Weekly Economic Outlook | Week#33

Monday: the UK’s manufacturing output for June, France’s CPI, and the Czech Republic’s CPI rates for July.

author: Ahura Chalaki

published:Aug 12, 2024 6:0

Reading Time:

9 minutes

category:weekly

Monday: the UK’s manufacturing output for June, France’s CPI, and the Czech Republic’s CPI rates for July.

Tuesday: the UK’s unemployment rate for June, Germany’s ZEW economic sentiment and current conditions figures for August, and the US PPI figure for July.

Wednesday: Japan’s Reuters tankan non-manufacturing index figure, RBNZ interest rate decision, the UK’s CPI rates, Sweden’s CPI rates, and France’s CPI rates all for July, the Eurozone’s preliminary GDP rates for Q2, and the US CPI rates for July.

Thursday: Japan’s machinery orders rate for June, followed by Japan’s GDP rates for Q2, Australia’s unemployment data for July, China’s industrial output, retail sales rate, and unemployment rate all for July, the UK’s preliminary GDP rates for Q2, the US NY Fed manufacturing figure and Philly Fed business index figures for August, and the US retail sales rate and industrial production rate both for July.

Friday: Canada’s housing starts figure and the US University of Michigan preliminary consumer sentiment figure for August.

Wall Street and USD

The confirmation of the first debate between Donald Trump and Kamala Harris has kept the US Presidential race tight. The two candidates have agreed to hold their first debate on September 10 on ABC News.

On the data front, after weaker-than-expected labor market data from the July NFP report, last week brought some more optimistic news. The ISM services index rebounded to 51.4 in July from a 48.8 reading in June. Additionally, initial jobless claims ticked lower in the week ending August 3, although continuing claims did not show the same improvement. This suggests that economic jitters may have eased, especially after Monday’s positive ISM Non-Manufacturing PMI figure, which managed to escape contraction territory.

Furthermore, the Atlanta Fed’s GDP estimate for Q3 came in higher than expected at 2.9%, implying a greater-than-expected expansion of the US economy. This could soften the likelihood of a 50 bps rate cut in the September meeting, an expectation that had gained traction after the weak labor data.

For the week ahead, the inflation numbers—expected to showcase easing inflationary pressures—are crucial. Additionally, retail sales and industrial production data will be key indicators to watch.

On Wednesday, the main focus will be on US consumer inflation numbers. However, the day before, on Tuesday, attention will also be on the Producer Price Index (PPI) data. After a 0.2% increase in June, analysts expect a slower rise of 0.1%, which could reinforce the idea that inflation is coming under control.

Regarding the Consumer Price Index (CPI), the Federal Open Market Committee (FOMC) recently received one of the most favorable reports since it began raising rates. The annual CPI was at 3% in June, a level last seen 12 months ago in June 2023. On a monthly basis, CPI eased by 0.1% in June. Excluding food and energy, core consumer prices rose by a modest 0.1%, the smallest increase since early 2021, slowing the annual core CPI to 3.3%. For the July numbers, we expect to see both the CPI and core CPI increase by 0.2%, which could ease the annual CPI to 2.9% and the core CPI to 3.2%.

Despite better-than-expected GDP numbers, retail sales data for June signaled a potential slowdown in growth. However, the 0.4% growth in core retail sales still offered some positive signs, keeping analysts optimistic about future progress.

After a flat headline retail sales figure in June, we expect headline retail sales to increase by 0.3% in July, while core retail sales are expected to rise more modestly by 0.1%. Given the slowdown in the labor market and average income, we can anticipate weaker retail sales as well.

The trend we expect for industrial production mirrors that of retail sales. We forecast industrial production to increase by only 0.1% in July, as persistently high interest rates continue to pressure the production and industrial sectors. Additionally, capacity utilization forecasts have declined to 78.6%.

Given the published and expected data, it appears that the risks to both the inflation and labor sides of the FOMC's dual mandate are now more balanced. This suggests that, while a recession in the US economy is unlikely, a soft landing is still possible. The US economy is expected to continue improving, albeit at a slower pace than in recent years.

We now anticipate that the FOMC will cut the federal funds rate by 25 basis points at its September meeting, with an additional 25 basis point cut in both November and December, totaling a cumulative 75 basis points of easing by year-end. This expectation is somewhat more expansionary than our previous forecast, but it does not indicate a radically dovish stance.

On the currency front, the US dollar is likely to maintain its soft downtrend, fluctuating between 102.70 and 103.60.