Key Factors for The week Ahead at wall street: Investor expectations for US soft landing hinge on inflation numbers. 

Next week’s key pionts on watch in wall street

The week began with a spike in oil prices, as WTI crude climbed above $85 per barrel, its highest level in 10 months. Saudi Arabia and Russia together opted to extend output restrictions by 1.3 million barrels per day until the end of 2023, provoking fears among analysts and economists about fresh inflationary pressures and protracted higher interest rates from the Federal Reserve.
Resilient US Economy Bolsters Interest Rate Prospects: The U.S. economy displayed resiliency as the ISM Services PMI for August outperformed forecasts, indicating the greatest service sector expansion in six months.
Both the U.S. Dollar and Treasury yields gained higher this week as investors updated their estimates regarding the Federal Reserve’s interest rate stance. While a rate pause in September is a done deal, there is around a 42% possibility, as suggested by Fed futures, of another rate increase coming in November.

Key Takeaways

• Next week, we’ll receive the most recent inflation estimates for August. 
• On Tuesday, Apple will host a new product announcement event.  
• If the Detroit automakers and the union are unable to come to an agreement by Thursday, the United Auto Workers may go on strike.  
• On Thursday, ECB officials will gather to discuss monetary policy. 

Weekly Economic calendar USA

Monday 

• Consumer Inflation Expectations (Aug) 

Tuesday 

• NFIB Business Optimism Index (Aug)  
• Apple’s 2023 Annual Fall Event 

Wednesday 

• Consumer Price Index (CPI) (Aug)  
• U.S. Federal Budget Balance (Aug) 

Thursday 

• U.S. Retail Sales (Aug) 
• Retail Inventories (Jul)  
• Business Inventories (Jul)  
• Producer Price Index (PPI) (Aug)  
• China Industrial Production (Aug)  
• China Unemployment Rate (Aug)  
• ECB Meeting; Interest Rate Decision  
• United Auto Workers (UAW) labor contract expires 

Friday 

• Industrial Production (Aug)  
• New York Fed Empire State Manufacturing Index (Sep)  
• University of Michigan Consumer Sentiment Index (Sep) 

TOP FACTORS IN WALL STREET

US Markets  

This week is all about the US CPI report and retail sales figures. If the US demand for products didn’t weaken too much and if inflation heated up, rate hike forecasts for the November meeting might become the consensus.  The inflation data might not be as apparent as headline inflation will certainly climb given the surge in gasoline costs, but core might provide another moderate number.  Moderation with consumer spending will be the theme as Americans struggle with higher energy prices, growing debt levels, and as confidence declines.   

Investors will also pay special attention to the University of Michigan’s inflation expectations on Friday. The 1-year projection for prices may drop from the 3.5% August figure.  Fed talk will be nonexistent when the blackout period begins for the September 20th policy meeting.   

Apple holds their yearly autumn event. 

The iPhone 15, iPhone 15 Pro, Apple Watch Series 9 and Ultra 2, as well as other devices and accessories, are anticipated to be unveiled during Apple’s annual fall presentation on Tuesday. 

The most recent inflation data  

Next week, we’ll receive the most recent inflation data, beginning on Wednesday with the Consumer Price Index (CPI). It is anticipated that the CPI increased by 0.4% last month, which would be the fastest monthly gain since January. Consumer prices likely increased 3.4% annually, picking up from July’s 3.2% rate. The core CPI, which doesn’t include volatile food and energy costs, probably increased by 0.2% from one month earlier or 4.3% on an annualized basis, slowing from 4.7% in July. This would be the lowest annual growth in the last two years.  

The Producer Price Index (PPI) 

which tracks inflation from the perspective of producers and wholesalers, will be released by the Bureau of Labor Statistics (BLS) on Thursday. A faster increase than July’s 0.3% pace, producer prices probably increased by 0.4% last month. On an annual basis, they were probably up 1.3%, higher than July’s 0.8%.  

August sales in stores 

The U.S. Census Bureau will release retail sales data for August on Thursday. Retail sales probably increased 0.4% last month, down from 0.7% in July, when they are not inflation-adjusted. Indicating that consumer spending is still strong despite rising borrowing costs and persistently high inflation, this would be the sixth month in a row of improvements.  

