Damned Data – Full Week Preview

The overarching narrative for this week shouldn’t be materially different from last week – people will be concerned about the same things, namely the looming debt ceiling debate, the odds of a government shutdown which ebb and flow with whatever shows up on Trump’s Twitter feed, and the fallout from North Korea’s latest ballistic missile provocation.

The dollar will be in focus as Yellen’s perceived lack of hawkishness at Jackson Hole weighs on sentiment. Remember, it’s not so much that anyone was expecting something from Yellen that would give renewed hope to dollar bulls, rather it’s that in the absence of a reason to change their mind, the bears are in control. Yellen gave them no such reason.

Although it’s still far too early to divine anything concrete, the dollar did start out on the back foot right out of the gate, opening lower against most of the G-10 amid thin liquidity.

And make no mistake, there’s no relief in sight for the greenback in terms of data risk. We’ll get PCE and jobs this week, both of which are potential land mines for the dollar and yields. 10Y yields are sitting near their lowest level since Sintra and as noted earlier on Sunday, spec positioning in TY is extreme.

(Deutsche Bank)

Also on the docket: Euro area inflation.

“Although the data are expected to show weak inflation in both economies, the United States leads the eurozone in its cyclical recovery [and] as we approach the September ECB and Fed meetings, risks are skewed towards a change in narrative that favours the USD, particularly at the expense of the EUR,” Barclays wrote Sunday, before cautioning that “until that shift in narrative occurs, however, markets’ focus on inflation as the primary driver of policy represents a risk to our short EURUSD view.”

Notably, EURUSD is starting to run well ahead of the rate differentials pillar again:

“We expect nonfarm payrolls to increase by 165k in August from 209k in July, implying a slowdown from the 3-month moving average of 190k, albeit with a higher probability of seasonal bias. Markets will look to wage growth to gauge the Fed’s next steps – we expect a steady 0.2% m/m (2.6% y/y) – though this week also brings core PCE data which we see edging down to 1.4% y/y, moving further away from the Fed’s 2% target,” BofAML writes, weighing in on the outlook in their own week ahead piece. As for Europe, the bank sees CPI printing at 1.5% y/y.