Macroeconomics: The Day Ahead for 17 July

There is a busy run of statistics today dominated by the US with Retail Sales, Import Prices, weekly jobless claims, Philly Fed Manufacturing & NAHB surveys and Business Inventories. There are also the overnight UK labour market data, Japan and Singapore Trade, and Australian Unemployment to digest. A 2-day meeting of G20 Finance Ministers and central bankers gets underway in South Africa (though US Treasury Secretary Bessent will not be attending), accompanied by a further slew of Fed speakers, as yesterday’s Beige Book is digested. US Q2 earnings reports feature Netflix, Pepsico and General Electric amongst others. Yesterday’s whipsaw trade prompted by US administration comments about Fed chair Powell being fired imminently, but later being walked back, was a perhaps timely reminder that ‘tail risks’ remain high, even if risk hungry markets are clearly minded to revert to BAU (business as usual), FOMO (fear of missing out), TINA (there is not alternative) and ‘this time it’s different’ in double quick time. The mantra of ‘rate cuts are coming’, and by implication ‘political interference be damned’, looks to be the market’s favoured perspective, above all thanks to much lower rate volatility in recent months. But under this scenario, acute portfolio and market imbalances continue to (re)accumulate, and the fact remains that policy ambiguity, and a broad array of outlooks remain highly uncertain, per se highlighting fundamental vulnerabilities. The price action also highlights that the derivatives tail of markets continues to wag the cash market dog, until the ‘gamma’ maths unravels on a more persistent basis (as seen earlier in the year).

** U.K. – May/June labour market indicators **

– This was a mixed labour report, with Payrolls falling for a fifth consecutive month, though the sharp May Payrolls drop was heftily revised up to just -25K from -109K, but the loosening trend remains very much intact, but not accelerating as the May data had originally suggested, even if this week’s REC/KPMG survey implies an acceleration going forward. The softer trend was further underlined by the Unemployment Rate edging up 0.1 ppt to 4.7%. Wage data sent a similar message, the trend is lower, but not as rapid as had been suggested, with all measures of Average Weekly Earnings revised up 0.1 ppt for April, but falling 0.3/0.4 ppt in May. The upward revision for April more than likely reflects a slightly larger impact from the minimum wage increase, particularly as it was uniform. Overall, it continues to support expectations for a further rate cut at the August MPC meeting.

** U.S.A. – June Retail Sales, Import Prices, Philly Fed & NAHB surveys **

– Auto Sales will again weigh on headline sales, seen at just 0.1% m/m (but recovering from May’s -0.9%), but the array of core measures are expected to rise 0.3% m/m. In the case of the core Control Group (i.e. ex-food services, gas, vehicles, and building materials) measure this would be flat m/m in inflation adjusted terms, and point to another quarter of weak personal consumption in GDP terms. Following yesterday’s PPI, which was broadly in line with forecasts once the relatively sharp upward revisions to May’s report are accounted for, with weak airfares and other travel related components offsetting some modest goods price pressures, today’s Import Prices are expected to post a 0.3% m/m rise, boosted by the spike in oil prices, though the ex-Petroleum measure is seen steady at 0.2% m/m. If forecasts are correct, the underlying picture on inflation remains relatively neutral, but as the impact of tariffs (above all due to delayed implementation) remains very unclear, the Fed will view its ‘wait and see’ stance to be vindicated, above all given that labour demand remains solid, with few signals of any sharp loosening at the current juncture. The Philly Fed Manufacturing Index is seen improving slightly to -1.0 from -4.0, but with a later survey collection period to the NY Fed Empire survey may be impacted by last week’s tariff related news … negatively. Aside from a blip higher in April, the NAHB Housing Market Index has steadily declined since January, as elevated mortgage rates and longer term affordability issues continue to weigh on the housing sector, with the consensus looking for a marginal uptick to 33 from 32.