The dollar saw broad-based weakness against the majors last week. NZD, SEK, and JPY outperformed while CAD, EUR, and AUD underperformed. The dollar is likely to remain under pressure after Powell’s dovish Jackson Hole speech. However, if the Fed is truly data dependent, we expect firm U.S. data over the coming weeks to reinforce our belief that the economic trajectory does not warrant aggressive easing. Until that happens, however, the dollar should continue to weaken.

AMERICAS

Markets are still digesting Powell’s Jackson Hole speech. Rather than sticking with the gradual and cautious message that most Fed officials had been pushing, Powell went full dove as he said, “The time has come for policy to adjust.” He cautioned that “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks.” However, his bias became clear when he said, “We do not seek or welcome further cooling in labor market conditions.” For emphasis, he added that the slowdown in the labor market was “unmistakable.”

We are curious how other Fed officials will spin this. Daly speaks Monday. Waller and Bostic speak Wednesday. Bostic speaks again Thursday. Up until Powell spoke, virtually every Fed speaker had laid out a gradual, cautious path. Indeed, some even said that they need to see more data before committing to a cut. To us, it seems that with one more round of key economic data coming out before the September 17-18 FOMC meeting, Powell pre-committed and belied the data dependent approach he advocated.

Yet market pricing for the Fed really hasn't changed. How could it, when it's already near maximum dovish? 100 bp of easing is still seen by year-end, with 200 bp total seen over the next 12 months. Odds of a 50 bp move in September are between 25-35%. With his focus on the labor market, it’s clear that the jobs data is the most important for policy. If we get a strong August NFP (above 200k), then we lean towards 25 bp. If we get a weak reading (below 100k), then we think a 50 bp cut becomes live. Anything in between and it’s a toss-up.

Data highlight will be July PCE Friday. Both headline and core are expected to pick up a tick to 2.6% y/y and 2.7% y/y, respectively. Of note, the Cleveland Fed’s Nowcast model estimates July headline and core PCE both at 2.6% y/y. For August, the Cleveland Fed estimates headline and core PCE at 2.4% y/y and 2.8% y/y, respectively. In other words, there is likely to be uneven progress in meeting the 2% target. However, it’s clear from Powell’s speech that disinflation has become an afterthought, with the focus now clearly on the employment mandate.

Personal income and spending will be reported at the same time. Income is expected to remain steady at 0.2% m/m while spending is expected at 0.5% m/m vs. 0.3% in June. Real spending is expected to pick up a tick to 0.3% m/m. Of note, control group retail sales used for GDP calculations came in a bit stronger than expected at 0.3% m/m in July after surging 0.9% the previous month. As long as jobs are being created, income will continue to grow and consumption will remain robust.

August consumer confidence will be in the spotlight. Conference Board reports consumer confidence Tuesday and headline is expected at 100.6 vs. 100.3 in July. If so, it would be the highest since May but would still remain roughly within the same narrow range that’s held throughout the past two years. Regardless, positive real wage growth, rising house prices, and encouraging labor demand suggest household spending will remain an important tailwind to GDP growth. University of Michigan reports final August consumer sentiment Friday.

Weekly jobless claims Thursday will be closely watched. Initial claims are expected at 230k vs. 232k last week. Continuing claims will be for the BLS survey week and are expected at 1.870 mln vs. 1.863 mln last week. Bloomberg consensus for August NFP sees 155k vs. 114k in July, while its whisper number currently comes in at 150k.

We get a revision to Q2 GDP data Thursday. Headline is expected to remain steady at 2.8% SAAR, while personal consumption is expected to fall a tick to 2.2% SAAR. The preliminary data showed underlying economic momentum was strong as real private domestic final purchases, which comprises private consumption expenditure and private fixed investment, was the strongest growth tailwind.

Q3 growth appears to be solid. The Atlanta Fed’s GDPNow model is tracking Q3 growth at 2.0% SAAR and will be updated Monday after the data. Elsewhere, the New York Fed’s Nowcast model is tracking Q3 growth at 1.9% SAAR and will be updated Friday. It should also publish its first estimate for Q4 at the same time. While both model estimates are down from their earlier highs, growth near trend remains quite impressive in light of the Fed’s tightening.

Chicago PMI will be reported Friday. Headline is expected to fall two ticks to 45.1. However, this series has not tracked the national PMIs very well this past year and so holds little value right now. Of note, S&P Global reported firm preliminary August PMIs. Manufacturing came in at 48.0 vs. 49.6 in July, services came in at 55.2 vs. 55.0 in July, and the composite came in at 54.1 vs. 54.3 in July. ISM PMIs won’t be reported until next week.

Regional Fed surveys for August will wrap up. Dallas manufacturing will be reported Monday and is expected at -16.0 vs. -17.5 in July. Dallas services and Richmond manufacturing and services will be reported Tuesday.

Canada highlight will be Q2 GDP data Friday. Growth is expected at 1.9% SAAR vs. 1.7% in Q1. The Bank of Canada has penciled in more modest growth of 1.5% SAAR, driven by government spending, household consumption, and business fixed investment. Regardless, the Q2 GDP report is unlikely to dent market pricing for an additional 75 bp of rate cuts by year-end as inflation in Canada is easing rapidly.

