This week’s holiday-shortened economic calendar features a healthy dose of data amidst a light sprinkling of Fed speak. Friday’s employment report will undoubtedly be the focus for both market participants and the Fed. Our own estimate is at 40k for Aug NFP and UR at 4.3%. Regarding other details of the report, average hourly earnings (+0.3% vs. +0.3%) and hours worked (34.3hrs vs. 34.3hrs) should remain steady. There are two good arguments why there’s only a low risk of a large upside surprise to Aug NFP. First, over the past 30 years, August payrolls have tended to surprise substantially to the downside. Second, Fed Governor Christopher Waller, in his latest speech, flagged that a Fed staff measure derived from the weekly ADP employment series has pointed to further deterioration in payrolls since the mid-July survey period for that month’s report. In US economic data points, we have ISM services & manufacturing (both expected to come a tad firmer), JOLTS and trade balance. There is no UST dated supply this week. Monday US markets are close for Labor day. Miran confirmation before the Senate Banking Committee will likely happen this week. Cook's legal battle will have an important outcome for Fed composition for CY26 as the Fed board must approve the upcoming periodical reappointment of the regional Fed presidents by the end of February next year. If the majority of Fed governors reject to reappoint some hawkish regional Fed presidents, that would affect the entire FOMC and raise a risk of aggressive easing next year. Last week US Appeals court found Trump's tariff's (imposed via the IEEPA act) illegal though this is not the final legal judgement. The circuit court has directed the lower court to reconsider the scope of relief, allowing tariffs to remain in place while the case continues. It’s all but certain the Supreme Court will have the final word, which means we probably won’t see a final decision until well into 2026. Based on the daily Treasury statement released earlier this week and our assumption for goods imports, the average effective tariff rate for July was about 10.5%, essentially the same as June. We believe that the employment mandate of Fed will take over significantly the price stability mandate in next 6 months. As we have seen by treasury estimates, the average effective rate is only 10.5%. So, the bar for a NFP coming too strong and then CPI also over shooting .3% MoM significantly is high. We continue to believe in 75 bps of cuts in REMCY25 and another 50 bps of cut in Q1CY26. We have been recommending receive on 2yr UST as well as 1yr-1yr US SOFR since end July. We continue to hold on to these trades and expect 10-15 bps lower movement in short end UST yields up to 2-year post the NFP data if our estimates are correct. In Row, Chinese data continue to come soft. Both the official manufacturing PMI as well as housing sales came weak. The value of new home sales from the 100 largest property companies stood at 207 billion yuan ($29 billion), according to preliminary data from China Real Estate Information Corp. today. That’s a 17.6% drop from a year earlier, and followed a 24% slump in July. Sales have fallen for six straight months. China’s longer-term housing outlook remains grim. Demand for new homes in cities is expected to stay at 75% below its 2017 peak in the coming years, due in part to a shrinking population. Hence China will continue to export disinflation to RoW ex US and this augurs well for commodity importing countries. Eurozone we get the HICP data on Tuesday which is expected to come around 2%. German factory orders (due on Friday) might have fallen in July. Canada continues to see volatile employment data. We expect August data (due on Friday) to show total employment rose by 15k after declining by 40.8k in July. That pace would be roughly half of what we estimate for labor-force growth, which would push the unemployment rate back up to 7.0%. We expect a last 25 bps cut by BoC in it’s 17th Sep meeting.