Deadline for Auto Labor Union Negotiations 

The United Auto Workers (UAW) union and Stellantis (STLA), the owner of Detroit automakers Ford (F), General Motors (GM), and Chrysler, may not have much time left to complete their labor discussions. A four-year labor contract expires on Thursday, and if an agreement isn’t reached by then, 97% of the union’s members have approved of a strike. 

 ECB Policy Conference 

On Thursday, the European Central Bank’s policymakers will meet to discuss monetary policy. After nine straight rate increases since last summer, it is anticipated that they will maintain current interest rates. Similar to the U.S. Federal Reserve, the European Central Bank has aggressively increased interest rates since last year in a bid to control inflation, lifting its benchmark deposit facility rate from a record low of -0.5% in early 2022 to 3.75%—the highest since 2001. 

US Jobless Claims  

The US Jobless Claims report remains a major weekly labor market indicator, and the data last week exceeded forecasts by a wide margin. Initial Claims are expected to be 226K this week, up from 216K the previous week, while Continuing Claims are expected to be 1693K, up from 1679K the previous week. 

US Core CPI   

The US headline CPI Y/Y is predicted to grow to 3.6% from 3.2% previously, while the M/M reading is expected to be 0.6% from 0.2% before. The increase in Headline CPI is due to increasing energy prices, which should be temporary; however, the Fed is more concerned with the Core measures. The Core CPI Y/Y statistic, which includes volatile food and energy costs, is predicted to dip to 4.3% from 4.7% previously, while the M/M figure is expected to remain at 0.2% from 0.2% before. Unless this report is uncomfortably hot all around, it’s unlikely to impact the market’s price for the September meeting, in which the Fed is expected to keep rates unchanged. In fact, the argument currently centers on the November decision and, more crucially, when the Fed will begin to lower interest rates. 

Weekly Global Market Outlook/ Calendar (11sep-15 sep)

Major Global market outlook

US 

This week is all about the US CPI report and retail sales figures. If the US demand for products didn’t weaken too much and if inflation heated up, rate hike forecasts for the November meeting might become the consensus.  The inflation data might not be as apparent as headline inflation will certainly climb given the surge in gasoline costs, but core might provide another moderate number.  Moderation with consumer spending will be the theme as Americans struggle with higher energy prices, growing debt levels, and as confidence declines.   

Investors will also pay special attention to the University of Michigan’s inflation expectations on Friday. The 1-year projection for prices may drop from the 3.5% August figure.  Fed talk will be nonexistent when the blackout period begins for the September 20th policy meeting.   

Eurozone 

The European Central Bank meets next week and it’s not apparent at this stage what decision they will come to. Refinitiv is putting in approximately a 65% chance of a hold, which may signal the end of the tightening cycle – not that the ECB would in any way suggest that at this stage – but expectations do differ. There’s every chance the committee will force through one more, at which point the data is expected to improve regardless making a Fed-style exit all the more difficult. Ultimately, it will likely come down to the projections which will be disclosed alongside the verdict. ZEW surveys apart, on Tuesday, the remainder of the week is made up of tier-three data. 

UK  

Potentially a key week for the UK ahead of the next monetary policy meeting on 21 September. Andrew Bailey and his colleagues this past week signaled that the decision is in the balance and not the inevitable verdict many assume. Markets are pricing in a more than 70% possibility of an increase and more than 50% of another after that by February. If what they stated is accurate, then the labor market data on Tuesday might be very significant as further slack could provide people on the fence the reassurances they need that past efforts, among other things, are working and more may not be needed. Huw Pill also speaks on Monday while Catherine Mann will make an appearance in Canada on Tuesday. GDP on Wednesday could potentially be interesting, with the rest of the week made up of less influential announcements. 

China 

The much sought-after consumer and producers’ price inflation statistics for August will be announced this Saturday where market investors will have a better idea of the present deflationary conditions in China. 

After a slight improvement in the two sub-components of August’s NBS Manufacturing PM where new orders and production rose to their highest level since March at 50.2 and 51.9 respectively coupled with an improvement in export growth for August that shrunk to a lesser magnitude of -8.8% y/y from -14.5% y/y in July, there are some signs of optimism that the recent eight months of deflationary pressures may have started to abate. 

