• The Fed’s Jackson Hole Symposium begins tonight; July FOMC minutes were dovish; data highlight will be S&P Global preliminary August PMIs; weekly jobless claims will also be of interest; Chicago Fed reports its July NAI; Mexico reports mid-August CPI data
  
• ECB publishes the account of its July decision; Q2 negotiated wage settlements slowed; eurozone and U.K. reported firm preliminary August PMIs; U.K. CBI also reported its August industrial trends survey
  
• Japan and Australia reported strong preliminary August PMIs; Korea kept rates steady at 3.5%, as expected

The dollar is firm despite downward BLS revisions and dovish FOMC minutes. DXY is trading higher near 101.259 after four straight down days. USD/JPY is trading higher near 145.90, sterling is trading higher near $1.3125, and the euro is trading lower near $1.1145. Markets shrugged off the -818k revision to March NFP as well as the dovish FOMC minutes (see below). While Powell is widely expected to signal a September cut in his Jackson Hole speech, we continue to believe that markets are once again getting carried away with its pricing for aggressive easing. Dollar bears could get caught flat-footed by a less dovish message from Powell tomorrow. We continue to believe that the divergence story remains in place and should continue to support the dollar. However, it will likely take weeks for the current market narrative to run its course. Last week’s data provided a good start but more needs to be seen.

AMERICAS

The Fed’s Jackson Hole Symposium starts tonight and ends Saturday. This year’s topic is "Reassessing the Effectiveness and Transmission of Monetary Policy." Chair Powell will give opening remarks tomorrow morning. Judging by recent Fed comments and the July FOMC minutes (see below), the Fed is prepared to begin the easing cycle next month. However, we expect Powell to stress the data-dependent nature of the Fed’s monetary policy decisions and to push back against any sort of pre-commitment to an aggressive easing path. Powell has already pulled off a mid-cycle adjustment back in 2019 and so he can draw on that experience. Please see our Jackson Hold preview here.

The July FOMC minutes were dovish. Several officials “observed that the recent progress on inflation and increases in the unemployment rate had provided a plausible case for reducing the target range 25 basis points at this meeting or that they could have supported such a decision.” Furthermore, ”the vast majority” of members observed that “it would likely be appropriate to ease policy at the next meeting.” Lastly, a “majority of participants remarked that the risks to the employment goal had increased, and many participants noted that the risks to the inflation goal had decreased.”

Fed easing expectations remain elevated. The market is still pricing in 100 bp of total easing by year end. For September, Fed funds futures show 30% odds of a 50 bp cut while OIS show nearly 25% odds. We are sticking to our view that the Fed does not need to rush to lower interest rates as rapidly as money market anticipate. Domestic demand is robust, the labor market remains relatively healthy, underlying inflation is sticky, and financial conditions are still loose. Moreover, a jumbo cut in September would send the wrong signal to the market as it would suggest serious issues with the US economic/financial situation.

The data highlight will be S&P Global preliminary August PMIs. Manufacturing is expected to fall a tick to 49.5, services is expected to fall a full point to 54.0, and the composite is expected to fall over a full point to 53.2. If so, this would be the second straight drop to the lowest since April. ISM PMIs won’t be reported until the first week of September.

Weekly jobless claims will also be of interest. That’s because the initial claims data will be for the BLS survey week containing the 12th of the month and are expected at 232k vs. 227k last week. Continuing claims are reported with a 1-week lag and are expected at 1.870 mln vs. 1.864 mln last week. Bloomberg consensus for August NFP sees 155k vs. 114k in July, while its whisper number has risen to 150k.

BLS preliminary annual payrolls benchmark revisions were released. This is typically not a market-mover and true to form, even with a larger than usual -818k revision, markets barely budged. Note that the revisions will only impact NFP and not the unemployment rate, which is derived from the household survey. Furthermore, the monthly changes weren’t changed but could be revised when the final benchmark revision come out in February 2025.

Chicago Fed reports its July National Activity Index. Headline is expected at 0.03 vs. 0.05 in June. If so, the 3-month moving average would rise to 0.10 vs. -0.01 in June. This would be the highest since September 2022 and would move further above the -0.7 threshold that signals recession.

Housing data will be of interest. July existing home sales are expected at 1.3% m/m vs. -5.4% in June. New home sales will be reported tomorrow and expected at 1.0% m/m vs. -0.6% in June. Last week, the NAHB housing market index for August came in at 39 vs. 43 expected and a revised 41 (was 42) in July. This was the fourth straight drop and the lowest since December, suggesting that the housing market remains under pressure despite the recent drop in yields.

