Macroeconomics: The Day Ahead for 17 Aug 23

  • Fed high for longer narrative, China woes to continue to dominate on a lighter day for statistics and events; digesting Japan, Singapore Trade, Japan Orders; awaiting Norway rate hike, US Philly Fed Manufacturing and jobless claims; French debt sale; CNOOC, Tapestry & Walmart top earnings run
  • China woes and ‘high for longer’ rates messaging returning spotlight to global public and private sector debt mountain; risk of another episode of Gresham’s law on the rise
  • USA: Initial claims seen easing, Philly Fed Manufacturing expected to stay weak, but turn modestly higher


After the deluge of data in recent days, today’s agenda is a lot thinner and quite heavily front-loaded, with Japan’s Machinery Orders and Trade, and Australia’s labour market report to digest along with the as-expected no change rate decision in the Philippines. Ahead lies an expected 25 bps rate hike to 4.0% in Norway, with further hikes likely to be signalled, along with US weekly jobless claims and the Philadelphia Fed Manufacturing survey. France sells medium-dates and Inflation linked debt, while CNOOC, Tapestry and Walmart head the day’s run of corporate earnings. In the commodity space, there are weekly EIA natgas inventories, the International Grains Council’s monthly report and Brazil’s Conab monthly report on Cane, Sugar and Ethanol production.

Yesterday’s FOMC minutes and the ongoing woes of China’s property developers and private wealth managers, and an emergent realization that the world’s debt public and private sector mountains could morph from an EM crisis currently to a broader malaise, above all in the context of ‘high for longer’ central bank policy, are likely to be the factors dominating market sentiment. Specifically in China, the ‘liquidity crisis’ at Zhongzhi Enterprise Group underlines the extent to which the property crisis is starting to have a serious contagion effect, which will only serve to further undermine already down-at-heel consumer and business confidence. The reversal of which thus becomes a far greater challenge, which monetary policy is in no position to address, and requires firm-handed fiscal and legislative measures, especially if this is not to evolve into a balance sheet recession, in which businesses and consumers look to save more and pay down debt, choking the economy of much-needed investment flows. In broader terms, the risk of another episode of Gresham’s law (“bad money drives out good”), as fund managers liquidate profitable positions to cover losses elsewhere, most recently demonstrated in last year’s UK Gilt market rout, is very distinctly on the rise and behoves greater attention to where there are concentration risks in asset prices.

Be that as it may, Japan’s July Trade data were broadly in line with forecasts, though underlining that the big contribution to the much stronger than expected Q2 GDP from net exports was all about the cost of energy imports sliding, rather than the strength of external demand, and per se likely to fade in coming quarters, as was also demonstrated in Singapore’s much weaker than expected Non-oil Domestic Exports. Meanwhile, in Australia, labour data showing the Unemployment Rate pushing up to 3.7% from 3.5%, and a drop in Employment pace by a drop of -24.3K in full-time Employment only add to the expectation that the RBA is now unlikely to hike rates further, as the local labour market loosens. Looking ahead following on from yet another sharp slide in the NY Fed Manufacturing surveys, today’s Philly Fed Manufacturing is seen edging up to -10.2 from -13.5, with the hefty proportion of refiners in the region and the upturn in oil product prices and demand imparting s a modest upside risk. Initial Claims are seen dipping back to -240K from -248K.

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