This week US macro data will be in razor focus as FOMC members are on a self-imposed communications blackout ahead of next week’s FOMC meet (16th-17th Sep). CPI & PPI data for Aug will be the key difference between a 50 bps or a dovish 25bps cut in the Sep FOMC meet. A critical question for the labor market has been: are weaker payroll gains primarily about constrained labor supply given immigration policies or weak labor demand given the ongoing uncertainty shock? Recent data suggest that, in the aggregate at least, weaker labor demand may have been slightly more important than falling supply in recent months. After the weak NFP nos for August, a 25 bps cut is certainty for the 17th Sep meeting. In US macro data, Aug core CPI we expect at .29% MoM & headline CPI at .32%MoM. We believe core good prices due to tariff impact will peak out by October. Hence we see a faster rate cut cycle to neutral of 3% by March'26. We continue to expect 75 bps cut in REMCY25 and another 50 bps cut in Q1CY26. In the BLS preliminary benchmark revision to establishment data to be released on Tuesday, we expect a substantial downward revision of 600k-900k from April 2024 through March 2025. In UST auction supply, we have 58 BN USD of 2yr USTs on Tuesday, 39 BN USD of 10yr USTs on Wednesday & 22 BN USD of 30yr USTs on Thursday. In RoW events, we have ECB meeting on 11th Sep which we expect to be a hold. But by December, we are likely to have further evidence that US tariffs are weighing on euro-area exports and growth. We also expect disinflationary pressures to have increased, with headline CPI likely back below the ECB’s 2.0% target, and core CPI edging close to 2.0%. Given that the 15% US tariff is slightly worse than the baseline 10% rate underpinning the ECB’s June projections, there is a risk that its projections are lowered slightly again (potentially for both 2026 and 2027) to reflect the disinflationary impact from weaker US demand for euro-area exports. Hence, we continue to believe 18th December ECB meeting is live for a last 25 bps cut. Also on 8th Sep, French Prime Minister François Bayrou had called for a vote of confidence in his government, to be held on 8 September. We expect Bayrou to lose the vote. If he does, President Macron would then likely seek another centrist to form a government, tasked with undertaking similar fiscal reforms. Ultimately, there is the risk of snap legislative elections, if President Macron is unable to find a successor. This will lead to further widening of 10yr Bunds-10yr OATs spread by 20 bps from current spread levels of 80bps. In UK data we have June GDP data due on Friday where we expect a recovery to .4% MoM. In the OPEC meeting held on 7th Sep, Sunday, OPEC+ agreed to a new round of production increases from next month, as the group extends a policy shift toward higher volumes after years of defending prices. Key alliance members approved adding about 137,000 barrels a day from October. We have long believed that Saudi’s sole focus is now to own market share with little interest in price control. We have written in multiple recent pieces that with the advent of NEVs (New energy Vehicles), increase of solar and electric resources, OPEC now sees a secular fall in global demand sooner than later. Hence the need to accelerate revenues in petro dollars. We believe we are headed towards Brent sub 60 levels by end Dec’25 and sub 50 levels by June’26. With global growth ex US weak due to tariff pressure, global crude demand is severely impaired. With higher physical supply, crude prices coming down is a matter of certainty now.
