Euro area: Flash September estimates of inflation to fall below target for first time since mid-2021
* In the euro area, the main focus is on inflation in September. Given this morning’s soft German and Italian data (below) as well as the significant declines in France and Spain last Friday, we expect the headline euro area HICP rate (tomorrow) to drop 0.4ppt to 1.8%Y/Y, which would be the first sub-target reading since June 2021. The decline this month will be led by energy as petrol and heating gas oil prices were trending in the first three weeks of the month down between 3½-4½%M/M. But with services inflation also set to moderate and core goods inflation to remain subdued, we expect core inflation to also ease 0.1ppt to a five-month low of 2.7%Y/Y. In Italy, HICP inflation fell 0.4ppt to 0.8%Y/Y, and Germany’s regional numbers suggest that headline inflation will fall below 2%Y/Y for the first time since February 2021 – probably down 0.2ppt to 1.8%Y/Y on the HICP measure. National inflation figures from Ireland and Portugal due today will also provide a guide to the euro area figure.

* Other releases include euro area unemployment numbers for August on Wednesday. Although the risks are skewed to the upside, the jobless rate is expected to remain steady at July’s series low of 6.4%. Meanwhile, the final manufacturing (tomorrow), services (Thursday) and construction PMI surveys (Friday) for September are also due. The flash surveys signalled a notable deterioration in conditions in September, with the composite PMI suggesting that economic output contracted this month and broadly stagnated over the third quarter as a whole.

US: September employment report and ISMs in focus
* In a busy week for US top-tier data, the highlight will be Friday’s release of the September employment report. While initial jobless claims have eased somewhat so far this month, other labour market indicators – including job openings and last week’s downbeat consumer confidence survey – suggest that demand continues to moderate. As such, Daiwa America’s research team forecasts an increase in payrolls of 140k this month – little changed from August and close to the average of the past five months, but well down on the average in Q1 (267k). The unemployment rate is expected to remain steady at 4.2%, albeit still 0.5ppt above the low in the previous twelve months. Despite softer pay growth, the monthly increase in average hourly earnings could remain close to its solid average of 0.3%M/M over the past year, which would leave the annual rate steady at 3.8%Y/Y. Other labour market releases include the August JOLTS report (tomorrow) and ADP employment report (Wednesday).

* The September manufacturing and services ISMs (tomorrow and Thursday respectively) will provide an update on economic activity at the end of Q3. Consistent with other GDP growth trackers, the surveys are likely to point to ongoing expansion in the services sector, with the headline index little changed from July (51.4) and August (51.5). But the manufacturing survey will likely point to ongoing challenges in the factory sector, with the production component expected to report a fourth successive contractionary reading having slipped to 44.8 in August, the lowest reading since the first Covid-19 lockdown in May 2020.

Japan: August IP declines sharply as one-offs weigh; BoJ’s Tankan survey and summary of opinions also due
* Ahead of tomorrow’s BoJ Tankan survey, Japan’s industrial production figures published today illustrated the challenges facing the factory sector over the summer. In particular, manufacturing output fell a steeper-than-expected 3.3%M/M in August to its lowest level in six months and down almost 5%Y/Y. The weakness was led by the autos sector (-10.6%M/M), semi-conductor equipment (-10.6%M/M) and electronic devices (-9.4%M/M), as the effects of a typhoon and warnings of an earthquake hit production. Nevertheless, the recent choppy production profile means that output was tracking in July and August just 0.3% below the Q2 average, while manufacturers forecast an increase of 2%M/M in September and more than 6%M/M in October.

* Overall, the Tankan survey is expected to report that business conditions in the manufacturing sector were little changed in Q3, with the headline DI for large firms forecast to drop just 1pt to 12 to be bang in line with the average of the previous three quarters. And the Tankan is likely to report that conditions remain much more favourable in the services sector, with the respective DI forecast to ease just 1pt to 32, close to the 33-year high recorded in Q1. Firms’ expectations for the yen exchange rate – which in June stood at ¥144.6/$ for the second half of FY24 – will also be closely watched, as will their profits, sales and capex growth projections. Meanwhile, firms’ inflation expectations are likely to suggest the CPI will be in line with the BoJ’s 2% target in five years’ time. Aside from the data, the BoJ’s summary of opinions from the Policy Board’s 19-20 September meeting will also be published tomorrow.

UK: Q2 GDP growth revised a touch lower to 0.5%Q/Q, while current account deficit widened
* Updated UK national accounted figures published this morning brought a modest downwards revision to Q2 GDP, by 0.1ppt, albeit to a still-healthy 0.5%Q/Q. The revision principally reflected slightly softer growth in government spending (1.1%Q/Q) than previously estimated. Despite a notable upwards revision to business investment (up 1.3ppts to 1.4%Q/Q), the contribution from fixed investment was unrevised, accounting for 0.1ppt of growth, while private consumption similarly added 0.1ppt. Notwithstanding amendments to export and imports growth in Q2, the absurd drag of 2.2ppt to GDP growth (likely in part reflecting non-monetary gold) was offset by an equivalent boost from inventories. Given the deterioration in the trade balance, the current account deficit widened in Q2 by some £15bn to £28.4bn (4% of GDP), the largest in nine quarters. When excluding previous metals, the current account deficit widened a more modest £5.8bn to £22.4bn (3.6% of GDP). Separately, the final manufacturing (tomorrow), services (Thursday) and construction (Friday) PMIs are expected to align with the flash estimates that were consistent with GDP growth of 0.3%Q/Q in Q3. 

* Looking ahead, of most relevance for the monetary policy outlook this week will be the results of the BoE’s Decision Maker Panel survey (DMP) on Thursday, which will provide an update on firms’ inflation and wage growth expectations. In August, the DMP reported that CPI inflation expectations in three years’ time ticked marginally higher, by 0.2ppt to 2.7%Y/Y, although this was still more than 2ppts below the peak in September 2022. But firms’ output price expectations fell to the lowest level in three years. Meanwhile, wage growth expectations moved sideways at a 27-month low of 4.1%3M/Y. The BRC shop price index (tomorrow) will also provide an update on price pressures on the High Street at the end of Q3.