Macroeconomics: The Day Ahead for 12 August

A busy day waits for major data, though US CPI and the overnight UK labour data will take pride of place, with Indian and Brazil inflation, US NFIB Small Optimism and UK BRC Retail Sales also scheduled. There is some modest relief as the US China trade truce was extended for a further 90 days, though perhaps the more significant news items were China’s advisory for companies not to use Nvidia’s H2O chips (touting the superior quality and performance of locally produced chips), and reports that Chinese manufacturing exporters are cutting wages to stay competitive as well as an accompanying rise in underemployment, which will only serve to deepen deflation and curb retail sales. As expected, the RBA cut rates a further 25 bps to 3.60%, with the door left firmly to a ‘couple more’ rate cuts, though Bullock remained cautious on the timeline. There are a few Fed speakers, but the BOE’s Q2 Asset Purchase Facility report may attract more attention, above all in respect of the upward pressure on long-dated Gilt yields that the BoE’s active Gilt sales programme creates. As with the Fed back in 2019, there appears to be far too much focus on how large the BoE’s balance sheet should be, rather than the consequences of its current management processes. A very busy day in the commodities space has OPEC’s monthly Oil Market Report and the EIA’s Short-term Energy Outlook (STEO), accompanied by the USDA World Agricultural Supply & Demand Estimates (WASDE) and China’s Agriculture Ministry CASDE crop S&D report. Focal points for the EIA and OPEC reports will be the assessment of how much low oil prices are dampening US Output (as evidenced by Baker Hughes weekly data) against concerns about a Q4 supply glut as OPEC ramps up output. It will also be interesting to see if any concerns are raised about secondary sanctions disrupting supply, above all in respect of crude quality (i.e. while alternatives to Russian supply would be available, in many cases this may create problems for refiners).

** U.K. – June/July labour market indicators **

– Today’s labour data are unlikely to shift deeply divided opinions on the BoE’s MPC, with official wage data remaining high with headline Average Weekly Earnings dropping to 4.7% as expected, but Private Sector ex Bonus only easing modestly to 4.8%. But as with the deeply flawed LFS Employment data (registering a 238K rise that beggars belief), the reliability of the wage data when compared with private surveys that have suggested pay growth is around 3.0% for many a month is very much open to question. HMRC Payrolls at -8K with June revised to a smaller -26K imply that the impact of the hike in employer NI contributions and the minimum wage is wearing off, but implies some further modest loosening labour demand, underlined by a further 44K fall in Vacancies to 718K, which excluding the sharp gyrations during the pandemic is the lowest level since the end of 2014. As for the BRC Retail Sales and Barclaycard Consumer Spending monthly reports, the improvement relative to June looks to have been driven by warm weather helping clothing sales, and a largely price driven rise in Food sales, which overall still leaves consumer spending trends looking sluggish.

** U.S.A. – July CPI, NFIB Small Business Optimism **

– Headline CPI is expected to be modestly restrained by gasoline prices, posting a 0.2% m/m rise to edge the y/y rate up to 2.8%, while elevated services pressures (last 3.8% y/y) and some pass through of tariffs are forecast to show core rising 0.3% m/m to 3.0% y/y. Anecdotal evidence suggests that many companies are now facing little choice in passing through some of the tariff related cost increases, as inventories of pre-tariff goods have largely been depleted, and margins come under increasing pressure. Ahead of CPI, the NFIB Small Business Optimism survey is seen little changed at 98.9 vs. June 98.6, with the headline index having been primarily driven by the often volatile ‘Expect Better Economy’ sub-index for many a month, easing to 22 from 25 last month, but way below January’s 47 as tariff related concerns have weighed heavily. In theory the passage of the tax and spending bill should prompt some improvement, though the already published employment indices showed only a 1 pt uptick in plans to hire.