Macroeconomics: The Day Ahead for 30 July

A veritable deluge of major statistics, central bank policy meetings and earnings from around the world awaits. There are Australian and Spanish CPI, French GDP, German Retail Sales and, as expected no change from Singapore’s MAS to digest. Ahead lie US, Eurozone, German, Italian and Mexican provisional Q2 GDP, EC Confidence surveys  US ADP Employment and Pending Home Sales, the Fed, Bank of Canada, Brazil COPOM rate decisions ahead of the Bank of Japan in the early hours of tomorrow, while the US Treasury details next week’s quarterly refunding. On the earnings front in Asia: Nissan and Sumitomo Mitsui Trust; in Europe: Aberdeen, Airbus, Banco Santander, BASF, GSK, HSBC, Intesa Sanpaolo, Rio Tinto and UBS, while the US has Meta and Microsoft as its headliners, accompanied amongst others by Altria, Ford, Hershey, Kraft Heinz, MGM Resorts and Qualcomm. In the background, an eye needs to be kept on the details of the US/EU trade deal, given conflicting statements above all about pharmaceuticals and metals tariffs, and also Commerce Secretary Lutnick’s broadside about (EU) digital services taxes and ‘the attack on our tech companies’. This comes on top of the nonsense of the agreement on EU increasing energy imports from the US, which does not add up in volume or value terms, let alone the disruption to energy supplies from the US to other parts of the world, if the EU is to get anywhere close to the $250 bln per annum. It again serves to underline that many of the agreements thus far do little to remove uncertainty, and only serve to amplify ambiguity.

** Eurozone – Q2 GDP **

– Advance Q2 GDP is expected to stall on the quarter, largely a payback for the front loading of production and exports that boosted Q1 to 0.6%. Once again Spain is likely to have been the exception with its better than expected 0.7% q/q, and with France beating forecasts at 0.3% q/q thanks to a boost from better than expected Consumer Spending (0.8% q/q) that offset very weak Gross fixed capital formation (-0.8% q/q), the risks for the pan Eurozone reading are on the upside, depending on the drag from Germany (expected -0.1% q/q. Still prospects for H2 GDP do not look great, and the fact that to all intents and purposes the EU largely caved in to US demands on the trade deal, not only confirms weak leadership, but also the points made by Spain’s former Foreign Minister Gonzalez Laya: “Economically, this isn’t a good agreement and geopolitically speaking, it is a defeat”; and “This agreement makes the EU smaller (in terms of influence in the world order).” The GDP confirms that Germany and France were simply not willing to run the gauntlet of a trade war with the US, given both economies and governments are already so weak, and the EU continues to be hobbled by governments that only look to defend their national interests, and have no appetite to develop a robust pan European position on trade, or anything else. The French suggestion that it will look to return to the negotiating table with the US to improve the terms of the deal is nothing more than a case of ‘Whistling Dixie’.

** U.S.A. – Q2 GDP **

– Q2 advance GDP is expected to rebound to 2.4% SAAR from Q1’s 0.5%, as imports reversed their Q1 surge, with net exports seen contributing around 4.0 ppts to Q2 GDP (perhaps even more given the smaller than expected Goods Trade deficit of $-86.0 Bln) yesterday, while Personal Consumption is seen picking up to a still lacklustre 1.5 from 0.5; a big offset to this will come from sluggish Business Investment and inventories, though the monthly wholesale data posted an unexpected rise. But stripping out the noise from trade and inventories, the key Final Sales to Domestic Buyers is likely to slow again from Q1’s sluggish 1.5% to around 1.0%. ADP Employment is expected to rebound to +80K from -33K, but this has even lost its value as a signal for the official Household survey, given that the latter saw an increase of 93K in June (and a drop of 222K in Unemployment).

** U.S.A. – Fed rate decision **

– The politically besieged Fed is seen holding rates at 4.25/4.0%, though both Bowman and Waller are expected to vote for a cut, given their recent comments, though many may well see their dissent as politically motivated, given Bowman is the Fed’s bank supervisor (and a Trump regime appointee), and Waller is in the mix to take over from Powell as Fed chair. The door to a September cut may be pushed open a little wider. But a more interesting question for Powell would be how he views the emerging chatter that the new Fed chair may consider implementing ‘Yield Curve Control’ (YCC), especially as the ruling Republicans have not even paid lip service to bringing the US fiscal burden under any form of control. YCC would imply the end of QT and a very large amount of QE (cf. Japan), and as is well documented QE is a catalyst for raging asset price inflation, and even greater inequality, and by extension, deeper political divisions.

** Japan – BoJ rate decision, Industrial Production & Retail Sales **

– Ahead of the BoJ decision, Retail Sales are forecast to rebound 0.5% m/m, while auto sector production curbs due to a shortage of key battery magnets are expected to see Industrial Production drop -0.7% m/m. But all eyes will be on the BoJ, particularly its updated set of forecasts, which may edge CPI forecasts up, but still see the long run rate just below its 2.0% target. It is expected to hold rates at 0.5%, and stick to the view that rates remain on an upward trajectory, but political instability may prompt it to hint that a hike is not imminent, particularly given pressure from opposition parties for more fiscal stimulus, even if a sales tax cut or suspension would of course reduce headline inflation in the short term.