Macroeconomics: The Day Ahead for 31 July

Another very busy day awaits as July draws to an end, and tomorrow’s US tariffs deadline looms in the headlights, with a barrage of US announcements yesterday, including a 15% tariff trade deal with South Korea, a politically motivated 50% tariff on Brazil imports, (though with a number of key sectors excluded), and in market impact terms the completely unexpected exclusion of many copper products from tariffs, which saw the US Copper future plunge by nearly 20% (see chart). There are the expected no change policy decision from the BoJ, Japan & South Korea Industrial Production, Australia & Japan Retail Sales, worse than expected China’s NBS PMIs, along with French CPI and the better than forecast earnings reports from Meta and Microsoft to digest. Ahead lie German Unemployment & CPI, Canada’s monthly GDP and U.S. Personal Income, PCE and weekly jobless claims, and expected 25 bps rate cuts in South Africa & Colombia. On the earnings front, CATL, Mizuho Financial, Posco Holdings, Samsung Electronics and Tokyo Electric Power feature in Asia, as Europe looks to Anglo American, Anheuser Busch InBev, Arcelor Mittal, Enel, ING, OMV, Renault, Sanofi, Standard Chartered and Unilever. Across the pond, Amazon, Cigna, Mastercard and Brazilian mining behemoth Vale are likely to be among the headline makers. The BoJ decision was no surprise, though its upward revisions to its CPI forecasts (with its assessment that the risks to the inflation outlook changed to balanced from seeing some downside risks previously), and tweak higher to its 2025/26 GDP forecast make a relatively strong case for a further rate hike, sooner rather than later. Ueda’s press conference comments suggest that the October 29/30 meeting, when it will provide another forecast update as the most likely to see a further rate hike, as it will have had some time to assess the impact of tariffs on the economy, trade and inflation.

** Germany – July Unemployment, CPI **

– German Unemployment rose less than expected at +2K, but it has still risen every month since January 2023, with the Unemployment rate seen unchanged at 6.3%, very close to the peak seen during the height of the pandemic. Following another benign French CPI reading, German HICP is expected to rise 0.4% m/m, but thanks to base effects dip 0.1 ppt to 1.9% y/y, with transportation and recreation related services expected to offset some modest upward pressures from clothing and footwear. While base effects above all energy related may push up HICP somewhat in coming months, the ECB will continue to be focused on downside risks relative to its target, as many policymakers have underscored since its July meeting.

** U.S.A. – Jun Personal Income / PCE **

– Yesterday’s Q2 GDP pre-empted the headline PCE print, with Q2 Personal Consumption essentially in line with forecasts at 1.4%, per se implying today’s monthly PCE will be in line with forecasts at 0.4% m/m. The focus will as ever be on the deflators, with a higher than expected Q2 core PCE Deflator (2.5% vs. expected 2.3%) implying a risk of a monthly reading above the forecast 0.3% m/m for an unchanged 2.7% y/y. In respect of yesterday’s FOMC meeting, the dissenting votes for a 25 bps cut from Bowman and Waller were no surprise, but this was the highest number of dissents at an FOMC meeting since 1991, underlining how political influence is going to make Fed messaging on the policy outlook rather more difficult. Be that as it may, Powell was effectively agnostic on the chances for a September rate cut, and stressed that there are nearly two full months of data before the next meeting on September 16/17, which also suggests that there may be little in the way of policy signalling at this year’s relatively early (in timing terms) KC Fed Jackson Hole Symposium, which takes place on August 21-23.