Macroeconomics: The Day Ahead for 16 Aug 23

  • UK inflation data tops still busy data run: digesting China Home Price fall, Japan Tankan; awaiting Eurozone and CEE national Q2 GDP, US looks to Industrial Production, Housing Starts and FOMC minutes; Cisco & retailers top earnings run; German 27 & 29-yr auction
  • UK CPI: headline falls on utilities, but transport, hotels and restaurants pressure Services and Core, as food pressures ease; pressure on BoE to a large extent self-inflicted by eschewing guidance
  • US Industrial Production: hot weather-related utilities output to boost headline, but Manufacturing Output to remain weak, echoing surveys
  • US FOMC minutes: debate on inflation trend and extended pause in view, but high for longer likely to be key message


After yesterday’s barrage of data and events, which in market reaction terms served to underline that China economic and debt concerns, along with worries over credit risks as Fitch joined Moody’s in warning about US bank rating downgrades are gaining primacy, amid a dawning market realization that central banks are serious about ‘high for loner’, the focus shifts to UK inflation data, the first revision to Eurozone Q2 GDP and provisional readings from for the Netherlands, Poland and other CEE countries, as the US looks to Industrial Production, further housing data, and the July FOMC Minutes. Cisco and retailers Target and TJX head the run of corporate earnings, while Germany sells EUR 2.5 Bln total of 27 & 29-yr Bunds.

** U.K. – July CPI, PPI **

Inflation is coming down, but the BoE will not be happy with the details fo this report as the much-anticipated fall in Utilities CPI (6.2% y/y vs. June 19.9%) offset upward pressure on Services (7.4% vs. 7.2% y/y), led by Restaurants & Hotels (0.9% m/m) and Transport (1.4% m/m), with core CPI unchanged at 6.9% y/y. Petrol prices also accounted for higher than expected PPI Output (0.1% m/m -0.8% y/y), though Input Prices were lower than expected at -0.4% m/m -3.3% y/y. Given that this follows on from yesterday’s jump in Average Earnings, markets may well opt to factor in a higher risk of a 50 bps hike in September, and the BoE only has itself to blame for this, as it continues to eschew anything but minimalist guidance on policy, even if it did try to shift the narrative to ‘high for longer’ from ‘where will rates peak’ at its August meeting. The very simple point is that after 515 bps of rate hikes since December 2021, whether it opts for 25bps, 50 bps or 75 bps more will be rather moot in terms of its inflation fight, though the risk of pushing the economy into contraction in growth terms will certainly rise with each hike, as well as fuelling volatility in UK asset prices.

** U.S.A. – July Industrial Production, Housing Starts and FOMC Minutes **

Industrial Production is forecast to rise 0.3% m/m, primarily due to a weather-related boost to Utilities output, but Manufacturing Output seen unchanged after dipping 0.3% m/m in June, all in all, fitting in with the continued weakness in the ISM and PMI sector surveys. After an unexpectedly sharp reversal in yesterday’s NAHB Housing Market Index (50 vs. expected/prior 56), Housing Starts are forecast to post a slight upward correction of 1.5% m/m to a very ‘average’ 1.468 Mln SAAR pace, after sliding 8.0% m/m in June. Markets will likely be more interested in the July FOMC minutes, and the extent to which the tentative signs (at the time) of a more substantial disinflationary trend, above all in core prices had persuaded a minority of the FOMC to suggest the need for further rate hikes was contestable, above all given deteriorating credit conditions. Nevertheless, the message of ‘high for longer’ and a need to lean against the markets’ rate cut trajectory should also be evident, particularly with yesterday’s Retail Sales once again beating expectations.

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