The dollar saw broad weakness against the majors last week. NZD, AUD, and JPY outperformed while NOK, EUR, and CAD underperformed. Market sentiment has been underpinned by stimulus and stabilization measures out of China, but we do not believe they will have much lasting impact on the real mainland economy. Risk assets have also been boosted by dovish Fed easing expectations but U.S. data this week will test this theme.

AMERICAS

Fed comments suggest that most favor a gradual easing path. While many officials have said they fully supported the 50 bp hike this month, they have largely avoided sending any dovish signals about future policy and have instead counseled gradualism. Ahead of the weekend, St. Louis Fed President Musalem said that “For me, it’s about easing off the brake at this stage. It’s about making policy gradually less restrictive.” We expect Fed comments this week to remain cautious. Bowman and Powell speak Monday. Bostic, Cook, Barkin, and Collins speak Tuesday, Hammack, Musalem, Bowman, and Barkin speak Wednesday. Kashkari and Bostic speak Thursday. Williams speaks Friday.

The September jobs report Friday will test the Fed’s gradual approach. A weak reading would push up the odds of a 50 bp cut in November from around 55% currently. Bloomberg consensus for NFP sees 146k vs. 142k in August. However, its whisper number come in at 133k. Unemployment is expected to remain steady at 4.2%, while average hourly earnings are expected to remain steady at 3.8% y/y. Ahead of that, ADP private sector jobs estimate will be reported Wednesday and is expected at 125k vs. 99k in August.

Other labor market data will be closely watch. August JOLTS data will be reported Tuesday. Openings are expected at 7.660 mln vs. 7.673 mln in July, which was the lowest level since January 2021. Furthermore, keep an eye on the job openings rate, which fell 0.2 ppt in July to 4.6% and is dangerously close to the 4.5% threshold that typically signals a significant rise in the unemployment rate. The details were mixed in July, as the layoff rate rose 0.1 ppt to 1.1% while the hiring rate increased 0.2 ppt to 3.5%. A further pick-up in the layoff rate would be a concern and would validate aggressive Fed easing expectations. September Challenger job cuts and weekly jobless claims will be reported Thursday.

September ISM PMI readings will also be important. Manufacturing will be reported Tuesday and headline is expected at 47.6 vs. 47.2 in August. Keep an eye on prices paid, which is expected to fall two ticks to 53.8. Services will be reported Thursday and headline is expected to rise a tick to 51.6. Ahead of ISM, Chicago PMI will be reported Monday and is expected to fall a tick to 46.0. However, this series has correlated badly with the national PMIs and so offers limited insight.

U.S. growth remains robust. The Atlanta Fed’s GDPNow model is tracking Q3 growth at 3.1% SAAR and will be updated Tuesday after the data. Elsewhere, the New York Fed’s Nowcast model is tracking Q3 growth at 3.0% SAAR and Q4 growth at 2.8% SAAR and will be updated Friday.

The U.S. vice presidential debate will be held Tuesday evening. Governor Tim Walz and Senator JD Vance meet for the first and only time in debate. While the Vice Presidential debate typically doesn’t move the needle much, this one may take on greater significance as there are no more Presidential debates scheduled ahead of the November election. The race remains close, with betting market and polls giving Vice President Harris a slight edge over former President Trump.

Canada reports September PMI readings this week. S&P Global manufacturing will be reported Tuesday. Its services and composite PMIs will be reported Thursday. Ivey PMI will be reported Friday. All four of these PMIs were below 50 in August and we see little scope for improvement near-term. Overall, soggy economic activity, slower inflation, and growing slack in the labor market argue for a 50 bp Bank of Canada rate cut at the next meeting October 23. The swaps market pricing nearly 80% odds of such a cut.

EUROPE/MIDDLE EAST/AFRICA

Eurozone September CPI data will continue to roll out. Germany and Italy report Monday. Germany’s EU Harmonised inflation is expected at 1.8% y/y vs. 2.0% in August, while Italy’s is expected at 0.8% y/y vs. 1.2% in August. Eurozone then reports CPI data Tuesday. Headline is expected to fall three ticks to 1.9% while core is expected to fall a tick to 2.7% y/y. If so, headline would be the lowest since June 2021 and below the 2% target. There are downside risks to this week’s readings after France and Spain CPI data reported last week. France’s EU Harmonised inflation came in at 1.5% y/y vs. 1.9% expected and 2.2% in August, while Spain’s came in at 1.7% y/y vs. 1.9% expected and 2.4% in August. Spain is one of the only eurozone countries to report core inflation and it came in at 2.4% y/y vs. 2.8% expected and 2.7% in August.

The battle between the ECB hawks and the doves will continue to play out. However, it now appears that the doves are gaining the upper hand as market odds for an October cut have risen to nearly 85% vs. 25% at the end of last week.  Lagarde speaks Monday. Guindos, Nagel, Rehn, and Schnabel speak Tuesday. Guindos (twice), Kazaks (twice), Lane, Simkus, Elderson, Holzmann, and Schnabel speak Wednesday. Villeroy, Simkus, Kazaks, Muller, Centeno, Escriva, and Guindos speak Friday. Even the hawks are starting to acknowledge the worsening economic outlook and that will only intensify this week.

Final eurozone PMIs will be reported this week. Manufacturing will be reported Tuesday. Italy and Spain report for the first time and their PMIs are expected at 49.0 and 50.2, respectively. Services and composite PMIs will be reported Thursday. Here too, Italy and Spain report for the first time and Italy’s composite PMI is expected to fall half a point to 50.3. Eventually, these two should be dragged down into recession, joining Germany and France.

