Markets have been taunted by shifting Fed expectations over the past week and there’s likely to be more anguish for investors in the next few days as
expectations over the past week and there’s likely to be more anguish for investors in the next few days as crucial payrolls and inflation numbers are coming up. The August jobs report and PCE inflation readings will be closely watched amid signs the US economy is starting to lose steam fast. The
Yet, with the economic risks tilted somewhat more towards a recession than a soft landing after the PMI releases, if the aboveare broadly better than expected, it’s unlikely that rate hike odds would rise very significantly. On the other hand, an overall soft or even poor set of data could lead investors to further up their rate cut bets for next year, punishing the US dollar but probably boosting Wall Street.
The flash estimates for August are due on Thursday and should show further declines. The headline rate of CPI is expected to dip from 5.3% to 5.1% y/y, while core CPI that strips out food, energy, alcohol and tobacco prices is forecast to ease from 5.5% to 5.3% y/y. There could be some clues of this on Thursday when China reports its manufacturing and non-manufacturing PMIs for August. The CaixinThe Australian dollar, which is viewed as a liquid proxy for China-related risks, has taken quite a beating lately following a series of downbeat Chinese data. China’s slowdown is already being felt across the Australian economy as pointed by the recent dismal PMIs.
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