We move past Jackson Hole with a slight hawkish lean from chair Jay Powell, and this adds increased emphasis on US core PCE inflation and US nonfarm payrolls as the big macro event risks.
It remains unlikely we get a hike from the Federal Reserve (the Fed) in September, but November is shaping up to be a ‘live’ event, where both data points have the potential to throw interest rate expectations around.
When many other G10 central banks are already priced for an extended pause, the Fed potentially going again in November is supporting the USD.
EU CPI garners interest, where a weaker print could see increased expectations the European Central Bank (ECB) go on an extended pause, with EURUSD possibly breaking trend support.
China remains front and centre. We’ve seen a slight improvement in China July industrial profits (-15.5% vs -16.8% in June) but now we look at PMI data, as well as headlines on fiscal support/yuan funding costs/property company solvency.
It seems clear that the US exceptionalism story hasn’t gone away. The US remains the best house in the street and the USD is favoured higher.
GBPUSD is breaking down, and I favour shorts here, with EURUSD to be sold on rallies or through trend support.
The MXN is the powerhouse, with EURMXN biased further lower.
Tactically, I like equity lower, but the set-ups and flow aren’t there at present, and I’d like the VIX index around 20% before having greater conviction on shorts. Gold remains focused on the USD and real rates, although XAUAUD and XAUJPY have been working for those wanting to take gold longs – buying any market in the perceived weakest currency can offer double bubble, although adding an FX leg to the trade can make life more problematic.
- US economic data impact: market shifts and USD strength
- The first full trading week of the year awaits
- 2025 Outlook: What next for developed economies and currencies?
The marquee event risks for traders to navigate:
Month-end flows – Month-end rebalancing flows may influence price action this week, with sell-side banks suggesting these flows could support the USD. Looking forward and the seasonals, over the past 15 years, September is the worst month for S&P500, NASDAQ100, ASX200, HK50 and gold returns. The DXY has rallied in the past 6 consecutive September’s. Let’s see if past performance is any guide this time around as we move past the US and EU/UK summer holiday period and the big hitters come back to their desks.
US core PCE inflation (31 August): The consensus is eyeing headline PCE inflation at 3.3% yoy (from 3%), with base effects kicking in. Core PCE is expected at 0.2% mom & 4.2% yoy (from 4.1%). We await the Aug US CPI print on 13 Sept, where expectations are we see headline CPI rise to 3.6% (from 3.2%). While expectations are low for a September Fed hike, a hike in the November meeting is priced at 62% and the PCE inflation data may affect that pricing, with the USD may be sensitive to changes in interest rate expectations.
US nonfarm payrolls (1 September) The consensus from economists sits at 168,000 jobs (the analyst’s range sits between 230k to 120k), with the U/E rate eyed at 3.5% (unchanged). Average hourly earnings (AHE) are expected at 0.3% MoM/4.3% YoY. The 6-month payrolls average comes in at 223k and 12m average at 280k. The US 2-year Treasury is a big USD driver at present, and further moves in yield towards 5.11% would keep the USD bullish momentum going.
US ISM manufacturing (2 September) The consensus is we see the index at 47.0 (from 46.4). Some improvement is therefore expected, but the manufacturing index is still likely to show contraction (below 50.0 is contraction). It’s hard to know if the market will run with this manufacturing data point, as its influence on volatility is rarely consistent. US rates markets see very little chance of a hike in the Sept FOMC, but 15bp for November, and this data point will unlikely alter that with inflation and jobs taking the limelight.
EU CPI (31 August) The market sees EU headline inflation coming in at 5.1% (from 5.3%), core CPI eyed at 5.2% (from 5.5% in June). The market prices 9bp of hikes (a 36% probability) for the 14 September ECB meeting, and 18bp by December. This EU CPI print could impact this pricing. EURUSD finds buyers at trend support (drawn from the March lows), but rallies are to be sold in my opinion, with real risks EURUSD heads towards the May lows (1.0635).
China Manufacturing and Services PMI (31 August) The market looks for the manufacturing index at 49.1 (from 49.3), and services at 51.0 (51.5). While transparency in the data flow is becoming more problematic for traders to price risk, this could be a key piece of data this coming week. Unless CNH forward points move higher again and traders lose positive carry in USDCNH longs, I like USDCNH higher on the week, although AUD could be a more effective play on China this week.
