Macroeconomics: The Day Ahead for 10 August

  • All eyes on US CPI as inflation data dominates schedule, China, Norway and Egypt prices and Japan PPI to digest, Czechia & Ghana ahead; Thai rate hike and Fed speak; broad array of consumer sector earnings; German 26-yr and US 10-yr auctions
  • China: surge in pork prices cannot disguise hefty drag on inflation from weak domestic demand
  • US CPI: gasoline prices to pull headline lower, but housing and core services pressures to offset; whisper again skewed to downside miss
  • China CPI & PPI; US Inflation Expectations vs Commodity/Oil prices; TIPS Inflation Protection no show: US IG Corporate Bond Yield spread

EVENTS PREVIEW

US and China inflation data dominate the day’s schedule, though CPI data is also in Czechia, Egypt, Ghana and Russia, with the jump in in Norwegian CPI and PPI to digest, along with Swedish monthly activity indicators. A light events calendar has the Bank of Thailand’s as expected initial rate hike of 25 bps to digest, while there is Fed speak from two traditionally ‘ultra dovish’ regional Fed presidents, Evans and Kashkari, both of whom have been at pains to push back very hard on the markets’ Fed ‘to pivot to rate cuts in 2023’ narrative in recent speeches. Govt bond supply comes via way of German 26-yr and US 10-yr, while a busier day for corporate earnings has the various parts of Japan Post, Honda Motor, Lenovo in Asia; ABN AMRO Bank, Ahold Delhaize, Aviva, E.on, Prudential, TUI, Vestas and Wienerberger in Europe, with Walt Disney the focal point in the US – overall a broad based cross section of consumer facing businesses. 

** China – July CPI & PPI **

Both CPI and PPI undershot forecasts, per se underlining the drag on inflation from weak domestic demand. CPI did rise modestly, but only thanks to a surge in pork prices (25.0% m/m), which pushed food prices up to 6.3% y/y from 2.9%, but core CPI fell again to 0.8% y/y from 1.0%. PPI told a similar story of weak demand and base effects continuing to drag headline sharply lower to 4.2% from 6.1%, thanks in the main to a fall in Mining PPI 18.8% y/y from June’s 27.3%. Finished Manufactured Goods rose just 0.9% y/y, while Services rose 0.7%. While the very benign contrasts sharply with trends elsewhere, and gives the PBOC room to cut rates further, it will doubtless stick to targeted measures, above all to shore up the very beleaguered property sector and its huge supply chain.

** U.S.A. – July CPI **

CPI is expected to slow in headline terms to 0.2% m/ 8.7% y/y (vs. June 9.1%) thanks to the sharp fall in energy prices, however core CPI is seen at a lofty 0.6% m/m, which would push the y/y rate back up to 6.1%. The latter is likely to see hefty pressure from housing; OER is seen around 0.8% m/m, and there will be pressure from this heavily weighted component until Q1 2023. An energy related drag from airfares is likely to provide some offset to the breadth of core services price pressures, with core goods prices likely to ease from the very robust 0.8% m/m pace seen in July. If forecasts are correct, then the Fed (as per weekend comments from Bowman) is likely to signal a further 75 bps in September, and for the time being hint at the likelihood of another 75 bps in November (even if there is a lot which could happen in the meantime), above all with Average Hourly Earnings running at 5.2% both y/y and 3-mth annualized, i.e. showing no sign of easing. Both core Services CPI and PPI, and Average Hourly Earnings and ECI Wage & Benefits have to slow sharply and consistently to open the window to a Fed pivot (whether these are valid metrics for the current economy is a different discussion). As with the two most recent months reports, markets appear to be talking themselves into the risks being on the downside of forecasts ahead of the numbers, and thus skewing the larger reaction risk to an upside miss.

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ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.                  

A subsidiary of Archer Daniels Midland Company.

© 2021 ADM Investor Services International Limited.

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