EUROPE/MIDDLE EAST/AFRICA

Eurozone highlight will be August CPI. Spain and Germany report Thursday. Spain’s EU Harmonised inflation is expected at 2.5% y/y vs. 2.9% in July, while Germany’s is expected at 2.2% y/y vs. 2.6% in July. France and Italy report Friday. France’s EU Harmonised inflation is expected at 2.1% y/y vs. 2.7% in July, while Italy’s is expected at 1.3% y/y vs. 1.6% in July. Eurozone CPI will also be reported Friday. Headline is expected at 2.2% y/y vs. 2.6% in July, while core is expected at 2.8% y/y vs. 2.9% in July. Attention will also be on services inflation, which has been sticky around 4% y/y since November 2023. Overall, the disinflationary process has stalled in the past few months but is tracking the ECB’s 2024 projections.

There are key ECB speakers this week. Knot and Nagel speak Monday. Lane and Nagel speak Wednesday. Schnabel, Rehn, Kazaks, Simkus, and Muller speak Friday. With the growth outlook quite soggy, the ECB is widely expected to resume easing in September.

Germany reports key confidence measures this week. August IFO survey will be reported Monday. Headline is expected at 86.0 vs. 87.0 in July, with both current assessment and expectations falling to 86.5 and 85.8, respectively. Germany then reports September GfK consumer Wednesday. Headline is expected at -18.0 vs. -18.4 in August. Germany’s growth outlook is deteriorating as business activity contracted further in August. The composite PMI fell to a 5-month low at 48.5 on slower services sector expansion and a deeper downturn in manufacturing activity.

Germany also reports real sector data Friday. May retail sales are expected at 0.1% m/m vs. -0.2% in April. August unemployment will also be reported and is expected at 16k vs. 18k in July.

U.K. has a quiet week. July aggregate money growth will be reported Friday. The annual growth rate of sterling net lending to private sector companies and households (M4Lex) is expected to recover further in July, which would be consistent with a gradual pick-up in economic activity. This would also reinforce the BOE’s cautious easing policy guidance.

Riksbank minutes will be published Monday. At the August 20 meeting, it cut rates 25 bp to 3.5%, as expected. However, the Riksbank warned that “the policy rate can be cut two or three more times this year, which is somewhat faster than the Executive Board assessed in June.” This was basically the same as before and so the Riksbank just tacked on another 25 bp of expected easing this year. The swaps market was right all along and expects 75 bp of cuts by year-end. With inflation in Sweden tracking the Riksbank’s forecasts, we doubt the bank will deliver more easing than is currently priced in.

ASIA

Japan highlight will be August Tokyo CPI Friday. Headline is expected to pick up a tick to 2.3% y/y, core (ex-fresh food) is expected to remain steady at 2.2%, and core ex-energy is expected to fall a tick to 1.4% y/y. Price pressures remain muted overall, which should allow the Bank of Japan to remain on hold through year-end.

July labor market data will also be reported Friday. The unemployment rate is expected to remain steady at 2.5%, while the job-to-applicant ratio is expected to remain steady at 1.23. The labor market remains relatively tight but wage pressures remain contained and so the BOJ does not have to hike aggressively.

July real sector data Friday will also be important. Retail sales are expected at 2.8% y/y vs. 3.7% in June, IP is expected at 2.7% y/y vs. -7.9% in June, and housing starts are expected at -1.0% y/y vs. -6.7% in June. PMI readings remain strong but the hard data are showing a loss of momentum as we move through Q3.

Australia highlight will be July CPI Wednesday. Headline is expected at 3.4% y/y vs. 3.8% in June. If so, it would be the lowest since February and nearing the 2-3% target range. However, attention will be on the policy-relevant trimmed mean inflation, which has been persistent above 4% y/y since April. Evidence that underlying inflation is slowing will reinforce market pricing of a 25 bp rate cut by December.

Australia Q2 capex survey will be released Thursday. Business investment is expected to rise 1% q/q, the same pace as in Q1. However, risks are skewed to the downside. The RBA’s liaison contacts increasingly report that they plan to reduce investment in the year ahead due to high construction costs, a subdued outlook for demand, and broader macroeconomic uncertainty. Estimate 3 of planned capex for 2024/25 will also be released. For reference, estimate 2 was A$155.4 bln and the final estimate 4 will be published end-November.

July retail sales data Friday will also be important. Sales are expected at 0.3% m/m vs. 0.5% in June. Timely transaction-based spending data and the RBA’s liaison discussions point to subdued consumption growth. Those liaison contacts report that households are generally budget-conscious, trading down to cheaper items, concentrating spending in promotional periods and reducing non-essential spending.

August ANZ business confidence will be reported Thursday. Reported past activity, which has the best correlation to GDP, fell further in July to a net 24% of firms seeing weaker activity levels compared to a year ago. The data are consistent with other timely indicators pointing to weakening economic activity. August ANZ consumer confidence is the other domestic highlight Friday.