The Davy Digest - 26th August 2024

Global equity indices were broadly positive last week while bond yields pushed lower, driven by increased speculation around a 50 basis point rate cut in the US next month. The release of minutes from July’s Federal Open Market Committee meeting emboldened this dovishness, as policymakers in the US appeared less concerned about inflationary risks and rather focussed on a cooling labour market. Preliminary estimates for August Purchasing Managers’ Index (PMI) surveys were released in Europe and the UK. The Eurozone services measure came in above expectations – aided by the effects of the Olympics in France – while manufacturing continued to weaken, with Germany in particular remaining a laggard. In Japan, inflation came in hotter than expected at 2.8% year-on-year and Bank of Japan Governor Kazuo Ueda reaffirmed intentions to continue hiking rates regardless of potential volatility in the markets.

Last week's highlights

	FOMC Minutes (21/08) – Expect to cut in September, given data continues current trends. BLS Employment Survey Revision (21/08) – Downward adjustment to nonfarm payrolls figures of 818k, largest revision in 15 years.
	Eurozone Flash PMI (22/08) – Composite figure increased to 51.2 (vs 50.1 expected), services boosted by Olympics, while manufacturing continues to lag
	Manufacturing Flash PMI (22/08) – Increased to 52.5 (vs 52.2 expected). Services Flash PMI (22/08) – Increased to 53.3 (vs 53.0 expected).
	PBoC Interest Rate Decision (20/08) – Left unchanged, as expected. Japan National Inflation (23/08) – Remained at 2.8% year-on-year  (vs 2.7% expected)

A relatively quiet week for macroeconomic data. In the US, the Federal Reserve’s preferred inflation measure, Personal Consumption Expenditure, will be released and provide additional insight into the pace of disinflation ahead of a potential September rate cut. Additionally, the second estimate of Q2 GDP will be published. In Europe, consumer confidence figures will be released on Thursday, while in Japan, Tokyo inflation is expected to remain above 2%, allowing for further hikes before year-end. Wednesday night will likely provide the week’s biggest event, as Nvidia report on their Q2 earnings.

What's on the radar

	Q2 GDP Second Estimate (29/08) July Personal Consumption Expenditure Index (30/08)
	Consumer Confidence (29/08) Unemployment Rate (30/08)
	Tokyo Consumer Price Index (29/08)

Chart of the moment

Working to bridge the labour data gap

Source: Bureau of Labor Statistics, 23/08/2024

• On Wednesday, the US Bureau of Labor Statistics (BLS) released their preliminary annual revision to Nonfarm Employment figures. 
• Labour data has recently been under increased scrutiny due to growing discrepancies between the two surveys conducted by the BLS.
• The household survey – which samples approximately 60,000 households – has been indicating weakness for some time, while the payroll survey – which includes Nonfarm Employment – only began to crack in July.
• Wednesday’s downward revision of 818,000 jobs was the largest adjustment in 15 years, and likely suggests that the US labour market has been softening for longer than initially thought.
• The Federal Reserve will be aware of the inconsistencies in the jobs data and conscious of balancing both components of their dual mandate going forward.