The August CPI is predicted to inch back up to 0.2% y/y from -0.3% y/y in July while the PPI is forecast to shrink at a smaller magnitude of -3% y/y in August compared -4.4% in July. If the PPI goes out as projected, it will be the second straight month of relief from a prolonged cycle of deflationary pressure in factory gate prices since November 2022. 

Other crucial indicators to look on will be new yuan loans and M2 money supply for August which will be reported on Monday. It will provide a sense of whether China’s economy is slipping into a liquidity trap despite the present focused monetary and fiscal stimulus measures enacted by authorities. 

Lastly, the housing price index, industrial production, retail sales, and the unemployment rate for August will be released on Friday with both retail sales and industrial production expected to show slight improvement; 2.8% y/y for retail sales over 2.5% y/y recorded in July, 4% y/y for industrial production versus 3.7% in July. 

Market investors will be keeping a close eye on youth unemployment for August after July’s statistic was temporarily halted by the National Bureau of Statistics without any clear deadline for the suspension. The young joblessness data in China is of critical concern as the youth unemployment rate rose to a record high of 21.3% in June, approximately four times more than the national unemployment rate of 5.3%. 

Lastly, China’s central bank, the PBoC, will publish its decision on a key benchmark interest rate, the 1-year medium-term lending facility rate on Friday and the expectation is no change at 2.50% after an earlier drop of 15 basis points.  

India 

Inflation and balance of trade for August will be the focus for the coming week. Inflation data is announced on Tuesday and is predicted to decrease slightly to 7% y/y from 7.44% in July, the highest since April 2022. 

Balance of trade will be revealed on Friday and the expectation is for the deficit to increase slightly to -$21 billion from -$20.67 billion in July.   

Monday September 11

• Norwegian CPI (Aug) 

Tuesday, September 12

• EIA STEO, OPEC MOMR
• Swedish Unemployment (Aug)
• UK Unemployment (Aug) & Wages (Jul)
• Norwegian GDP (Jul)
• Germany/EZ ZEW (Sep) 

Wednesday, September 13

• IEA OMR
• K GDP Estimate (Jul)
• US CPI (Aug) 

Thursday, September 14

• ECB Policy Announcement
• Norge’s Bank Regional Network
• Australian Employment (Aug)
• Swedish CPIF (Aug) 
• US Retail Sales (Aug)
• IJC (w/e 4th Sep)
• New Zealand Manufacturing PMI (Aug) 

Friday, September 15

•  Quad Witching
• CBR Policy Announcement
• ECB TLTRO Repayment Publication
• Chinese Industrial Output /Production
• Retail Sales
• House Prices (Aug)
• EZ Trade Balance (Jul)
• US Export/Import Prices (Aug)
• Industrial Production (Aug)
• NY Fed Manufacturing (Sep)
• Uni. of Michigan Prelim. (Sep) 

Day-Wise Events in details

monday 11 sep

NORWEGIAN CPI

Generally in-line with the Norges Bank’s own prediction and solidified expectations for the 25bp boost that was delivered in August. The August inflation release will be keenly watched, firstly for signs of the energy upside that has been observed in other European inflation indicators, and secondly for any hint that such pressure is having an influence on other sections of the economy. Irrespective of the publication, the Norges Bank has already led participants towards another raise occurring in September provided inflation remains markedly above goal. Instead, the data will be more significant when judging the new policy rate path, which as of June’s MPR, forecasts for an end-2023 peak in the tightening cycle just shy of 4.25%. Evidently, if September sees a 25bp raise then this peak will be subject to an automatic upward revision, with the August inflation data and upcoming regional network survey likely the major determinants in determining how much, if any, further tightening will be priced. 

Tuesday 12 Sep

UK UNEMPLOYMENT AND WAGES

Expectations are for the unemployment rate in the 3M period to July to climb to 4.3%, whilst average earnings (ex-bonus) in the 3M/YY period to July are predicted to dip to 7.6% from 7.8%. The prior data witnessed a surprise uptick in the unemployment rate to 4.2% from 4.0%, but wage growth remained stubbornly high at 8.2% in the 3M/YY period for June with the proviso that the total growth rate was influenced by the NHS one-off bonus payments paid in June. This time around, ING warns that the September rate decision will rest on three indicators – services inflation (due the day before the next meeting), private sector wage growth and the vacancy/unemployment ratio (both due on Tuesday). For Tuesday’s report, ING predicts that headline wage growth will likely remain around 8.2%, albeit “there’s an outside risk that we see this nudge slightly lower, on the basis that separate data from firms’ payrolls indicated that median pay actually fell in level terms during August”. Elsewhere, the desk predicts a further moderate rise in unemployment, as well as a renewed reduction in vacancies. From a policy standpoint, the BoE’s September meeting is widely expected to see the MPC give another 25bps raise and so, the next announcement might be more meaningful for pricing beyond September, whereby markets attribute a circa 60% chance of another hike by year-end. 

