Written Commentary
New quarter but overarching themes remain unchanged; digesting run of Asian PMIs, Japan Q2 Tankan, Indonesia CPI and Trade; Eurozone CPI, US Manufacturing ISM, ADP Employment, Auto Sales and raft of central speakers at ECB Sintra Forum.
- Eurozone CPI set to dip on energy prices, already discounted following national HICP data
- USA: ADP Employment seen posting solid expansion, after mixed labour market signals from JOLTS and Consumer Confidence; Manufacturing ISM expected to signal solid output
Q2 The Ghost In The Machine – Out Now
EVENTS PREVIEW
A new quarter begins with the overarching themes little changed. The world is in a rapidly evolving transition both geopolitically and technologically, which will sustain business and consumer uncertainty for many years to come, but also bring many innovations, improvements to efficiency and productivity, but progress will be anything but linear. The US/Iran negotiations on a longer-term ‘peace’ deal continue to be tense, riddled with mistrust and even if some form of dialogue is activiely being sustained, some form of risk premium is necessary. Those of a more cynical persuasion will argue that the negotiations are more a function of a need for both sides to regroup, and a function of the US political cycle (i.e. with Mid-term Elections looming in November). In the context of AI investment related euphoria, perhaps a question that needs to be asked is whether related stocks are ‘Overhyped, over-owned, overvalued, and indeed overearning both in terms of cyclicality and competition?’, even if the Keynes quote about ‘Markets can remain irrational longer than you can stay solvent’ obviously applies.
Be that as it may, there is a raft of overnight data and political news to digest, ranging from a very robust Japan Q2 BoJ Tankan, a somewhat mixed set of Asian Manufacturing PMIs, which outside of the slide Indonesia (probably more to do with major concerns about politics than underlying economic trends in the region) shows solid growth, though momentum may be fading in some countries. Indonesia’s slightly above forecast CPI and exports slide will only add to the IDR’s already substantial woes, while a sharp drop in Australia’s House Prices should really not come as much of a surprise given Budget related measures to curb house prices and a hawkish RBA. Ahead lie Eurozone CPI, though the likely small downside miss relative to forecasts of 0.1% m/m 3.0% y/y headline and 2.5% y/y is unlikely to spark much reaction following on from the run of national readings over the past 48 hours, with the slight improvement in most regional Manufacturing PMIs equally unsurprising given earlier ‘flash’ readings and the falls in energy prices. The focus will thus be on the US Manufacturing ISM, ADP Employment and Auto Sales along with the busy run of ECB speakers and Fed’s Warsh at the final day of the Sintra Forum on Central Banking.
** U.S.A. **
Yesterday’s labour market indicators offered very divergent signals with JOLTS Job Openings continuing to signal solid demand via way of a steady 7.594 Mln (vs. revised April 7.585 Mln), but the Labour Differential in Consumer Confidence slid to its lowest level at 2.4 since February 2021. Today brings ADP Employment, which is seen steady at 120K (vs. May 122K) and Challenger Job Cuts, though the focus is already on tomorrow’s Payrolls, while the Manufacturing PMI (seen unrevised at 55.7) and Manufacturing ISM (53.9 vs. May 54.0) are forecast to show little change, with Auto Sales also seen steady at 16.10 Mln, per se implying little impact on Retail Sales.
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