Macroeconomics: The Day Ahead for 1 July

The second half of the year kicks off with the overarching themes of US trade tariff wars, US debt concerns and a myriad of geopolitical remaining unchanged, with the immediate focus on the US Tax & Spending Bill’s passage through the Senate, and what looks to be a number of small-scale US trade deals with major trading partners looking to be sealed by July 9th. Risk appetite going into the new quarter is high, even if looks to be heavily reliant on market maker gamma hedging prompted by a good deal of retail FOMO, and the as ever perverse ‘bad news is good’ hopes of the Fed cutting rates soon, and then relatively sharply on the back of weaker economic data, and riding roughshod over the potential for inflation to pick up quite sharply in Q3. As for geopolitical risk, markets continue to display an enormous indifference, premised largely on ‘this too shall pass’ and a fear of being whipsawed as they have been on so many occasions, though this display of impaired reaction function carries risks of its own.

The day’s schedule of data is plentiful, with Japan’s Q1 Tankan, Eurozone inflation, the usual start-of-the-month raft of manufacturing PMIs, UK BRC Shop and Nationwide House Prices, US JOLTS Jobs Openings, Auto Sales and Construction Spending in view. But much of this may prove to be little more than statistical roadkill as the UK Parliament’s vote on the heavily contested welfare reform bill serves as a reminder that a large parliamentary majority is no guarantee of political stability, while the US Senate debate on the tax and spending bill underlines divisions within the ruling Republican party (and the public), and a long standing inability to confront the need for and passage fundamental reforms, a problem that plagues the majority of countries in the developed world. On the events schedule the ECB’s Sintra Forum sees the policy panel outlook with the leaders of the ECB, Fed, BoJ, BoE and BoK as its central point.

Eurozone CPI is unlikely to stir markets animal spirits with a 0.3% m/m rise in headline set to edge the y/y rate up to 2.0%, while core is seen unchanged at a well-contained 2.3%. The run of US data may attract more attention with the Manufacturing ISM expected to edge up to 48.8 from 48.5, primarily due to a pickup in Orders and a slight improvement in Employment, though both remaining in contraction. JOLTS Job Openings are seen dipping to 7.30 Mln from 7.391 Mln echoing other surveys suggest a very gradual further loosening in labour demand, but not sufficient to shift the Fed’s policy ‘wait and see’ policy stance as yet. As ever, the potential for sharp revisions remains a risk. Auto Sales are expected to remain relatively depressed, falling gain to a 15.30 Mln SAAR pace from May’s 15.65 Mln, thus weighing on headline Retail Sales, for some this will remain a reactive correction or mean reversion to the boost as consumers attempted to beat tariffs, for others a signal of further US economic weakness. Construction Spending is expected to fall for a fourth month, as uncertainty weighs on business investment in structures, and residential construction by still high mortgage rates and affordability challenges.