Macroeconomics: The Day Ahead for 14 August

A busier day for data and earnings awaits, with UK Q2 GDP, monthly activity indicators and RICS House Price survey and Australia’s monthly labour data to digest ahead of revised Eurozone Q2 GDP, and more significantly US PPI and weekly jobless claims. Norway’s Norges Bank is seen holding rates at 4.25%, while Richmond Fed’s Barkin is the sole scheduled Fed speaker. Earnings highlights are likely to include JD.com, Carlsberg, Applied Materials, Deere & Co and Tapestry. 

** U.K. – June/Q2 GDP **

– The monthly and quarterly reports are a classic case of needing to carefully inspect the details rather than take the ostensibly better than expected headline readings at face value. June GDP at 0.4% m/m vs. expected 0.2% and Q2 at 0.3% q/q vs. expected 0.1% were much better than expected, offering some much needed though modest relief for beleaguered PM Starmer and his finance minister Reeves. Outside of the unexpected strength in Trade, both in terms of export and import growth and the marginal net positive contribution to GDP from Net Exports, there was not a lot to cheer. Headline GDP was boosted above all by a sharp 1.2% q/q rebound in Govt Spending (Q1 -0.4% q/q), unfortunately for the Chancellor this will be construed as adding to the UK’s debt burden, rather than providing stimulus (which it is not). Private Consumption faded to just 0.1% q/q from Q1’s 0.4%, while Business Investment at -4.0% q/q full reversed Q1’s 3.9% q/q increase, with a less dramatic though still sharp -1.1% q/q fall in Gross Fixed Capital Formation. Among the monthly indicators Industrial Production at 0.7% m/m was better than expected by negated by a downward revision to May to -1.3% from -0.9%, with a flat m/m reading for Manufacturing Output underlining that weak auto output more than negated a warm weather-related boost from Utilities, while Construction Output at 0.3% m/m failed to regain the May drop of -0.5% m/m. In aggregate, this will not likely change divided views on the MPC on the rate outlook, with inflation and labour indicators of far more importance in the near term.

** U.S.A. – July PPI, Weekly Jobless Claims **

– PPI is seen up 0.2% m/m on headline and core, with base effects pushing up y/y rates by 0.2 and 0.3 ppt to 2.5% and 2.9% respectively. Of note within this will be whether airfares exercise as much upward pressures as they did in CPI (frequently quite divergent due to seasonal adjustment, and the fact that the PPI measure is domestic flights only), how much upward pressure there is both from Portfolio Management Fees and indeed hospital costs, both of which feed into the PCE deflators. Given greater Fed emphasis on labour market trends, weekly jobless claims will require attention above all continued claims that hit a post-COVID high of 1.974 Mln last week, even if Initial Claims remain low and largely unchanged at 225K.

** Japan – Q2 GDP **

– Q2 GDP is expected to remain tepid, with a 0.4% SAAR rebound after contracting -0.2% in Q1. In the detail Business CapEx is anticipated to remain solid at 0.7% q/q, though slowing from Q1 1.1%, with Personal Consumption remaining sluggish at an unchanged 0.1% q/q, with the primary boost coming from a 0.1% contribution from Net Exports that deducted 0.8 ppt in Q1, though heavily offset by a -0.3 ppt deduction from Inventories, which added 0.6 ppt in Q1. US Treasury Secretary Bessent opining on the BoJ being ‘behind the curve’ on rates should be largely construed as effectively talking the USD down rather than anything else, though the median forecast for the GDP deflator at 3.2% y/y vs. prior 3.3% does imply that Japan has more of an inflation problem than the BoJ’s forecasts suggest.

** China – July Retail Sales, Industrial Production, FAI & Credit Aggregates **

– Yesterday’s weak China Credit Aggregates were wholly a function of weak credit demand, with New Yuan Loans dropping for the first time in 20 years (CNY -49.9 Bln vs. expected +300 Bln), in turn resulting in a CNY 400 Bln miss on Aggregate Financing (CNY 1.2 Trln). It is the natural corollary of a continued crunch in property investment (July forecast -11.4% y/y) and falling home prices, and anecdotal evidence of very sharp pay cuts at exporters (up to 30%) as well as increased short-time working. It suggests that even the current unimpressive pace of Retail Sales is likely to fade as the year goes on, forcing some further modest easing of monetary policy in Q4. Tomorrow’s run of monthly indicators are expected to echo sluggish PMIs, as well as the impact of both unseasonably hot weather and major storms in some regions, with Retail Sales seen slowing to 4.6% from 4.8% y/y, Industrial Production to drop to 6.0% from 6.8%, and Fixed Asset Investment to ease again to 2.7% y.t.d. from 2.8%. Unsurprisingly, the property sector is likely to remain a major drag with Property Investment seen falling –11.4% y/y, and Property Sales to continue falling (last -5.4% y/y).