This week, the US economy prepares for substantial new information. It all gets the jump-start, though, with the manufacturing ISM report for August. Investors are understandably watching these closely, given their potential impact on where the Federal Reserve goes with interest rates next. The politics of international trade are certainly all the rage these days. While South Korea’s recent economic performance is showing promising trends, the country still faces persistent challenges.
Production and exports faltered. Imports in South Korea fell 4% year-over-year. This drop is largely a result of an economic downturn and changes in demand internationally. South Korea’s trade surplus is still quite robust, only modestly decreasing from $6.6 billion down to $6.5 billion. Moreover, this decline in imports demonstrates the strength of the country’s export sector. Most notably, the country’s semiconductor exports soared, up an impressive 27%, highlighting the increasingly important role of technology in the nation’s economy. Adding to the positive trade fortune were a 9% rise in vehicle shipments from South Korea, boosting the American car trade surplus.
Upcoming Economic Reports
As the week begins, a few major economic reports are expected. Together, these reports will help provide a clearer understanding of the overall health of the US economy. On Wednesday, the JOLTS job openings and labor turnover data will be released. This new data will provide a powerful tool to better understand employment trends. Continuing on Thursday, the ISM and ADP job reports are both due to be released. These reports will shed light on the health of our service economy and private sector employment overall.
The final piece of these reports will come this Friday with the release of the official payrolls report. Analysts anticipate that this data will be closely scrutinized for indications of labor market strength, particularly in light of recent inflation figures and overall economic growth. Investors will be keeping a close eye on these reports, as they have the potential to set the tone for expectations surrounding future Federal Reserve actions.
International Inflation Readings
Besides the reports for the U.S., European countries are getting set to issue their first national inflation indicators. Germany, France, and Spain have all committed to releasing comparable data in the near future. These data will provide essential information on evolving inflationary pressures across the euro area. GDP growth Economists are expecting the Eurozone Monetary Union (EMU) to print at 2%. This bottom figure underscores just how sticky inflation has been coming down on the region.
Unfortunately, the euro area’s broader economic calendar looks lackluster right now. This could further complicate the policy landscape for European Central Bank officials as they navigate a high-inflation environment while trying to support growth. Beyond inflation, the interaction between US and European economic indicators will be a major watchpoint for global investors.
Market Reactions and Trends
In US markets, investor activity has been increasingly cautious. Given the lack of solid directional moves, traders are now paying attention to the technical picture. Consequently, daily net changes in US yields have turned precipitously volatile. The 2-year yield was down by 1.3 bps. At the same time, the 30-year yield increased an additional 5.2 bps, a sign of the market’s divided outlook on interest rate direction over the long term.
Last month’s PCE inflation gauges did not surprise, offering a measure of calm about the inflation direction as Fed officials gear up for another round of meetings. A federal appeals court upheld a court ruling made last fall which determined that President Trump exceeded his mandate. He unconstitutionally exercised emergency powers in order to set import tariffs. Looking ahead this decision be a significant precedent for trade policies, and market confidence in future.