ISM services, RBA, BOC meeting, China CPI: The Week Ahead – 01/09/2023

Matt Simpson financial analyst
By :  ,  Market Analyst

ISM services, RBA, BOC meeting, China CPI: The Week Ahead – 01/09/2023

A relatively high proportion of the bigger data points will come from the APAC region next week. China will release services PMI, key trade data and of course consumer and producer prices. RBA Governor Lowe will hold his last RBA meeting before handing over to his successor Micelle Bullock. Japan also release bank lending and trade balance figures. There’s not a huge amount of data from North America, but the ISM services PMI report and Bank of Canada (BOC) meetings stand out. Also tale note that it is the a long weekend in the US and Canada on Monday due to Labor Day.



The week that was:

  • The Australian inflation rate slowed to a 16-month low of 4.9% according to the weighted CPI in July, which likely cements another hold by the RBA in September at 4.1% (given the weaker employment figures earlier this month)
  • The US JOLTS report (not usually a market mover) stirred excitement that the Fed may hold rates again in September by coming in weaker than expected and pointing to a softening labour market
  • This saw the US dollar and yields fall in tandem on Tuesday and support a bounce in risk appetite
  • US Q2 GDP was revised slightly lower – just enough to retain hopes of a soft landing and speculation that the Fed are done hiking rates
  • Renowned ECB hawk Isabel Schnabel sent the euro lower with expectations of another hie in September, after acknowledging that growth had not lived up to expectations
  • Reports finally arrived that China’s National Team (aka plunge protection team) were supporting the market, a day after news of share trading stamp duty and commission cuts failed to hold China’s equity markets materially higher
  • The People’s Bank of China (PBOC) announced that they will cut their reserve requirement ratio (RRR) from 6% to 4% from September 15th – their first such cut this year



The week ahead (calendar):

Please note that is it Labor Day public holiday in the US and Canada on Monday




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The week ahead (key events and themes):

  • ISM non-manufacturing PMI
  • China trade data
  • Services PMIs
  • RBA interest rate decision
  • BOC interest rate decision
  • Australian GDP
  • Japan’s GDP (revised)
  • China CPI


ISM non-manufacturing (services PMI)

ISM manufacturing survey slumped faster than expected in July, and it seems clear that the best of services is behind us with the headline index -2.2 points below its long-term average and trending lower. Furthermore, business activity and services softened in July. And with markets obsessed with being vindicated with their ‘peak Fed rate’ bets, further weakness in these figures could be seen a good news (assuming the numbers don’t fall too quickly). Either way, the ISM services PMI is one of the bigger data points next week outside of China. And another metric to keep an eye on is ‘prices paid, given it expanded at its fastest monthly pace in nearly two years last month.

Market to watch: EURUSD, USD/JPY, WTI Crude Oil, Gold, S&P 500, Nasdaq 100, Dow Jones



China’s consumer and producer prices

China’s consumer prices deflated in July for the first time in over two years. It prompted further calls for stimulus, although any such response from Beijing is yet to be deemed adequate enough. Whilst there’s a chance we could see prices fall further, it is worth keeping in mind that consumer prices spend very little time in negative numbers. Furthermore, producer prices (which can lead CPI) deflated at a slower pace, so perhaps we’re closer to a trough in CPI than many would like to believe. And that could be a problem for inflation levels elsewhere as we head into Q4 or Q1 2024 if inflation does begin to pick up.

Market to watch: USD/CNH, USD/JPY, S&P 500, Nasdaq 100, Dow Jones, VIX, AUD/JPY



RBA interest rate decision (hold expected):

Odds favour the RBA holding their cash rate at 4.1% for a fourth consecutive meeting, given weaker employment figures and softer-than-expected inflation report. But with the potential for wages to increase in Q4 and higher petrol prices seep into headline inflation figures, there’s really no reason for the RBA to deliver a dovish hold.

It will also be Governor Philip Lowe’s last ever meeting, having served seven years at the helm. Not that it will have any impact on policy, but it is a milestone meeting none the less.

Market to watch: AUD/USD, NZD/USD, AUD/NZD, NZD/JPY, AUD/JPY, ASX 200



Australian GDP

Traders will look at gross company profits on Monday, and current account balance and net export contributions (to GDP) to get a bit of a lead on Wedneday’s growth figures. Annual GDP fell to a 2.5 year low in Q1 and is expected to soften further. The RBA’s estimate is 1.6% although early market estimates suggest 1.7%. Either way, even if the RBA were considering hiking on Tuesday (which I do not think they are) – they may prefer to wait for Wednesday’s GDP figures before deciding.

Market to watch: AUD/USD, NZD/USD, AUD/NZD, NZD/JPY, AUD/JPY, ASX 200



China trade data

Whilst we have seen a steady stream of stimulus flowing out of China, none of it has really convinced markets that it is sufficient to overturn the bearish fundamentals. And their trade data is arguably one of the purest measures of China’s economic activity, which clearly weakening. Exports slumped to -14.5% y/y in USD terms in July – to show international demand for Chinese goods a were at their lowest level since the Pandemic. Imports also fell to -12.4% y/y with domestic demand also in decline. So can we expect miracles next week? It seems unlikely. But with the current trend pointing lower, it seems any surprise at some point in futures may need to be to the upside to count as an actual surprise.

Market to watch: USD/CNH, USD/JPY, S&P 500, Nasdaq 100, Dow Jones, VIX, AUD/JPY



BOC interest rate decision (hold expected):

A Reuters polls showed that 31 of the 24 economists surveyed expect the Bank of Canada (BOC) to hold rates at 5%. Yet the survey also noted a “small growing” number of economists expecting one more hike, as July’s inflation rate was slightly higher than expected. House prices have also shown smalls signs of a revival after its 10% drop the post-covid peak. Given the BC noted that the rate of CPI’s decline was slower than anticipated at their July meeting, then traders should be on guard for any such comments surrounding the trajectory of inflation as it could tip the scales for that ‘one more hike’ some economists are now expecting.

Market to watch: USD/CAD, CAD/JPY, NZD/CAD



Japan’s GDP (revised)

Admittedly, revised GDP figures are rarely the most adventurous of data sets for traders. But they are meaningful for investors. And as Japan’s growth in Q2 blew past estimates with a whopping 6% annualised print, they’ll want to see if the revision can see growth hold its ground.

Market to watch: USD/JPY, AUD/JPY, GBP/JPY, EUR/JPY, Nikkei 225


-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge


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