The Daily Update: The Week Ahead

The big miss on the Non-Farm payroll numbers was still fresh in people’s minds as we started the week, in Asia and Europe at least as the States were out with Labor Day. The other main topic was the shock decision by Japanese Prime Minister Yoshihide Suga announcing that he will not run for re-election as party leader later this month, ending his tenure after just one year, Toshihiro Nikai, his party's secretary general said. 72-year-old Suga announced his intention to resign at an emergency meeting of senior members of the ruling Liberal Democratic Party (LDP). Over the last year Suga approval ratings have collapsed over his government's handling of the coronavirus as well as the decision to go ahead with the Olympics.

Early Tuesday we saw Chinese export growth unexpectedly surged in August pointing to signs that the global recovery is winning its battle against the delta variant. The Nikkei topped 30,000 for the first time since April (closing just below) amid optimism that PM Suga’s successor will adopt expansionary policies to spur the economy. However, Germany's ZEW index came in lower than expected at 31.9 for the current situation (eyed 34) and 26.5 for the expectations (30.3 eyed).

Midweek there were no significant economic releases today, however there were a couple of interesting events. We had the UK Prime Minister abandoning his party's manifesto pledges by raising national insurance and pausing the pensions triple lock to fund NHS and social care, resulting in taxes being at their highest level since the Second World War. Also El Salvador became the first country to accept Bitcoin as legal tender, with the president, Nayib Bukele, spending a large part of his day providing technical support from his Twitter account after the digital wallet used for transactions was deactivated. Bitcoin itself dropped by as much as 17% yesterday, to just above 43k, its lowest print for a month.

We did have the 3, 10 and 30-year treasury auctions, all of which were on the stronger side.

Throughout the beginning of the week treasuries had drifted lower, however a combination of short covering and relatively ‘attractive’ levels as well as the many of the curves being offered meant they did start to find bids, however they again faded towards the end of the week.

The Nikkei snapped an 8-day uptrend on Thursday as tech shares across the APAC region dragged indexes lower. The Hang Seng (-2%) and Kospi (-1.5%), also suffered losses as heavier regulations arrived in the gaming sector in China.

The Fed's Beige Book release showed the US economy ‘downshifted slightly’ last month as the delta variant of the coronavirus dented demand for tourism and travel as well as people’s appetite to eat out. However, overall, ‘the economy remained on an upward trajectory, with rising prices and labour shortages’. The labour shortage was a problem across all districts, due to ‘increased turnover, early retirements, childcare needs, challenges in negotiating job offers, and enhanced unemployment benefits.

With regards to inflation, the report said it was ‘steady at an elevated pace’, with most districts agreeing inflation was either moderate or strong, with construction materials, transportation, and industrial staples pushing prices higher.

The ECB announced they will slow the pace of their pandemic bond-buying for the next 3 months in a ‘recalibration’ (reduction) of the program. The ECB left other policy settings unchanged, while near-term growth and inflation outlook was increased slightly.

President Biden and President Xi spoke on the phone overnight discussing a range of matters to improve relations between the two superpowers. They discussed issues in which the nations' interests diverge as well as those that converge, the White House said. Xi said bilateral ties should get back on the right track but reiterated a point that has irked the U.S.: China won't collaborate on issues like climate change unless the U.S. first makes concessions in the bilateral relationship.

This news coupled with details that Beijing merely slowed new game approvals but did not freeze them boosted risk appetite across the board towards the end of the week. The Nikkei climbed +1.3% while Tencent and Netease helped the Hang Seng and Shanghai Comp climb +1.5% and +0.6% respectively.

PPI number on Friday showed an increase of 0.7% (consensus +0.6%) in August after back-to-back gains of 1.0%. The core PPI (ex. food, energy and trade margins) moderated to 0.3% (consensus+0.6%) from a 0.9% spike in July. Core goods prices were up 0.6% following a string of 1.0% gains, while transportation & warehousing costs increased by 2.8% on top of a 2.7% rise in the prior month. However, gains in core services ex transportation & warehousing slowed to a 10-month low of 0.1%, as costs of financial services and health care slipped.

Week ahead has US August retail sales data on Thursday along with CPI. Regional Fed manufacturing surveys for September will also start rolling out. Canada data highlight will be August CPI Wednesday. ECB asset purchases for the week ending September 10 will be reported. UK Labour market data will be reported tomorrow. We also have Japan’s August PPI and machine orders with trade data being reported Thursday.

We could not finish without mentioning that on Saturday was of course 20 years since 9/11. We have all had some pretty huge moments in our lifetimes, where time seemed to stand still. For most of us one of the biggest ‘Where were you moments’ happened when terrorists hijacked four planes in the US, two of which flew into the World Trade Centres, resulting in nearly 3,000 people losing their lives. This included nearly 350 firefighters sent to try to save those trapped in the Towers. The images and memories of 9/11 will live with us forever.

Enjoy your week ahead.