U.K. reports August money supply data Monday. The annual growth rate of sterling net lending to private sector companies and households (M4Lex) is expected to recover further in August and would be consistent with a gradual pick-up in economic activity. This would reinforce the BOE’s cautious easing policy guidance.

Indeed, the Bank of England is widely expected to cut rates 25 bp at the November 7 meeting. There are some BOE officials speaking this week. MPC member Greene speaks Monday. Chief Economist Pill speaks Tuesday and Friday. Both Greene and Pill dissented in favor of steady rates August 1, when the bank began the easing cycle with a 25 bp cut to 5.0%. Mann and Haskel also dissented then but Haskel was replaced by Taylor for the September 19 decision to hold rates steady. Then, only Dhingra dissented in favor of a 25 bp cut.

September U.K. Decision Maker Panel inflation expectations will be reported Thursday. 1-year inflation expectations are expected to rise a tick to 2.7% but would still remain near the lows since this series began in 2022. 3-year inflation expectations stood at 2.7% in August and remains within the same narrow range that’s held throughout the year. Overall, inflation expectations are contained.

Switzerland reports September CPI data Thursday. Both headline and core are expected to remain steady at 1.1% y/y. Last week, the SNB cut the policy rate 25 bp to 1.00% (widely expected) and warned “further cuts in the SNB policy rate may become necessary in the coming quarters to ensure price stability over the medium term.” The market is fully pricing in 25 bp cuts at the December and March meetings, followed by nearly 40% odds of a final cut at the June meeting. New Swiss National Bank chief Schlegel speaks Tuesday.

Switzerland reports September PMIs Tuesday. Manufacturing is expected at 47.8 vs. 49.0 in August.

Riksbank minutes will be released Tuesday. At the September 25 meeting, it cut rates 25 bp to 3.25%, as expected, but signaled more easing ahead than previously anticipated. The bank warned the policy rate is expected to be cut at a faster pace than was previously communicated, noting that “the forecast for the policy rate reflects that a cut of 0.5 percentage points at one of the coming meetings is possible. It also indicates that one or two further cuts may be made during the first half of 2025. Together, these changes imply a relatively large shift of monetary policy in a more expansionary direction.” The market is pricing in nearly 70% odds of a 50 bp cut in November, along with 150-175 bp of total easing over the next 12 months that would see the policy rate bottom between 1.50-1.75%, which is much lower than the Riksbank’s projection of 2.25%.

Sweden reports September PMIs. Manufacturing will be reported Tuesday and is expected at 51.0 vs. 52.7 in August. Services and composite PMIs will be reported Thursday.

ASIA

Bank of Japan releases its summary of opinions for the September meeting Tuesday. At that meeting, the BOJ unanimously voted to keep rates steady at 0.25%. However, the updated policy guidance and comments from BOJ Governor Ueda signaled the BOJ is in no rush to remove policy accommodation. While Ueda reiterated during his post-meeting press conference plans to tighten policy further if the outlook for economic activity and prices is realized, that sentence was omitted in the BOJ Statement on Monetary Policy. Ueda added there was no schedule for how long it will take to decide on the next hike as the BOJ keeps assessing the impact of the two rate hikes this year and financial market is still unstable. Noguchi speaks Thursday.

Japan data highlight will be Q3 Tankan report Tuesday. Large manufacturing index is expected to fall a point to 12, large manufacturing outlook is expected to fall two points to 12, large non-manufacturing index is expected to fall a point to 32, and large manufacturing outlook is expected to rise three points to 30. Lastly, large all industry capex is expected at 11.9% vs. 11.1% in Q2. These readings would be consistent with a slight softening of economic activity.

Japan also reports key August real sector data. IP, retail sales, and housing starts will be reported Monday. IP is expected at -1.5% y/y vs. 2.9% in July, sales are expected to remain steady at 2.6% y/y, and housing starts are expected at -3.5% y/y vs. -0.2% in July. These readings would confirm softening in the economy.

August labor market data will be reported Tuesday. Unemployment is expected to fall a tick to 2.6%, while the job-to-applicant ratio is expected to remain steady at 1.24. The labor market has remained resilient despite some softening in the economy.

Australia data highlight will be August retail sales Tuesday. Sales are expected at 0.4% m/m vs. flat in July. Timely transaction-based spending data and the RBA’s liaison discussions point to subdued consumption growth. The RBA’s liaison contacts report that households are generally budget-conscious, trading down to cheaper items, concentrating spending in promotional periods and reducing non-essential spending. The ABS’s August experimental estimate of household spending which tracks consumption of goods and services will be reported Friday and is expected at 0.5% m/m vs. 0.8% in July. In between, August trade data will be reported Thursday.

New Zealand September ANZ business confidence will be reported Monday. The forward-looking business confidence index surged 23 points in August to a ten-year high of 50.6, while the own activity outlook jumped 21 points to a seven-year high of 37.1. Nonetheless, reported past activity, which has the best correlation to GDP, remained very weak at -23 and is consistent with a contraction in economic activity. Indeed, real GDP shrank -0.2% q/q in Q2 and the RBNZ projects another -0.2% q/q decline in Q3. This weakness is underpinning market expectations (nearly 65% odds) for a possible 50 bp cut at the next meeting October 9.