WEDNESDAY 13 Sep 

UK GDP ESTIMATE

A consensus is yet to be published for the data. The last report indicated M/M increase of 0.5% in June with the better-than-expected outturn ascribed to a ramp-up in manufacturing production. This time around, economists at Pantheon Macroeconomics (predict -0.2% M/M) anticipate the upcoming release will likely reveal that the economy is sluggish but not plunging into recession. Looking behind the hood, PM says it would “be shocked if manufacturing output didn’t fall in July, after June’s 2.2% month-to-month increase”. Looking beyond the next announcement, PM continues to estimate GDP to expand by 0.2% quarter-on-quarter in Q3 and by 0.3% in Q4, driven by a pick-up in households’ real disposable income. From a policy perspective, it is likely that expectations for the September meeting will be guided more by developments in the labour market and on the inflation front with some in the market potentially cynical over relying too heavily on GDP data given the recent ONS revisions which revealed that the UK economy had returned to pre-pandemic levels much quicker than previously thought. 

US CPI

Headline inflation is predicted to rise 0.5% M/M in August, increasing up in pace vs the 0.2% M/M posted in July; the core rate is seen up 0.2% M/M, mirroring the prior month. Higher energy prices are projected to send the headline up, but the core rate is seen unchanged. “While inflation will continue to moderate, the path to 2% price growth will be slow and rocky,” Moody’s writes, “the ongoing decline in used-vehicle prices will provide some downward pressure, but the biggest shoe yet to drop is related to housing and rent prices, where weakness from late 2022 has yet to show up in the CPI.” Fed officials have recently been taking a balanced approach to directing policy, applauding the progress already made in bringing pricing pressures down, but recognizing that there is still farther to go, while generally caveating their policy views on incoming data. From the market’s perspective, the FOMC has already hit its terminal rate, and instead, the focus appears to be on when the central bank will begin to decrease rates. Recent data releases have seen the timing swing towards May when the data has been weak, and out to July when it has been good; the CPI data is anticipated to continue this pattern.  

THURSDAY SEP 14

ECB ANNOUNCEMENT

39/69 analysts surveyed by Reuters expect the ECB to keep steady on the deposit rate at 3.75% with the remaining 30 expecting for a 25bps raise to 4.0%. Market pricing leans more in favour of a “pause” with such a move priced at roughly 63%. As a recap of the July meeting, Lagarde highlighted that the September decision will be based on the evidence and the Governing Council is “open-minded”. Since July, Q2 Q/Q growth was revised lower to just 0.1% from 0.3% whilst more timely survey data saw the Eurozone composite PMI in August fall to 46.7 from 48.6 with the accompanying release noting that “The disappointing numbers contributed to a downward revision of our GDP nowcast which stands now at -0.1% for the third quarter”. As such, the narrative around the Eurozone’s growth prognosis is a particularly pessimistic one. Furthermore, interest rate increases are obviously having an impact on lending in the Eurozone with bank lending to the private sector at just 1.6% Y/Y in July. That being said, the fight against inflation is far from being won with August HICP holding stable at 5.3% Y/Y, the super-core reading still at a high level of 5.3% Y/Y and 5y5y future forecasts around the 2.6% mark. This puts the ECB in a bind of wanting to be cautious in the face of slowing GDP but not communicating a feeling of complacency regarding inflation. Even if inflation is forecast to decline over the remainder of the year, the ECB has been consistent in its messaging that it will be following the actual data rather than projections; such a posture, it may be argued, would signal that the Bank still has one more rise in its locker. Hawkish bodies on the GC such as Kazimir and Knot appear to subscribe to this view with the former suggesting that one more hike is still required; it remains to be seen how close to a consensus view this is on the GC with President Lagarde continuing to stress the Bank’s meeting-by-meeting approach. If the ECB opts to hold rates stable, ING says “…an earlier end to PEPP reinvestments could eventually be the bargaining chip the doves would have to accept for the hawks to agree to a pause”. For the accompanying macro estimates, consensus predicts the medium-term 2025 inflation projection to be cut lower to 2.1% from 2.2%.

