Ahead of the game: September 11, 2023

US equity markets fell in a holiday-shortened week as US yields resumed their march higher on the back of stronger economic data, robust corporate issuance, and higher energy prices.

In Australia, the ASX 200 slipped following a weak lead from Wall Street, soft economic data in China, and despite stronger-than-expected headline Australian GDP, which leaves open the door for one more RBA rate hike before year-end.

• RBA kept rates on hold at 4.10% for a third straight month
• ISM Services PMI rose to 54.5 in August from 52.7 in July, the highest since February
• Q2 GDP (June) as expected at 0.4% QoQ, but the annual rate higher at 2.1% YoY vs 1.8% expected
• In China, Caixin Services PMI for August fell to 51.8 vs 53.6 expected
• In Europe, final reading of Euro Area composite PMI came in at 46.7 vs 47 expected
• USD/JPY rallied to a fresh cycle high of 147.87, its highest level in ten months
• Gold rejected resistance at $1950, falling back below $1920
• Crude oil climbed another 2.5% following its 7% rally to trade above $88
• Wall Street's gauge of fear, the Volatility (VIX) index, increased by 10.4% to 14.44.

• AU: Westpac Consumer Confidence (Tuesday, September 12 at 10:30 am AEST)
• AU: NAB Business Confidence (Tuesday, September 12 at 11:30 pm AEST)
• AU: Labour Force Report (Thursday, September 14 at 11:30 am AEST)
• NZ: Business NZ PMI (Friday, September 15 at 8:30 am AEST)

• CN: IP, Retail Sales, FIA (Friday, September 15 at 12:00 pm)

• US: CPI (Wednesday, September 13 at 10:30 pm AEST)
• US: PPI and Retail Sales (Thursday, September 14 at 10:30 pm AEST)
• US: Industrial Production (Friday, September 15 at 11:15 pm AEST)
• US: Michigan Consumer Sentiment (Saturday, September 16 at 12:00 am AEST)

• AU: Company profits Q2 (Monday, September 4 at 11:30 am AEST)
• UK: Employment (Tuesday, September 12 at 4:00 pm)
• EA: Industrial Production (Wednesday, September 13 at 7:00 pm)
• UK: GDP MoM (Wednesday, September 13 at 4:00 pm)
• EA: ECB interest rate meeting (Thursday, September 14 at 10:15 pm)

• AU

Labour force report

Thursday, September 14 at 11.30 pm AEST

In August, the ABS released July's unemployment data. The rate in Australia increased to 3.7% from 3.5% as employment fell by 14.6k. The participation rate also fell, dropping to 66.7%, which surprised many, as consensus expectations were for it to remain at 66.8%.

"July includes the school holidays, and we continue to see some changes around when people take their leave and start or leave a job. It's important to consider this when looking at month-to-month changes, compared with the usual seasonal pattern."

The fall in employment last month follows an average monthly increase of around 42,000 people during the first half of this year. Employment is still around 387,000 people higher than last July.

September is looking for a +25k rise in employment and for the unemployment rate to edge lower to 3.6%. The participation rate is expected to remain unchanged at 66.7%.

AU unemployment rate chart

• US

CPI data

Wednesday, 13 September at 10:30 pm AEST

Last month, headline CPI accelerated to 3.2% from 3.0% in June but below forecasts for a rise to 3.3%. It marked the end of 12 consecutive months of declines in headline inflation due to base effects.

Core CPI, which excludes volatile items such as food and energy, eased to 4.7% last month from 4.8%, the lowest in twenty-two months but remains well above the Fed's target.

This month, US headline CPI is forecast to rise by 0.6% MoM, which would see the annual rate rise to 3.6% YoY. In contrast, core inflation is expected to rise by 0.2% MoM, which would see the annual rate fall to 4.3%.

While inflation has likely peaked, core inflation remains sticky, and the Fed will want to see more confirmation in the coming months that downside progress is continuing to be made. The rates market expected the Fed to stay on hold in September, assigning a 50% probability of a Fed rate hike in November.

Core CPI chart

• EA

ECB interest rate meeting

Thursday, 14 September at 10:15 pm AEST

At its last meeting in July, the European Central Bank (ECB) raised its key deposit rate by 25 basis points to 3.75%. It noted that 'Inflation continues to decline but is still expected to remain too high for too long.'

Regarding forward guidance, it stated that future interest rate decisions would be based on incoming data. 'The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. In particular, its interest rate decisions will continue to be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.'

Since the ECB meeting in July, growth data has continued to soften. However, inflation remains above the target. As pointed out by ECB Council member Klass Knot this week, markets may be misreading the possibility of an interest rate hike next week.

Given that inflation remains high, we anticipate the ECB will likely raise rates by 25 basis points to 4% next week and maintain a data-dependent approach.

NB: The rates market is currently ~35% priced for a 25bp rate hike next week.

Euro Area deposit facility rate chart

Economics calendar

All times shown in AEST (UTC+10) unless otherwise stated