Attention this week turns to US jobs data, the looming US government shutdown and the auto workers strike

US PCE inflation slightly cooler than expected while core sees its lowest annual increase since May 2021

• USD: The Fed’s preferred gauge of inflation (core PCE inflation) registers 0.145%MoM in August, the third consecutive softer monthly reading and bringing the yearly gain to 3.9% which represents the lowest annual rise since May 2021. Core PCE services ex-housing is also up just 0.14%MoM after surging 0.47%MoM in July. Softer core PCE contrasts with core CPI that has sped up to 0.28%MoM in August. In July. In July, core PCE at 0.22%MoM was a bit stronger than core CPI at 0.16%MoM even as the 3m/3m core PCE slowed to 2.7% annualized. Meanwhile, headline PCE inflation is stronger at 0.39%MoM due to the rise in gasoline prices, bringing the yearly figure to 3.5%. The OCIS team expects US inflation to make its way to 2.0-2.5% by the end of 2024, though the data may still be choppy. Just last week, the Fed released expectations for inflation to reach 2.5% by the end of 2024. Indeed, US inflation excluding shelter now looks much more optimistic with the latest core CPI ex shelter at just 2.2% Y/Y.

• USD: In other data released Friday, US August personal spending is up 0.45%MoM after a very-fast 0.85%MoM rise in July though after deflating for rapidly rising gasoline prices, real spending is only slightly up overall with real goods spending down -0.2%MoM and real services spending up just 0.2%MoM. Softer August real spending follows a strong 0.64%MoM advance in July.

Euro area core HICP slows to 0% MoM (SA)

• EUR: The September flash measure of euro zone headline inflation falls from 5.2% YY in August to a 23-month low of 4.3% YY, coming in well below consensus forecasts for a drop to 4.5% YY. The main downside surprise however is euro area core inflation that also eases from 5.3% YY in August to 4.5% YY in September (flat in MoM SA terms), undershooting the 4.8% consensus forecast and falling back to its lowest level since August 2022. Splits show non-energy industrial goods inflation easing from 4.7% YY in August to a 16-month low of 4.2% YY in September and services inflation declining from 5.5% YY in August to an 8-month low of 4.7% in September. Meanwhile, energy deflation re-accelerates, with prices declining by 4.7% YY in September compared to a drop of 3.3% YY in August.

• EUR: The data shows a sizable slowdown compared to 0.3% MM (SA) in August and 0.4% MM in the five preceding months with both core goods and services HICP coming in softer than expected, suggesting the slowdown may well reflect true underlying softness rather than erratic factors. September is usually a month of higher than usual concentration of price changes, so the soft print does suggest an earlier-than-expected waning in pricing power which is likely to persist in the coming prints. Euro area inflation has averaged 5.0% YY in 3Q-23, as had been anticipated by the ECB staff macroeconomic projections in September while core inflation has stood at 5.2% YY, just 0.1pp above the September estimate. This accurate forecasting will help build confidence within the investor community about the fact that disinflationary pressures within the euro area are building while GDP growth is weakening.

Week Ahead: US September Nonfarm Payrolls, ISM Manufacturing, ISM Services, August JOLTS Job Openings, Euro Area labor market watch, ECB monetary policy conference, Euroa Area recession watch, UK Decision Maker Panel, Switzerland September CPI Inflation, BoJ Quarterly Tankan Survey, Large Mfg, Business Conditions (September), RBA October Monetary Policy Decision, NZ RBNZ October Monetary Policy Review, Australia August Trade Balance, Canada September Net Change in Employment, China September Foreign Reserves (USD $bn)

US: September jobs, JOLTS job openings, ISM manufacturing and services reports in focus this week

