Week ahead highlights include US jobs report, ISM; EZ Flash CPI; OPEC+ meeting

NOTE: Previews are listed in day-order

EZ FLASH CPI (TUE)

Expectations are for headline CPI to jump to 2.7% Y/Y from 2.2%, with the core (ex-food and energy) metric seen rising to 1.4% from 0.9%. Such increases would take place within the context of a firm outturn in July where headline CPI rose 0.3ppts to 2.2% Y/Y, extending above the ECB's new (symmetrical) target of 2.00% amid Y/Y base effects.

Ahead of the release, Nordea notes that base effects are likely to once again play a role, and it highlights that "last year’s postponement of sales (in France) until August of that year." As such, the bank is of the view that this pick-up in 'inflation' is unlikely to last very long, and forecasts core inflation dropping back in early 2022.

Accordingly, a strong outturn is unexpected to have too much sway on the ECB. In the accounts from its July meeting, attention was placed on comments that "risks to the inflation outlook, as embodied in the June Eurosystem staff projections, were widely regarded as increasingly tilted to the upside." However, market participants will likely look to see whether any tweaking to the inflation outlook is encompassed in the September projections rather than the August Eurostat release.

CANADIAN GDP (TUE)

There is currently no consensus for Tuesday’s GDP data. The second quarter was largely dictated by lockdowns amid the third COVID wave, with the economy re-opening in June. Canadian bank RBC forecasts an annualised rise of 2.5% – matching the BoC’s July projection.

Consumption is likely to be near the flat mark, while net trade should ease by 1.5-2.0ppts, according to its analysts. The monthly GDP figure meanwhile is expected to come in modestly firmer amidst re-opening effects. “A new StatsCan nowcast for July GDP is expected in the +0.5-0.7% range as services output should more than offset softer early indicators for the monthly (goods) sales reports.”, RBC says.

OPEC+ MEETING (WED)

The OPEC+ decision-making meeting will be taking place against potential supply threats from a rampant Delta variant and the US’ desire for lower oil prices. The OPEC+ producers have several feasible options on the table for September production:

1. Stick with the 400k BPD monthly hike
2. Defer the hike and maintain current production for at least September
3. Increase output by a smaller volume.

At this point in time, it is unclear which way OPEC+ producers will lean towards as members and sources have been less vocal recently.

Iranian supply may also gain some attention after Javad Owji was appointed Iran’s new oil minister – who is seeking new oil markets. Furthermore, JCPOA talks have hit a snag, with the prospect of a Nuclear Deal deal dimmer than it was at the previous OPEC+ confab.

To recap, ministers at the last meeting agreed to hike total group production by 400k BPD on a monthly basis from August (subject to market conditions), with the pact also extended to the end of 2022 from April 2022. For the extended period (from May 2022), baselines have been revised higher for the UAE (3.5mln vs prev. 3.168mln), Iraq (4.803mln vs prev. 4.653mln), Kuwait (2.959mln vs prev. 2.809mln), Saudi and Russia (both to 11.5mln vs prev. 11mln).

Russian Deputy PM Novak at the time stated that Russia would raise its oil output on a monthly basis by 100k BPD beginning in August and expects to return to pre-crisis levels of production in May next year. Elsewhere, recent reports suggested the US has asked OPEC+ to ramp up output in a bid to stem the follow-through to US consumers, although sources suggested that OPEC+ believe oil markets do not need more oil than they plan to release in the coming month.

AUSTRALIAN GDP (WED)

Q2 GDP Q/Q is forecast at 0.5% (vs +1.8% in Q1) and Y/Y at 9.2% (vs 1.1% in Q1). The slowing in growth momentum comes amid the string of COVID-related snap lockdowns implemented throughout the quarter, but against the backdrop of substantial fiscal and monetary policy. That being said, a sharp contraction is expected in Q3, potentially by 2.6% according to Westpac’s forecast, due to the lockdown in the states of New South Wales and Victoria. A re-opening rebound is expected in Q4.

Back to Q2, Westpac’s expectations are in-line with the consensus, with the arithmetic breakdown as follows: domestic demand +1.4%; total inventories -0.2ppts, net exports -0.7ppts, Consumer spending is a forecast +1.0%, home building -0.3%, business investment +2.0% and and public demand +2.0%. The analysts also “expect a brisk growth pace in 2022, of 5%, supported by: high vaccination rates; pent-up demand; a rising housing market on record low rates; strengthened household balance sheets; and further fiscal policy stimulus”.

US ISM MANUFACTURING PMI (WED)/SERVICES PMI (FRI)

The consensus expectation is for the ISM manufacturing gauge to fall a little in August, to 59.1 from 59.5. Analysts have cited the cooling in some of the Fed's regional manufacturing reports, as well as Markit's PMI moderating from the record high in July. There has also been further commentary from automakers highlighting component shortages, which is likely to weigh, as the supply-chain issues continue to impact manufacturers. Ahead, some have argued that some downside risks remain for manufacturing activity, although this might be modest, and has largely been discounted by the market, given the commentary from corporations on the supply chain. Meanwhile, the services ISM is seen moderating to 63.0 in August from the 64.1 in July.

US LABOUR MARKET REPORT (FRI)

The street looks for 763k nonfarm payrolls to be added to the US economy in August; that would be cooler than the previous three-month average pace (currently 832k/month), but above the six-month average pace (currently 681k/month), and above the 12-month average pace (605k/month).

Therefore, if the consensus was realised, it would not represent a major 'slowing down' in the overall pace of jobs growth over those horizons. Indeed, the labour market metrics heading into this jobs report have not yet alluded to any significant collapse within the jobs market.

The jobless rate is seen falling to 5.2%, and we will be paying particular attention to the Participation Rate, Underemployment Rate and the Employment-Population ratio, which may offer more colour about the true level of slack that exists in the economy; the rate of participation ticked back up to the post-pandemic peak at 61.7% last month; the Employment-Population ratio last month rose to 58.4, but is still off the 61.1% seen in February 2020.

The data will be framed in the context of Fed policy, with officials wanting to see continued progress in paring back the losses incurred in the pandemic; some will be using the data to make judgements on the timing and modalities of the Fed's process of tapering its asset purchases.

While the Fed's employment mandate has still some ways to go before achieving its threshold for 'substantial further progress', its inflation mandate has already hit that point, and the wages metrics within the payroll report will help add colour on this theme; some want to see evidence of strong wage growth to inform the debate on whether the type of inflation the US is seeing presently is indeed transitory, or something more persistent (higher wages would add to the latter argument).