Services PMIs **
- After a set of Manufacturing surveys that overall (though not universally) surprised on the upside or at least improved vs. July, today is the turn of the Services sector, which has remained relatively buoyant in the Eurozone and indeed China despite the Manufacturing sector's trade related fears. The reported setbacks in China and India sent a poor signal, though in both cases should be treated with care, given that the official NBS reading picked up and remains robust, echoing an array of anecdotal evidence suggesting that Services are very much the engine of growth at the current juncture. As for the India setback, this has been very volatile ever since last year's de-monetization shock, often moving 2.0+ points from month to month; that said rising oil prices and a weak INR will continue to dampen sentiment in the key distributive (transport) trades sectors. For the Eurozone, Spain's reading edged higher against expectations of a further dip, and thus echoes flash readings in France & Germany, though Italy is expected to dip to 53.1 after showing some unexpected strength in June & July. For the UK, the reversal in the Construction PMI (52.9 vs. July 55.8) implies downside risks to the consensus for a modest uptick to 53.9 from 53.5.
from Marc Ostwald