8 min readWeekly Recap
The US dollar and stocks were flat across last week. The S&P 500 and the Dow Jones hit record highs before settling lower on Friday.
Federal Reserve rate cut expectations remained a key theme, following hotter-than-expected core PCE, as Trump attempted to exert more control over the Fed’s policies. Trump fired Lisa Cook, who subsequently filed a lawsuit in retaliation. Other macroeconomic data leaned slightly risk-positive, with the US GDP growth for the second quarter upwardly revised to 3.3% from 3.1%. At the same time, weekly initial jobless claims fell to 229,000 from 234,000, signaling resilience in the labor market.
Nvidia, the AI bellwether, beat earnings and revenue expectations, calming some AI trade jitters, although the stock fell after being priced for perfection into the release. Despite the fall in Nvidia, the S&P still reached a record high.
The new week will kick off slowly with the US Labor Day bank holiday.
Eurozone CPI (Tuesday)
Eurozone inflation will be released on Tuesday and is expected to show that headline CPI remained at 2% unchanged from June. The data comes after data on Friday showed that German inflation ticked higher to 2.1%, while inflation in Spain and France was cooler than forecast. From a policy perspective, markets are pricing in around a 34% chance of a 25 basis point rate cut by the end of the year, as expectations of further rate cuts faded alongside the US-EU trade deal agreement and signs of a more resilient eurozone economy than expected. That said, should the euro strengthen to a level that poses a risk to inflation, voices on the governing council could grow more in favour of a further easing. Higher-than-expected inflation could boost the EUR/USD.
US ISM manufacturing (Tuesday)
US ISM manufacturing PMI will be in focus, given President Trump’s desire to bring manufacturing back to the US. These timely figures could provide clues as to whether manufacturing is, in fact, increasing in line with what Trump’s trade policy aims to achieve. With a base of comparison, the S&P Global US Manufacturing PMI rose to 53.3 in August, up from 49.8 in July, marking a 39-month high and highlighting improved factory conditions. Output climbed for a third straight month and at the fastest pace since May 2022, boosted by the largest inflow of new orders since February last year. The market will be watching closely to see whether the trend also appears in the ISM manufacturing PMI, with attention also on the cost pressures. Strong data could help boost the USD and pull Gold lower as rate cut bets cool. That said, the legal questions surrounding Trump’s tariffs could keep uncertainty high, supporting gold.
Australia Q2 GDP (Tuesday)
Australian Q2 GDP is expected to show subdued growth following a 0.2% expansion in Q1. Expectations are for 0.4% growth quarter on quarter, putting annual growth at just 1.3%, which is well below the RBA’s revised forecast of 2%. The economic recovery has stalled across the first half of the year, with demand proving weaker than expected. Consumer spending improved modestly on real income gains; however, momentum has slowed. Composite commodity exports rebounded, led by iron ore, but high imports left net trade flat. A weaker-than-expected Q2 GDP print could reinforce the fragile growth backdrop and support market expectations of further RBA rate cuts into the year-end. The market is currently pricing in a 20% chance of a 25 basis point cut in the September meeting, with a further 25 basis points worth of easing expected in November. Soft growth could pull AUD/USD lower.
US ISM services (Thursday)
Given that the service sector is the dominant sector in the US economy, accounting for approximately 75% of economic output and 75% of employment, ISM data is closely monitored for clues on the health of the US economy. As a point of comparison, the S&P Global Services PMI fell slightly to 55.4 in August, down from 55.7 in July, marking a two-month low but still pointing to solid expansion. Average prices climbed at the sharpest pace since August 2022, reflecting the ongoing cost pass-through. The markets will be watching to see whether this broad expansionary trajectory for services continues even as inflationary pressures remain elevated, which would point to a resilient economy and could weigh on Fed rate cuts, pulling US stocks lower. Tech stocks are particularly sensitive to Fed rate cut expectations, so the Nasdaq could come under pressure.
UK retail sales (Friday)
Retail sales are expected to rise 0.2% month-over-month in July, down from 0.9% in June. Recent retail indicators, including the BRC retail sales report for July, rose 1.8% annually, down from 2.7% previously, in a sign that demand is cooling. Price inflation also remains elevated, so consumers may take a cautious approach to spending, as household budgets continue to be squeezed. Consumer confidence improved slightly over the summer as the BoE cut interest rates, but sentiment remains fragile. Weaker-than-expected sales could raise concerns about a stagflationary environment, characterized by persistent inflation and slowing growth, which could pull GBP/USD lower.
US non-farm payroll (Friday)
The main focus for the week will be on the US jobs report, with expectations of 75,000 jobs added to the US economy in August, modestly higher than the 73,000 added in July. The unemployment rate is expected to rise to 4.3%, up from 4.2% previously, with the Federal Reserve projecting a 4.5% unemployment rate by the end of the year. Average earnings are also seen rising 0.3% month on month, matching July’s figure. Investors will be able to use the ISM manufacturing and services jobs component, along with the ADP payroll data in the week, to gauge the likelihood of a stronger payroll gain than forecast. In terms of implications for the Federal Reserve, the market is pricing in an 87% probability of a 25-basis-point Fed cut in the September meeting. Friday’s as expected increase in core PCE figures haven’t changed rate cut outlooks, but a significantly weaker-than-forecast payroll report could impact and alter rate cut expectations. The market is pricing in 55 basis points of rate cuts before the year-end. Weaker data could lift this level, pulling USD/JPY lower.
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