Key events to watch in the week ahead: 28 August – 1 September 2023

This week’s overview

Market sentiments this week remain in its cautious state, as initial relief was quickly overturned in the lead-up to Federal Reserve (Fed) Chair Jerome Powell’s Jackson Hole speech later tonight. Nvidia’s stellar results failed to provide a sustained uplift for the broader indices, while market sentiments (from the CNN Fear and Greed Index) have fallen back into ‘fear’ territory for the first time since March this year.

No doubt the Fed’s policy outlook will be the key driving force for markets ahead. Treasury yields have remained elevated and the US dollar has reclaimed its 200-day moving average (MA), reflecting some positioning for a hawkish takeaway from the Fed Chair. For now, expectations are firmly priced for the Fed rate to be kept on hold in September, but the probability for a November hike has increased to the current 41%, from 32% just a month ago.

Heading into the new week, here are four key events to watch:

30 August 2023 (Wednesday, 9.30am SGT): Australia’s monthly consumer price index

Australia’s monthly consumer price index (CPI) has moderated from its peak of 8.4% since December 2022 to the current 5.4%, which reflects some degree of success in the Reserve Bank of Australia (RBA)’s tightening moves thus far. But with inflation numbers still almost two-fold that of the central bank’s target of 2-3%, the RBA may be forced to stick to its ‘hawkish pause’ stance for some wait-and-see, while also leaving room for policy flexibility. For now, Australia’s cash rate futures have been firmly priced for the RBA to keep its rates on hold through the rest of the year, with no rate cuts in sight.

Current expectations are for July CPI to moderate further to 5.2% from previous 5.4% in June. Further progress in terms of lower pricing pressures will likely validate views for a prolonged rate hold, further supported by the series of downside surprises in economic conditions lately. Just this week, Australia’s composite purchasing managers index (PMI) flash for August has witnessed a dip further into contractionary territory to 47.1 from the previous 48.2.

31 August 2023 (Thursday, 9.30am SGT): China’s NBS manufacturing and non-manufacturing PMI

The set of PMI readings out of China next week is likely to stay subdued, with manufacturing activities to remain in contractionary territory for the fifth straight month (previous 49.3). Likewise, reopening momentum for its services sector may continue to taper, in line with its weakening trend since March this year. Its non-manufacturing PMI has underperformed market expectations over the past four months, coming in at 51.5 in July, which could see it inch closer towards the key 50-level separating expansion and contraction territory next week.

Thus far, much still awaits for a concrete recovery in China as support from authorities has been underwhelming, sentiments around the property sector remains weak and still-sluggish global demand continues to serve as an overhang for its exports. A low-for-longer growth outlook remains the story for now, with major banks dropping their forecasts for China’s gross domestic product (GDP) growth this year to below the 5% target.

31 August 2023 (Thursday, 8.30pm SGT): US core PCE price index

Thus far, the US inflation trend has been showing signs of progress, with the headline personal consumption expenditures (PCE) Price Index coming in at 3% year-on-year (YoY) in June from previous 3.8%, to register its lowest reading since March 2021. Likewise, the Fed’s preferred measure of inflation, the Core PCE Price Index, has also eased to 4.1% YoY in June, from 4.6% the previous month.

That said, current consensus are pointing to an increase in the PCE Price Index to 3.3% next week, from the prior 3%. The Core PCE Price Index is also expected to rise to 4.2% YoY from 4.1% prior. Given that the core PCE is still twice of the Fed’s inflation target of 2%, policymakers may continue to defend their high-for-longer rate outlook firmly. Any further ramp-up in price growth over the coming months may also raise concerns for a reacceleration in inflation, and potentially increase the odds for a November rate hike.

1 September 2023 (Friday, 8.30pm SGT): US non-farm payrolls

The recent Federal Open Market Committee (FOMC) minutes failed to reflect the level of unity among policymakers to pause rates as what was initially expected. Particularly, the minutes stated that “most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy”.

With US unemployment rate at 3.5% in July and US job additions comparable to pre-Covid levels, there are concerns that any resilience in the labour market may drive the reacceleration in demand and make the case for high-for-longer rates. Therefore, a softer read from the upcoming job report may be sought to provide more flexibility for Fed’s policies, particularly in the aspect of rate cuts if economic conditions were to take a turn for the worse.

Current consensus are for 168,000 job gains in August, a tad softer than 187,000 in July, while unemployment rate is expected to stay resilient at 3.5%. Aside, US wage growth is expected to moderate to 0.3% month-on-month from previous 0.4%, and 4.3% YoY from previous 4.4%. Any significant upside surprise will likely add to calls for a high-for-longer Fed rate outlook.