• USD: US September Nonfarm Payrolls – Citi: 240k, median: 165k, prior: 187k; Private Payrolls – Citi: 230k, median: 150k, prior: 179k; Manufacturing Payrolls – Citi: 5k, median: 10k, prior: 16k; Average Hourly Earnings MoM – Citi: 0.3%, median: 0.3%, prior: 0.2%; Average Hourly Earnings YoY – Citi: 4.3%, median: 4.3%, prior: 4.3%; Unemployment Rate – Citi: 3.6%, median: 3.7%, prior: 3.8% – Citi Research expect nonfarm payrolls to rise by a strong 240k in September, partly reflecting the reversal of seasonal issues that led to a softer 105k increase in June (which has been revised lower from an initial 209k). Typically, strong hiring at the start of the summer season reverses in September after the Labor Day holiday. However, summer hiring this year appeared somewhat weaker than usual, with a more modest increase in June payrolls and higher initial jobless claims in the first two weeks of the month. Thus, the decline in employment this September should also not be as large. The strike of auto workers that began September 15 should not have an impact on the level of payrolls in September. Average hourly earnings should rise 0.3%MoM, although with upside risks of a print that rounds to 0.4%. This would reflect a rebound in wage growth from a modestly softer increase in August. Meanwhile, Citi Research expect the unemployment rate to decline back to 3.6% in September after an unexpected increase to 3.8% in August. The increase in August was largely due to a rise in the participation rate, which increased from 62.6% to 62.8%.

• USD: US August JOLTS Job Openings – Citi: 8815k, median: 8900k, prior: 8827k – Citi Research expect job openings to be little changed in August at 8.815 million although with possible upside risks. Openings have followed trends in high frequency data on job postings from Indeed.com, although with somewhat greater volatility. Daily postings data have remained stable in the last few months at levels that could suggest modestly higher JOLTS job openings.

• USD: US September ISM Manufacturing – Citi: 47.9, median: 47.8, prior: 47.6 - manufacturing surveys seem to have bottomed and have been picking up modestly in recent months. However, both ISM Manufacturing and S&P Manufacturing PMIs continue to remain in contractionary territory, but are edging closer to 50. Citi Research expect ISM Manufacturing to increase modestly again this month to 47.9 from 47.6 with improvements in the two key subcomponents production and new orders. The prices index in ISM Manufacturing could continue to increase as energy prices have stayed elevated through September.

• USD: US September ISM Services – Citi: 53.2, median: 53.5, prior: 54.5 - ISM Services surprised to the upside in August increasing to the highest level since earlier this year while S&P Services PMI has stabilized at just above 50-levels. Citi Research expect a modest pullback in ISM Services in August to 53.2 from 54.5 with some modest moderations in new business, business activity and employment subindices. This would point to services activity still growing although at a slightly slower pace than in August.

Euro area and UK: ECB monetary policy conference and Swiss CPI in focus this week

• EUR: Euro Area labor market watch – euro zone LFS data for August this week might show the first uptick in the unemployment rate since 2020. Employment growth has slowed albeit most likely still positive in 3Q as suggested by still-decent businesses’ hiring intentions (which inched higher in September). But strong labor force growth should help with a loosening in the labor market.

• EUR: ECB: monetary policy conference – euro area and other central bankers will congregate in Frankfurt for the ECB’s “Conference on Monetary Policy: bridging science and practice”. Citi Research expect the focus to shift from interest rates to the balance sheet and monetary policy implementation. There could be pushback to more reserve remuneration exemptions, but support to wind down PEPP reinvestments.

• EUR: Euro Area recession watch — August hard data kicked off on a soft note with falling retail goods spending in Germany and France. French and Spanish manufacturing as well as German trade and factory orders data could shed light on the prospects of the industrial sector contributing to Q3 GDP growth. Citi Research are mostly more pessimistic than consensus.

• GBP: UK: Decision Maker Panel in focus – last week’s bumper UK GDP revisions do little to shift the monetary policy discussion. Firstly, these are well trailed. And while growth in 2022 is not revised down, this is largely a reflection of further upward revisions to public sector output. With the output gap therefore broadly unchanged, the focus instead is likely to be on this week’s PMI (final) and DMP surveys with the former likely to see marginal upward revisions with the overall services print still weak and the latter to show pricing intentions continuing to slide.

• CHF: Switzerland: CPI Inflation, September – Citi Forecast 1.8% YY, Consensus 1.8% YY, Prior 1.6% YY; CPI Core, September – Citi Forecast 1.3% YY, Consensus 1.5% YY, Prior 1.5% YY.

