Drivers for the Week of September 24, 2023

September 24, 2023
Here's a look at the main drivers in Developed Markets this week.

The dollar was mixed against the majors last week. With some growing optimism regarding China, the growth sensitive dollar bloc and Scandies outperformed while GBP, CHF, and JPY underperformed. The main message that emerged from last week’s spate of central bank meetings is that the Fed is likely to hike further while the other major ones are at or near the end of their tightening cycles. With regards to the BOJ, it’s not even close to the start of tightening. With monetary policy divergences set to widen further, we believe the dollar rally remains intact.


Markets are still digesting last week’s FOMC decision. In particular, the rates market is finally believing the Fed’s message of higher for longer. The 10-year yield traded near 3.72% July 19 and has risen to 4.43% currently, while the 30-year yield traded near 3.83% July 19 and has risen to 4.52% currently. Equity markets are also coming around, as the S&P 500 peaked July 27 and fallen 6% since and the NASDAQ peaked July 19 and fallen 9% since. The FX market has taken its cue from the rates market and continues to take the dollar higher, as DXY bottomed July 14 and risen 6% since. Indeed, DXY gained every week since that bottom for a streak of ten straight.

That said, Fed tightening expectations have yet to adjust significantly higher. WIRP suggests only 25% odds of a hike November 1, rising to 50% December 13. These odds are way too low given the Fed’s hawkish stance and should move higher if the data remain firm, as we expect. Fed officials are likely to push the higher for longer narrative this week. Kashkari speaks Monday. Bowman speaks Tuesday. Goolsbee, Cook, Powell, and Barkin speak Thursday. Williams speaks Friday.

The auto strike has widened. The UAW started strike action this past Friday at nearly forty GM and Stellantis plants but spared Ford from additional strikes, citing progress being made with that company. Estimates suggest this round of strikes will add about 5,600 workers for a total of 18,300 on strike, or about 12% UAW membership. Needless to say, a deal with Ford would put pressure on the other two to follow suit. The strike is only one week old and so it’s still too early to attempt an accurate tally of the economic costs. Suffice to say that the longer it goes on, the higher the costs of lost output and wages.

August PCE readings Friday will be the data highlight this week. Headline is expected at 3.5% y/y vs. 3.3% in July, while core is expected at 3.9% y/y vs. 4.2% in August. Of note, the Cleveland Fed’s Nowcast model shows August PCE and core PCE at 3.53% and 3.95%, respectively. For September, it shows PCE and core PCE at 3.53% and 3.80%, respectively. When all is said and done, headline inflation is creeping up towards 4% while core inflation remains stuck near 4%. The Fed simply cannot say that its job is finished.

Personal income and spending will be reported at the same time. Income is expected at 0.4% m/m vs. 0.2% in July, while spending is expected at 0.4% m/m vs. 0.8% in July. Real personal spending is expected at 0.0% m/m vs. 0.6% in July. Retail sales slowed in August but that only measures goods. Personal spending includes services, which has been running hot in recent months.

August Chicago Fed National Activity Index will be reported Monday. The headline reading is expected at 0.05 vs. 0.12 in July. If so, it would be the second straight month back in positive territory. Recall that a positive headline reading means the U.S. economy is growing above trend, which speaks to its ongoing resilience. Of note, the 3-month moving average would come in at -0.05 vs. -0.13 in July and would be the highest since last October. Also recall that the recession signal comes when the 3-month moving average hits -0.7 and we are far from that. This series has taken on greater significance given that the 3-month to 10-year curve remains deeply inverted. The continued resilience in the economy is noteworthy and suggests the Fed still has more work to do in getting to the desired sub-trend growth.

Regional Fed surveys for September will continue rolling out. Dallas Fed manufacturing and Philly Fed non-manufacturing surveys will be reported Monday. Dallas is expected at -13.0 vs. -17.2 in August. Richmond Fed manufacturing (-7 expected) and business conditions surveys and Dallas Fed services will be reported Tuesday. Kansas City Fed manufacturing survey (-2 expected) will be reported Thursday and its services survey will be reported Friday.

September Chicago PMI will be reported Friday. It is expected at 47.5 vs. 48.7 in August. If so, it would be the first drop after three straight increases. Last week, S&P Global reported soft preliminary September PMI readings. Headline manufacturing came in at 48.9 vs. 48.2 expected and 47.9 in August, services came in at 50.2 vs. 50.7 expected and 50.5 in August, and the composite came in at 50.1 vs. 50.4 expected and 50.2 in August. The ISM PMIs are much more widely followed and will be reported next week. Recently, the ISM readings have been coming in much stronger than the S&P Global readings.

Weekly jobless claims Thursday will be of interest. That’s because continuing claims are for the BLS week containing the 12th of the month and are expected at 1.675 mln vs. 1.662 mln last week. Initial claims are expected at 215k vs. 201k last week. Last week’s reading was for the BLS survey week and the lowest since late January, while the 4-week moving average of 217k was the lowest since the February BLS survey week. NFP that month came in at 311k vs. 225k expected. Current Bloomberg consensus for September NFP is 155k while its whisper number is 175k. We believe that despite the various strikes, the labor market remains very tight.

Housing data will remain in focus. July FIFA and S&P CoreLogic house prices and August new home sales will be reported Tuesday. Sales are expected at -2.2% m/m vs. 4.4% in July. Pending home sales will be reported Thursday and are expected at -1.0% m/m vs. 0.9% in July. With the average 30-year mortgage rate still moving higher to touch 7.75% last week, the housing sector is likely to show some further signs of weakness.

