Macroeconomics: The Day Ahead for 10 July

  • Heavily front-loaded schedule has China CPI miss, Japan PPI, Norway CPI and less hawkish RBNZ hold to digest; Brazil inflation, more from Powell, OPEC Oil Market Report, and German & US bond auctions ahead
  • China: CPI misses again as weak demand bears down on prices, PPI rise wholly due to base effects; rate cut chatter may pick up, but not the solution
  • U.S.A.: Powell signals very clear shift to equal weighting for inflation and employment in terms of policy outlook, September cut on the card

EVENTS PREVIEW

A heavily front-loaded schedule has the RBNZ no change rate decision and a less hawkish tilt, China CPI and PPI, South Korea Unemployment, Japanese PPI and Norwegian CPI to digest. Ahead lie Brazil’s IBGE Inflation IPCA, ECB’s Nagel, BoE’s Pill and Mann (Pill should offer some clearer insights on the rate outlook, while Mann will like Haskel earlier in the week be typically hawkish), the OPEC monthly Oil Market Report and some Fed speak from Bowman and Goolsbee, while Germany sells 12 & 14-yr, and the US 10-yr. There will also be the second round of Powell’s semi-annual testimony, with yesterday’s comments notable for a much more balanced view on inflation and employment, on the one hand noting that there has been ‘moderate’ progress in bringing down inflation, with more reassurance needed to cut rates, but on the other and perhaps more poignantly he noted “reducing policy restraint too late or too little could unduly weaken economic activity and employment.” In other words, the Fed is in effect now applying roughly equal weight to its dual pillars of inflation and employment in terms of the policy outlook. On Basel III ‘endgame’ capital requirements (which UK and EU regulators are also watching closely), there will be a revamped version on its way very soon, which would reduce the increase in capital of around 19% (ca. $155 Bln) under the original proposals, with commentators suggesting that new proposal will see something in the ball park of 7-10%, though implementation will likely not be before the November election, and most likely in early 2025.

** China – June CPI and PPI **

– Once again China’s CPI missed forecasts, slipping to just 0.2% y/y, thanks in the main to a renewed dip in Food Prices to -2.1% y/y, and to a lesser extent clothing (1.5% y/y), underlining the weakness of consumer demand. PPI on the other hand rose as expected to -0.8% y/y from -1.4%, but this was entirely due to adverse base effects, and notably these will move in the opposite direction in Q3. The data will reinforce calls for a further rate cut, but it should by now be obvious that credit demand is being impeded by weak consumer confidence, which rate cuts have done nothing to change, only fiscal and legislative changes which above all boost employment and wage growth are likely to turn the tide. Potentially later this morning, credit aggregates will show a boost from a seasonal (quarter/half year end) rise in lending, but the anticipated CNY 2.4 Trln rise in Aggregate Financing and CNY 1.7 Trln rise in New Yuan Loans will look very weak when compared to June 2023.

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