Markets don’t have too much time to digest the wild ride and choppy price action we experienced last week as we get some meaty US data in the coming days. Maybe that’s a good thing, but we cannot reiterate enough that summer markets…are summer markets. There is generally limited liquidity at this time of the year, (eg the Treasury market was running at 30% of the usual depth) so volumes are reduced as important trading desks have skeleton staffing. That means we can get violent, and head-scratching moves which have little specific rhyme or reason.

The best explanation is probably a perfect storm in thin markets, with everyone stuck in the same trades.  The cocktail of events included the carry trade unwind, rogue NFP data, geopolitical tensions, an AI reality check and Warren Buffet all pitching in. The former continues to linger with the key question being whether a hawkish BoJ and dovish Fed endure with diverging rate policy paths. USD/JPY hasn’t made it back to the levels seen before NFP, so we will be closely watching this, respective central bank commentary and the extreme positioning that has resulted from years of the carry trade.

Stock markets have filled the gap from manic Monday’s volatility though bond markets still see more rate cuts than before those moves. The reaction to Thursday’s weekly US initial jobless claims data was instructive and seemed a natural overreaction to the first, more encouraging piece of data after the disappointment of the NFP report. But really those numbers still show difficulties in the workforce.

It also means we could see sharpened volatility around US data this week which includes CPI, retail sales and PPI. Even small (second decimal of a percentage point) deviations from the consensus 0.2% m/m could be seized upon. Any upside surprise would be a clear-cut dollar positive, as equities would sell off. However, short-dated US Treasuries could also come under pressure on hawkish Fed repricing, unlike in the first unemployment-driven stock market rout.

The middle of the month means the usual UK data dump with attention on inflation and wage growth. Sterling retraced nearly all of its July gains but has bounced off support around its 100-day SMA at 1.2684. There are another set of jobs and inflation reports the week before the September Bank of England meeting. Wednesday’s RBNZ meeting could see volatility in NZD as there are mixed views regarding a possible rate cut even though money markets are more convinced of a move, which is likely a hangover from last Monday’s gyrations. The kiwi has rebounded solidly since the spike low down to 0.5849 but faces resistance around 0.6050.

In Brief: major data releases of the week

Tuesday, 13 August 2024

–  UK Jobs: Wage growth will be the key data point again, after it eased to 5.7% in July. Reliability issues still dog the jobless numbers while there is one more employment report ahead of the next BoE meeting in mid-September.

Wednesday, 14 August 2024

– RBNZ meeting: Consensus is split between a 25bps rate cut and an unchanged decision to keep the OCR at 5.50%. Policymakers surprised with a dovish tilt in July. But non-tradeable inflation has slowed less than the bank expected.

– UK CPI: Analysts forecast the headline rate to tick up to 2.3% driven by base effects. The core is seen at 3.4% and services inflation at 5.5%. There is around a 30% chance of a September rate cut.

– US CPI: Expectations are for both the headline and core figure to come in at 0.2% m/m and 2.9% and 3.2% y/y respectively. This is the required monthly rate needed to bring down annual inflation to the 2% target.

Thursday, 15 August 2024

– Australia Jobs: The economy is forecast to add 12.5k jobs, down from the 50.2k added in June. Unemployment is seen unchanged at 4.1%. Despite the robust jobs growth, there are signs of slack. The RBA stuck to its relatively hawkish tone at its meeting last week.

– China Data: Retail sales are expected to remain at 2%, industrial production a tenth lower at 5.2% and fixed asset investment at 3.9%. Property concerns are holding back the consumer, though manufacturing is benefitting from hi-tech demand.

– US Retail Sales: Headline sales are seen rising 0.3% in July and the control group 0.1% m/m. The labour market is showing signs of cooling while household financial stress is rising as more credit cards and auto loans fall late.

Friday, 16 August 2024

– UK Retail Sales: Mixed consumer activity reports surround this retail sales data. Warm weather has helped summer staples and clothing, but the upturn may be less sizeable than expected in big ticket items.