We get some confidence measures. September Conference Board consumer confidence will be reported Tuesday. Headline is expected at 105.5 vs. 106.1 in August. If so, it would be the second straight monthly drop from the 114 peak in July. Final September University of Michigan consumer sentiment will be reported Friday.

We get another revision to Q2 GDP data Thursday. Growth is expected to be revised up a tick to 2.2% SAAR. However, that’s old news and markets are looking ahead to Q3 and Q4. The Atlanta Fed’s GDPNow model is currently tracking Q3 growth at 4.9% SAAR and the next update comes Wednesday after the data.

Other minor data round out the picture for the U.S. August durable goods orders will be reported Wednesday and are expected at -0.5% m/m vs. -5.2% in July. August retail and wholesale inventories and trade data will be reported Friday.


Despite a few hawkish holdouts, we think the discussion at the ECB has clearly shifted from how high to how long. WIRP suggests around 5% odds of a hike October 26, then rising to top out near 25% December 14. The first cut is still seen around mid-2024. Villeroy, Lagarde, and Schnabel speak Monday. Lane, Simkus, and Holzmann speak Tuesday. Holzmann and de Cos speak Thursday. Lagarde and Kazaks speak Friday.

September eurozone CPI readings will be the data highlight. Spain and Germany report Thursday. Spain’s EU Harmonised inflation is expected at 3.2% y/y vs. 2.4% in August, while Germany’s is expected at 4.5% y/y vs. 6.4% in August. Spain is one of the few eurozone countries to report core inflation and it is expected to fall a tick to 6.0% y/y. France and Italy report Friday. France’s EU Harmonised inflation is expected at 5.9% y/y vs. 5.7% in August, while Italy’s is expected at 5.3% y/y vs. 5.5% in August. Eurozone reports later Friday. Headline is expected at 4.5% y/y vs. 5.2% in August, while core is expected at 4.8% y/y vs. 5.3% in August. If so, headline would decelerate for the fifth straight month to the lowest since October 2021 and would feed into the dovish ECB narrative.

German IFO business climate for September will be reported Monday. Headline is expected at 85.2 vs. 85.7 in August, driven largely by a full point drop in current assessment to 88.0 that offsets a rise in expectations to 83.0 vs. 82.6 in August. October GfK consumer confidence will be reported Wednesday and is expected at -26.0 vs. -25.5 in September. Germany reports September unemployment Friday and is expected to remain steady at 5.7%.

Retail sales data for August will continue rolling out. Spain reports Thursday. Germany reports Friday and is expected at 0.5% m/m vs. -1.0% in July. France already reported weak sales for August. Eurozone sales won’t be reported until October 4, while Italy reports retail sales October 6.

Eurozone reports August M3 data Wednesday. It is expected at -1.1% y/y vs. -0.4% in July. If so, this would be the weakest on record dating back to 1971. There is no doubt that the eurozone is going into recession; the only thing that’s unknown is how bad it will be.

The U.K. has a quiet week. CBI releases the results of its September distributive trades survey Monday, with retailing reported sales expected at -35 vs. -44 in August. Final Q2 GDP data, Q2 current account, and August consumer credit will be reported Friday.

After last week’s dovish hold by the Bank of England, we may already have seen the end of its tightening cycle. WIRP suggests 30% odds of a hike November 2, rising to top out near 60% December 14. Hauser and Greene speak Thursday.


The yen should continue to weaken after Bank of Japan’s dovish hold last week. We are surprised that USD/JPY isn't making new highs last Friday after trading at a new cycle high near 148.45 last Thursday. The BOJ gave no hint of removing accommodation and so we don't expect any change at the October 30-31 meeting either. Perhaps fear of FX intervention is weighing on the pair but until the monetary policy divergence narrows, there's only one way for USD/JPY to go and that's up. Of note, WIRP suggests nearly 70% odds of liftoff in December, rising to nearly 75% in January and fully priced in for March. The minutes of the July 27-28 BOJ meeting will be released Wednesday.

September Tokyo CPI data Friday will be the data highlight for Japan. Headline is expected to fall a tick to 2.8% y/y, while core (ex-fresh food) is expected to fall two ticks to 2.6%. if so, core would fall for the third straight month to the lowest since August. This would obviously bode well for the nation reading. Core ex-energy is expected to fall a tick to 3.9% y/y. If so, this would be the first deceleration since June.

Japan reports some key real sector data too. August department store sales will be reported Monday. Labor market data, IP, retail sales, and housing starts will also be reported Friday. Unemployment is expected to fall a tick to 2.6%, job-to-applicant ratio is expected to remain steady at 1.29, IP is expected at -0.8% m/m vs. -1.8% in July, and retail sales are expected at 0.5% m/m vs. 2.1% in July.

Australia highlight will be August CPI data Wednesday. Headline is expected to pick up three ticks to 5.2% y/y. If so, it would be the first acceleration since April and would move it further above the 2-3% target range. August retail sales Thursday will also be important and are expected at 0.3% m/m vs. 0.5% in July. August private sector credit will be reported Friday and is expected at 0.3% m/m vs. 0.3% in July.

RBA tightening expectations have picked up as a result of recent economic data. WIRP suggests no change at new Governor Bullock’s first meeting October 3. However, those odds rise to nearly 30% November 7, 40% December 5, and top out near 85% in Q1.

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