Macroeconomics: The Day Ahead for 01 August

Manufacturing PMIs worldwide, Eurozone CPI, the US monthly labour market report, and Auto Sales dominate the end of week data schedule, as the latest set of US trade tariff announcements sends risk assets into a tailspin, despite the robust Apple earnings report. But as the attached chart of the S&P 500 e-mini future attests, this is for the time being little more than blowing the froth off the top of the Q2 exuberance, and no surprise given valuations look challenging, and the Fed sticking with its ‘wait and see stance’. There are no scheduled central bank speakers, while US energy behemoths Chevron and Exxon Mobil headline the run of earnings. With respect to tariffs, it has to be observed that the US administration is well short in numerical terms of the number of trade agreements it was originally targeting, even if it will trumpet the various MoUs for Japan, South Korea, EU and GCC countries to invest in the US. But these are MoUs not concrete commitments. Indeed, most of the deals that have been struck remain most notable for their lack of detail, with a lot of work still to do, particularly in the cases of China and the EU. As such very little has been achieved to lift uncertainty, other than avoiding the worst case scenarios, which falls into the category ‘good but no cigar’. A close eye also needs to be kept on the legal challenge to the President’s authority to impose tariffs under the International Emergency Economic Powers Act (IEEPA) in the Court of Appeals, though were the court to rule against Trump, the case will almost certainly go to the Supreme Court on appeal.

Next week’s data run is quite light featuring Services PMIs, US Durable Goods Orders, China Trade, Japan Labour Cash Earnings & Household Spending, and German Orders, Trade and Production. There are central bank policy meetings in the UK (a 25 bps cut to 4.0% is expected, though the vote will again be split, and some speculation about the future of the BoE’s active Gilt sales) and India (no change at 5.50%), with central bank speakers spread very thin on the ground, as is typical during the northern hemisphere summer holiday season. By contrast Q2 corporate earnings will be very plentiful, both in the US and across the rest of the world. A close eye will obviously be kept on any last minute trade deals ahead of the August 8 US tariff implementation date, above all whether the US and China manage to agree a further 90 day extension to their truce,

Asian Manufacturing PMIs made for generally poor reading, with a larger than expected decline in China, weakness in Japan, South Korea and Taiwan, though India, Indonesia and Vietnam registered gain. Europe and UK Manufacturing will remain in contraction outside of Spain, though there were some improvements on the month, while both the US PMI and ISM Manufacturing indices are also seen in contraction.

** U.S.A. – July labour market report, Auto Sales **

– Given that Powell was keen to stress that there is a lot of data to flow under the bridge before the next FOMC meeting, including two lots of CPI and labour data, today’s Payrolls are unlikely to be a game changer for the Fed’s September rate decision. Thus far the other labour indicators this wee have been mixed, with a sharper than expected fall in JOLTS Job Openings still not reaching post pandemic lows, and while there was a 136.8% y/y rise in Challenger Layoffs (above all paced by a further round of cuts in the tech sector), these are announcements of intention, which may take months to materialize, and with Initial jobless claims remaining very low by any historical standards, it would be a stretch to argue that there is significant weakness in labour demand. Headline Payrolls are forecast to rise 105K vs. June’s 147K, but Private Payrolls are expected to rebound to 100K from 74K, which is around the pace the Fed assumes is the breakeven level for labour demand. The Unemployment Rate is expected to edge back up 0.1 ppt to 4.2%, after a surprisingly solid set of Household survey readings in June, that saw an Employment increase of 93K and a drop of 222K in Unemployment. July Auto Sales forecasts have been rising over the past 10 days, with a jump back to 16.0 Mln from June’s 15.34 Mln expected after a tariff impacted slump in Q2, and obviously implying a robust headline increase in headline Retail Sales. Spare a thought too for US Construction Spending, which is seen stabilizing after a run of 9 consecutive falls since November, paced above all by a drop in residential construction, and a smaller decline in non-residential.