Mexico reports mid-August CPI data. Headline is expected at 5.31% y/y vs. 5.52% previously, while core is expected to remain steady at 4.08% y/y. If so, it would be the second straight deceleration for headline but still well above the 2-4% target range. Banco de Mexico minutes will also be released. At that August 8 meeting, it restarted the easing cycle with a 25 bp cut to 10.75%. The decision was 3-2, with the dissents in favor of steady rates. Several policymakers have since said that the cut was justified by falling core inflation, while Deputy Governor Heath called the move “premature.” Next meeting is September 26, and it will be a close call. Of note, the market is pricing in 25 bp of easing over the next three months and 175 bp of total easing over the next 12 months.

EUROPE/MIDDLE EAST/AFRICA

European Central Bank publishes the account of its July decision. At the July 18 meeting, the bank kept rates steady and noted “The incoming information broadly supports the Governing Council’s previous assessment of the medium-term inflation outlook. At the same time, domestic price pressures are still high, services inflation is elevated, and headline inflation is likely to remain above the target well into next year.” In her press conference, President Lagarde said “The question of September and what we do in September is wide open and will be determined on the basis of all the data that we will be receiving.” Afterward, the usual leaks emerged as the hawks said that the bank may only be able to cut rates one more time this year. Lane speaks Saturday at Jackson Hole.

European Central Bank Q2 negotiated wage settlements slowed. Negotiated wage growth slowed to 3.6% y/y vs. 4.7% in Q1. This is the slowest pace since Q4 2021 and in line with the signal from the forward-looking ECB wage growth tracker. Moderating wage pressures will further weigh on ECB rate expectations and undermine EUR.

Eurozone reported firm preliminary August PMIs. Headline manufacturing came in at 45.6 vs. 45.8 expected and actual in July, services came in at 53.3 vs. 51.7 expected and 51.9 in July, and the composite came in at 51.2 vs. 50.1 expected and 50.2 in July. Looking at the country breakdown, the big surprise was France, where the Olympics boosted its services PMI to 55.0 vs. 50.1 in July. In turn, this pushed its composite up to 52.7 vs. 49.1 in July. Germany continues to struggle, as both manufacturing and services fell by more than a point, dragging the composite down to 48.5, the lowest since March. We’d fade this PMI print, as the Olympic boost for France won’t be sustained while the continued deterioration in the outlook for Germany remains worrisome. Italy and Spain will be reported with the final PMI readings in early September.

U.K. reported firm preliminary August PMIs. Manufacturing came in at 52.5 vs. 52.1 expected and 52.1 in July, services came in at 53.3 vs. 52.8 expected and 52.5 in July, and the composite came in at 53.4 vs. 53.0 expected and 52.8 in July. This was the second straight rise in the composite to the highest since April, with services activity at a 4-month high and manufacturing at a 26-month high. This remains supportive of the U.K. recovery story. Moreover, inflationary pressures are easing, notably in the services sector. Overall, the data suggest that the BOE can continue cutting rates.

U.K. CBI also reported its August industrial trends survey. Total orders came in at -22 vs. -25 expected and -32 in July, while selling prices came in at 15 vs. 5 expected and 2 in July. Its distributive trades survey will be reported next week.

ASIA

Japan reported strong preliminary August PMIs. Manufacturing came in at 49.5 vs. 49.1 in July, services came in at 54.0 vs. 53.7 in July, and the composite came in at 53.0 vs. 52.5 in July and extended its recovery after falling below 50 in June. We think it will be hard to sustain this bounce in light of rising JGB yield and the stronger yen. In that regard, tomorrow’s July CPI data and BOJ Governor Kazuo Ueda’s parliamentary testimony will offer better clues about the extent of the BOJ tightening cycle.

Australia reported strong preliminary August PMIs. Manufacturing came in at 48.7 vs. 47.5 in July, services came in at 52.2 vs. 50.4 in July, and the composite came in at 51.4 vs. 49.9 in July. This was the first rise in the composite since March, with services sector activity expanding at the fastest pace in three months while the contraction in manufacturing activity eased to a three-month high. The data support the RBA’s hawkish policy guidance, at least for now. With the mainland economy still struggling, we suspect the composite PMI will struggle to remain above 50 for an extended period.

Bank of Korea kept rates steady at 3.5%, as expected. However, it was a dovish hold as the statement removed a previous phrase that it would keep rates steady “for a sufficient period of time.” The bank added that it will “thoroughly assess the tradeoffs among policy variables such as inflation, growth, and financial stability, and examine the proper timing of rate cuts while maintaining a restrictive monetary policy stance.” Furthermore, Governor Rhee said that four BOK members were now open to cutting rates over the next three months, up from only two at the last meeting. The next meeting is October 11 and given the forward guidance, that meeting is live. The market sees around 40% odds of a rate cut over the next three months, but that becomes fully priced in over the subsequent three months. Furthermore, another 50 bp of easing is seen over the six months after that.