AUSTRALIAN EMPLOYMENT

participants will be examining the report to see if the labour market rebounds following the surprising decline in July. As a reminder, the prior seasonally-adjusted reading was disappointing as the Employment Change showed an unexpected 14.6k decline in jobs (Exp. 15.0k increase), which was solely driven by a drop in full-time jobs and the Unemployment Rate rose to 3.7% vs. Exp. 3.6% (Prev. 3.5%), although in trend terms, employment actually increased by more than 27k and unemployment was steady at 3.6%. There are currently no expectations yet for the upcoming data, while the release is not likely to have any major ramifications on RBA policy with the central bank more focused on inflation and given the upcoming changes, including the impending handover of leadership to Deputy Governor Bullock this month who will steer the Bank through next year’s scheduled reforms.

SWEDISH CPIF

July’s CPIF report was modestly softer than market estimates, but at 6.4% YY remained above the Riks to the communication employed, but is unlikely to influence bank’s 5.9% 2023 prediction and well over the 2% target level. As with other places, the data will be scrutinized for any indicators that the current upturn in energy costs is making itself apparent. In addition, the Riksbank will be watchful to potential indicators of the upside influencing other parts of the economy. For the Riksbank, the inflation statistics may contribute into the communication employed, but is unlikely to have any influence on forecasts for at least one more raise this year. On that, desks have been boosting their predictions for the Riksbank given prolonged SEK weakness and the Bank’s persistent rhetorical involvement against it; for instance, the likes of Nordea expect rises in September and November to a 4.25% high.

US RETAIL SALES

Retail sales are predicted to grow 0.2% M/M in August, moderating from the 0.7% advance in July. The ex-gas and automobiles gauge is forecast gaining 0.4% M/M, down from a rate of 1.0% in July. While the data set will offer a glimpse on the health of the consumer amid concerns that the economy may slow significantly in the months ahead, traders will also be watching the University of Michigan’s prelim survey release due Friday, where the rise in energy prices is likely to have weighed on sentiment.

Friday sep15

CHINESE ACTIVITY DATA (FRI):  

Retail sales Y/Y in August are predicted to climb by 2.8% (prev. 2.5%), but there is presently no consensus on Industrial Production measures. The figures will be eagerly scrutinized to diagnose the health of the world’s second-larger economy and to gauge the drip-feed of stimulus seen over recent weeks. Using the anecdotal feedback from Caixin PMIs as a proxy, the release implies that “Trends diverged on a sector basis, with a renewed upturn in manufacturing sales counteracting a growth slowdown in the service sector.” The Senior Economist at Caixin remarked “Overall, the manufacturing sector improved in August, the services sector grew at a slower pace, and there was still considerable downward pressure on the economy… Looking ahead, seasonal influences will progressively decrease, but the challenges of low domestic demand and weak expectations may build a vicious cycle for a protracted period of time.” To review, the July statistics featured many adverse surprises. Chinese Industrial Production YY printed at 3.7% vs. Exp. 4.4%, Chinese Retail Sales YY at 2.5% vs. Exp. 4.5%, and Chinese Urban Investment YTD YY 3.4% vs. Exp. 3.8%. The PBoC that day cut the MLF rate, the 7-day Reverse Repo rate, and the 7-day and 1-month SLF rates. ING analysts at the time stated, “Now the idea of a consumer-spending-led recovery is looking very vulnerable.”. 

EARNINGS CALENDAR

Monday, September 11  

Oracle Corp. (ORCL)

Casey’s General Stores (CASY)

Bowlero Corp. (BOWL)  

Wednesday, September 13  

Burford Capital Ltd. (BUR)

Cracker Barrel Old Country Store (CBRL)

Semtech Corp. (SMTC) 

Thursday, September 14  

Adobe Inc. (ADBE)

Copart Inc. (CPRT)  

For details

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