The week ahead: 26 - 30 August 2024

United States – Core PCE likely increased by a low 0.2%, consistent with the Fed's 2% target. Due to base effects the y/y inflation rate will edge up to 2.7%. A similar m/m reading for headline PCE inflation leads to a 2.6% y/y figure. A weaker jobs report in July likely leads to slightly lower income growth at 0.1% m/m, while strong retail sales suggest personal spending increased relatively strongly by 0.5% m/m.

Eurozone – We expect headline inflation to fall to within touching distance of the 2% target, helped by a drop in petrol prices and a relatively high base for energy in August. Services inflation is expected to moderate slightly but to remain elevated, meaning a much smaller fall in core inflation. Eurozone unemployment is expected to hold near historic lows, as continued solid employment growth in southern Europe is offset by rising unemployment in Germany. Also look out for the German IFO, which is likely to confirm the faltering recovery signalled by the flash PMIs, and a number of ECB Governing Council members are due to speak for the first time after the summer break.

The Netherlands – Inflation (CPI) is expected to come in at 3.6% for August. Thereby marginally declining from the elevated July figure (3.7% yoy), which was mainly driven by higher housing rent indexation and the delayed transmission of the excise tax on tobacco. The former leads to an upward adjustment of our services inflation forecasts for the coming 11 months. Additionally, wage growth is still elevated which puts upward pressure on inflation, particularly in labour-intensive services. Industrial good prices are expected to put downward pressure on inflation. All in all, we have raised our inflation forecasts to 3.2% in 2024 and 2.9% in 2025 (CPI).

China – Following a 20bp cut in July, we expect the PBoC to keep the 1-year medium-term lending facility rate unchanged at 2.30% on Tuesday, in line with consensus. Still, amidst weak demand, low inflation and with the Fed foreseen to start cutting policy rates from September, we expect further cuts in RRRs and mini rate cuts going forward. Meanwhile, the PBoC is tweaking its monetary policy toolkit to make it more market-oriented, with a greater role for the 7-day reverse repo rate, and introduced a form of (inverse) ‘yield curve control’ in an aim to put a floor under bond yields.