Macroeconomics: The Day Ahead for 18 August

  • Busy looking calendar a little short on market movers outside of US and central bank speakers: digesting agnostic FOMC minutes and very mixed Australia labour data; awaiting Norway and Egypt rate hikes, final Eurozone CPI, US jobless claims, Philly Fed & Existing Home Sales; French and US bond auctions; more US retailer earnings; EIA Gas inventories
  • FOMC minutes emphasize need to move to restrictive, agnostic on growth, inflation and medium-term rate outlook
  • US initial claims seen inching up, but labour market loosening marginal thus far
  • US Philly Fed: modest bounce from June plunge expected, focus on details and outlook
  • US Existing Home Sales: further fall expected with little respite seen from mortgage rate retreat; inventories likely still low but trending higher

EVENTS PREVIEW

There is another busy schedule of data and events for markets to contend with, even if the statistical run is thin on genuine market movers outside of the US, with Australian Unemployment (lower than expected rate, but unexpected sharp drop in Employment) and Norwegian GDP to digest ahead of Eurozone final CPI, Chile Q2 GDP, US weekly jobless claims, Philly Fed Manufacturing and Existing Home Sales, and Canada’s Teranet House Prices. Central bank speakers are more plentiful, via way of Fed’s George & Kashkari and ECB’s Schnabel, while Norges Bank is expected to hike rates a further 50 bps and remain hawkish, as is Egypt’s CBE though the sudden resignation of the central bank governor yesterday leaves CBE under something of a cloud; Turkey’s TCMB is again expected to hold its now largely meaningless 1-week Repo Rate at 14.0%, with other rates way higher.

On the US earnings schedule, results from Applied Materials, Estee Lauder, Kohl’s, Ross Stores and Tapestry are likely to make some headlines. Govt bond supply some via way of French 3 and 6-yr, along with a modest volume of inflation-linked OATs, while the US sells $8.0 Bln 30-yr TIPS. In the commodities space EIA Natural Gas inventories and the International Grains Council monthly report will garner some attention.

Yesterday’s FOMC minutes offered few clues on the rate outlook, confirming the abandoning of forward guidance and expressing a good deal of agnosticism on the growth and inflation outlook. There was interestingly little push back at the time on market policy expectations, which contrasts with the message from all Fed speakers since, and per se render the minutes already rather historical.

** U.S.A. – August Philly Fed Manufacturing, Weekly Jobless Claims & Existing Home Sales **

Following on from the plunge in the NY Fed survey (-31.3 vs. July +11.1), even if outlook indicators improved somewhat, today’s Philly Fed survey will get plenty of attention, with a modest bounce expected from July’s low of -12.3 to -5.0. July’s survey was particularly negative as the headline (not a composite) fall was also accompanied by sharp falls in Orders, Prices, Delivery Times, and above all the 6-mth Outlook to -18.6. vs. June -6.8, the worst reading since 1979. It will again be the case that the details will matter more than the headline print.

Weekly Initial Claims have been creeping higher, and another marginal rise to 265K from 262K, and per se suggesting that the loosening of labour market conditions is moving a turtle speed, as underlined by the still very low level of Continued Claims (exp. 1.450 Mln from 1.428 Mln), which means the Insured Unemployment Rate is still super low at 1.0%.

Existing Home Sales are seen down 4.5% m/m after June’s -5.4%, as the recent fall in mortgage rates does little to offset affordability and cost of living pressures. A close eye will need to be kept on volume of supply, which remained still quite low at 3.0 months in June, even if trending higher, though not as acutely as New Home supply, which is at levels not seen since 2006/2007 sub-prime crisis.

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