Good morning,
In a twist few saw coming, Liam and Noel Gallagher have decided to bury the hatchet and reunite Oasis for a 2025 tour. After 15 years of feuding that saw guitars smashed and egos bruised, the brothers have announced a series of concerts across the UK and Ireland, much to the delight of fans who’ve been dreaming of this moment. While there’s no talk of new music yet, the announcement has already sent shockwaves through the music world. It seems the Gallaghers have realised the time has come—let’s just hope they can make it through the tour without another backstage brawl.
Last Week
The US economy outpaced expectations in Q2, reclaiming its title as the fastest-growing G7 economy with a 3% annualised expansion. This robust performance, up from an earlier 2.8% estimate, challenges the Fed’s anticipated rate cuts. Fed Chair Jerome Powell’s dovish tone at Jackson Hole, signalling a shift from inflation control to job protection, had sparked speculation of a substantial 50 basis point cut in September. However, with growth exceeding forecasts, markets are now less confident in such a move, pricing in a 30% chance. Investors are watching closely, particularly with overbought conditions and the upcoming non-farm payroll report set to influence the Dollar.
Sterling has enjoyed a strong rally recently, hitting its highest level against the dollar since March 2022. However, concerns are emerging as the autumn budget looms, with Prime Minister Keir Starmer’s recent briefing revealing a £22bn shortfall in public finances. Starmer warned of tough decisions ahead, raising fears that new taxes could target growth sectors, potentially dampening Sterling’s momentum. Jane Foley, Senior FX Strategist at Rabobank, cautioned that the budget risks souring Sterling’s post-election honeymoon. While the pound has benefited from diverging rate outlooks between the US and UK, the upcoming budget could pose a significant threat to its continued strength.
Investors in the Eurozone are increasingly betting on further rate cuts from the European Central Bank (ECB) after weaker-than-expected inflation data from Germany and Spain. Both countries reported sharper declines in inflation than anticipated, with Spain’s HICP inflation dropping to 2.4% year-on-year, reinforcing expectations of a soft all-Eurozone inflation reading. This has led to renewed selling of the euro, which dipped below $1.1100 on Thursday, as markets now foresee a higher likelihood of the ECB delivering its second rate cut of the year in September. The Eurozone’s five-year inflation swap also fell, adding pressure on the ECB to act swiftly to support the economy.
This Week
As another Non-Farm Payroll (NFP) week approaches, investors are keenly focused on the outcome to gauge the Fed’s next move on rate cuts. The weaker-than-expected July NFP figures triggered fears of a looming recession, leading markets to price in 125bps of rate cuts by year-end. However, subsequent data eased those concerns, prompting investors to scale back their expectations slightly. Despite Fed Chair Powell’s dovish remarks at Jackson Hole, which reinforced a softer outlook, markets are still pricing in a 100bps reduction by year-end, with a 35% chance of a 50bps cut at the September 18 meeting. The NFP results will be crucial in shaping these expectations.
The Bank of Canada (BoC) is set to announce its interest rate decision on Tuesday, with markets widely anticipating a third consecutive quarter-point cut. Canada’s overnight index swaps (OIS) even suggest a 15% chance of a more aggressive 50bps cut. This expectation is supported by recent data showing a slowing economy, increased job losses, and continued downward pressure on inflation. Given these conditions, the BoC is likely to maintain a highly accommodative stance. While the loonie may weaken in response, the broader outlook for USD/CAD remains stable as markets have already priced in further rate cuts this year. The upcoming Canadian jobs data, released alongside the US employment report on Friday, will be key to watch.
Key events
Tuesday September 3rd
07:30 Swiss CPI
15:00 US Manufacturing PMIs
Wednesday September 4th
02:30 Australian GDP
14:45 Bank of Canada Rate Statement
15:00 JOLTS Job openings
15:30 Bank of Canada Press Conference
Thursday September 5th
03:00 Australian Governor Bullock Speak
13:15 Non-Farm Employment Change
13:30 US Unemployment Claims
15:00 US Services PMI
Friday September 6th
13:30 Canadian Unemployment Change, US Unemployment Rate, US Non-Farm Employment Change
Have a great week,
The Garton team.