Macroeconomics: The Day Ahead for 18 Aug 23

The week ends on a relatively subdued note in terms of the statistical and events, with the UK once again to the fore via way of the overnight Retail Sales, with Japan’s national CPI (as expected) and Malaysian Q2 GDP (stronger than expected in q/q terms) also to digest. Ahead lie final Eurozone CPI (seen unrevised), Canadian producer price metrics and Chile’s Q2 GDP. Given the economic and geopolitical tensions in East Asia, the trilateral Summit between the US, Japan and South Korea hosted by President Biden will be a key focal point, and it will be interesting to see if the leaders can rise beyond the rather infantile Schadenfreude (which achieves nothing other than increasing tensions) expressed by Biden about China’s economic headwinds earlier in the week. Corporate earnings are rather thin on the ground, with Aluminium producer China Hongqiao, EV maker Xpeng and Estee Lauder the likely highlights. But the overarching themes remain the deepening concerns about China’s economy, and above all its property sector as property developer China Evergrande returns to the spotlight after filing for Chapter 15 protection in the USA as part of a debt restructuring; as well as central banks ‘high for longer’ narrative and related credit market/banking sector risks.

Next week’s schedule is rather limited with the focus on surveys, in the US, Eurozone and US, which include ‘flash’ PMIs and Germany’s Ifo, the US also looks to Durable Goods Orders, Existing & New Home Sales, the Eurozone to German PPI, final Q2 GDP and Eurozone M2 and credit aggregate, while Japan awaits Tokyo CPI, the UK PSNB Budget data and Canada has Retail Sales. On the central bank front, there are the much anticipated annual KC Fed Jackson Hole Economic Policy Symposium, and August ECB minutes, while rates are expected to be held in both Indonesia and South Korea, with Turkey’s TCMB expected to hike a further 125 bps to 18.75%. There is also the BRICS summit in South Africa, which amongst other things is supposedly going to try and reach an agreement on a common BRICS currency, perhaps one of the craziest ideas ever, given that the BRICS economies have essentially nothing in common outside of large populations, which is no basis for a common currency, even if the pushback on US dollar dominance is obviously manifest. A quiet week in terms of events in the commodity space, with livestock markets looking to USDA reports on Milk Production and Cold Storage, Poultry Slaughter and Red Meat Production.  

** U.K. – July Retail Sales **

If a reminder were needed that the strength of Q2 private consumption is likely to prove to have been fleeting, then the weaker than expected -1.2% m/m in July Retail Sales is it. Weakness was broad based outside of Non-store Retailing (+2.8% m/m), with Food down 2.6% m/m, Non-specialized -2.9%, Household Goods -3.8% and Textile, Clothing & Footwear -2.2%. In many categories, the July fall effectively wipes out all the growth seen in Q2, and While Retail Sales only measure goods rather than services spending, this does imply that without a seemingly unlikely sharp rebound in August and September. The Household Goods fall is particularly notable as the 3-mth annualized rate crashed from +1.2% in Apr-Jun to -13.6%, which doubtless exaggerates the trend, above all given the depressing effect of the weather during the month, but attests to the drag from the housing market downturn.