Macroeconomics: The Day Ahead for 14 August

Inflation data from the UK, US and Sweden dominates a busy run of statistics, which also sees an expected no change 0.3% q/q for the first revision to Eurozone Q2 GDP, accompanied by provisional Q2 GDP for Poland, Romania and a number of other CEE countries, with Brazilian Retail Sales also on tap. There is the RBNZ’s not totally unexpected 25 bps rate cut to digest, accompanied by a dovish outlook, while tomorrow’s Assumption Day holiday brings forward the regular monthly auction of French medium-dated and I-L OATs, along with a typically modestly sized offering of long-dated German Bunds, which follow a jumbo auction in China totalling CNY 433 Bln, more than likely trying to create some supply indigestion as part of local authorities efforts to stifle the domestic bond rally. Europe dominates the corporate earnings run, with Aviva, Carlsberg, Eon, Thyssenkrupp, TUI, UBS, Vestas Wind and Wienerberger likely to be among the highlights.

** U.K. – July CPI, PPI  **

– A slightly lower than expected -0.2% m/m drop helped to temper adverse base effects pushing up the y/y rate to 2.2%, with seasonal household goods (-0.08 ppt) and clothing and footwear (-0.11 ppt) discounting, and more significantly Restaurants & Hotels (-0.05 ppt) the primary drivers. The latter in turn saw Core CPI fall to 3.3% vs. expected 3.4%, and above all Services slide to 5.2% y/y vs. expected 5.5%, which should if sustained help to assuage some of the MPC hawks concerns, even if basic pay pressures remain elevated, though also clearly falling. PPI continues to signal little or no pipeline goods price pressures, with Output flat m/m and up 0.8% y/y, while Input dipped -0.1% m/m, with base effects pushing up the y/y rate to 0.4%. 

** U.S.A. – July CPI **

– Yesterday’s PPI was not as benign as many appear to have concluded, given that the big downward pull came from the often volatile Trade Services (-1.3% m/m), and the ex-Food, Energy & Trade measure rose 0.3% m/m, pushing y/y up to 3.3% from 3.1%. While certainly not a showstopper for Fed rate cuts, it is a reminder that with goods inflation picking up modestly (1.6% y/y) and Services ex-Trade PPI quite stubborn at 3.9% y/y (though distorted higher by Portfolio Management Services, up another 2.3% m/m), further falls in inflation will continue to be hard won. CPI is forecast to rise a very average 0.2% m/m on headline and core, leaving headline y/y unchanged at 3.0% and core edging down to 3.2%. Energy prices via way of utilities price increases rather than gasoline, which may provide a countering drag, will be the primary upside pressure on headline, while continued downward pressure from autos, airfares, hotels and retailer discounting should help to offset continued, though moderating pressure from housing rents, with Medical Care perhaps the wild card (last a moderate 0.2% m/m after prior 3 months saw gains of 0.4% or 0.5%). In passing, and amid continued talk of a US recession, it is worth noting the big jump in yesterday’s NFIB Economic Outlook sub-index to -7 from -25, and -37 in February and May’s 2023 low of -50, which does not fit with the recession narrative.