Japan: BoJ’s September Tankan report in focus this week

• JPY: BoJ Quarterly Tankan Survey, Large Mfg. Business Conditions (September) – Citi Forecast: +5, Previous: +5; Large Non-manufacturers Business Conditions – Citi Forecast: +25, Previous: +23; Fiscal 2023 Capital Spending Plans, Large Firms – Citi Forecast: 12.4% YoY, Previous: 13.4% YoY – Citi Research pencil in +5 for large manufacturers’ business confidence DI in the September Tankan survey, unchanged from the previous survey in June. Automakers’ DI will likely improve on the back of a production recovery and yen depreciation while the DI at tech-related sectors will probably remain weak. The slowing Chinese economy is also likely to be one of the drags. Meanwhile, the business confidence DI at large non-manufacturers will likely increase from +23 in June to +25 in September, recovering to the level last seen in December 2017 with economic reopening to help boost sentiment together with foreign tourist arrivals rebounding further. Capex plans for FY2023 at large companies (including land purchases and excluding software and R&D) will probably increase 12.4% YoY. Despite a somewhat more cautious attitude at manufacturers, Citi Research expect the overall capex stance to remain firm.

Commodity Bloc: RBA, RBNZ board meetings, Australia’s trade balance Canada’s September jobs report in focus this week

• AUD: RBA October Monetary Policy Decision - Citi forecast: unchanged at 4.10%, Previous; unchanged at 4.10% - the new Governor Michele Bullock’s first Monetary Policy Board Meeting is unlikely to deliver a change in the cash rate. The data since the September meeting has broadly been in-line with expectation, although the Q2 National Accounts once again showed rising unit labor costs and falling productivity growth. Instead, he Board is likely to want to wait until the final quarterly CPI reading at the end of October before changing its forecast. But there could be hawkish risks to the Statement given the Fed’s hawkish signaling and higher oil prices potentially leading to a pick-up in inflation expectations, while services inflation remains sticky.

• NZD: NZ RBNZ October Monetary Policy Review - Citi forecast: unchanged at 5.50%, Previous; unchanged at 5.50% - the RBNZ came out in its MPS in August more hawkish than expected by raising the OCR track marginally, and signaling a 25% chance of another rate hike. The MPS noted that this was largely because the Bank’s projection of the long run neutral rate had risen by 25bps, leading to a technically higher OCR projection over the forecast horizon. Indeed, inflation risks remain skewed to the upside and the unemployment rate still remains at a level that is likely lower than what the RBNZ deems maximum sustainable level of employment. The most hawkish risk since the previous RBNZ meeting has been that GDP growth has surprised on the upside in Q2, and National Account numbers in the prior quarter have been revised upwards, implying that the economy narrowly avoided a recession. Other hawkish risks include the Fed’s more hawkish stance and higher oil prices. Overall, the RBNZ is unlikely to raise interest rates again. However, risks are tilted squarely hawkish.

• AUD: Australia August Trade Balance - Citi forecast: $AU8.7bn, Previous; $AU8.0bn - the August trade balance likely expanded after further recovery in key bulk commodity prices. China has likely passed its cyclical bottom and, in any case, iron-ore prices have been stronger than expected in recent months. Citi Research expect this trend to continue for the remainder of the year and expect non-rural exports to rise in August, while rural exports are expected to pick-up further. Citi Research also see room for outperformance of services exports over coming months thanks to increasing outbound Chinese travel.

• CAD: Canada September Net Change in Employment – Citi: 55k, median: 29.6k, prior: 39.9k; Unemployment Rate – Citi: 5.5%, median: 5.6%, prior: 5.5%; Hourly Wage Rate Permanent Employees – Citi: 5.0%, median: NA, prior: 5.2% - Citi Research expect a strong 55k jobs added in September following a solid 39.9k increase in employment in August. Hours worked picking up in recent months could also imply stronger Q3 GDP growth after a surprising modest decline in GDP in Q2. While too-strong inflation data alone can still prompt further hikes from the BoC, some turn in recently softer activity could make a decision to raise rates again even clearer. Citi Research’s September employment forecasts would imply both jobs reports since the decision to pause rate hikes in September have showed solid gains in employment.

Asia EM: China’s FX reserves data in focus this week

• CNH: China Foreign Reserves (USD $bn) September – Citi Forecast 3130, Prior 3160 – Citi Research continue to believe that valuation effect will be the main driver for changes in FX reserves. The tentative signs of a cyclical bottom of the Chinese economy could also lend some support to the Yuan, and the PBoC may continue to refrain from direct intervention.