Macroeconomics: The Day Ahead for 20 July

  • Inflation readings top statistical run: digesting UK CPI & PPI, German PPI, awaiting Canada CPI; US Existing Home Sales and Eurozone Consumer Confidence; key Draghi speech to Italy Senate, UK Conservative leadership vote; Tesla heads busier run of US earnings; Canada 5-yr and US 20-yr auctions; EIA weekly oil sector inventories
  • UK inflation: CPI at 40-yr high, paced by fuel and food but as expected; much higher than expected PPI, and record Services PPI likely to trouble MPC  more than CPI
  • US Existing Home Sales: lack of supply expected to temper expected setback
  • Canada CPI: energy and food set to push headline over 8.0%, core measures also expected to jump; but already flagged by BoC

EVENTS PREVIEW

Inflation data dominates the day’s schedule with the full gamut of UK price statistics, and German PPI (undershooting forecasts at 0.6% m/m, but still sky high in y/y terms at 32.7% vs. prior 33.6%) to digest ahead of Canada’s CPI this afternoon, while today’s US housing sector report is Existing Home Sales, and the Eurozone has preliminary July Consumer Confidence. The US Q2 earnings season picks up pace with Tesla set to grab most of the headline today, but Alcoa, baker Hughes, Biogen, Discover, Kinder Morgan and United Airlines likely to attract some attention. Govt bond supply comes via way of Canada 5-yr and US 20-yr. On the political front UK MPs will hold their final vote on which two of Mordaunt, Sunak and Truss go forward to the party membership vote, while in Italy PM Draghi will outline the options for how the national (dis-)unity government might continue, with autumn elections looking seemingly inevitable, even if both 5* and the League are likely to suffer substanial losses, if current polling is to be believed. For many this will be just another Italian political crisis, but the EU can ill afford having Italy revert to dysfucntional navel gazing, while Macron and Scholz both flounder, as the EU energy crisis deepens and the war in Ukraine rages on. Oil markets will focus on weekly EIA inventory data, and continue to zig zag between fretting about supply, above all of products (particularly diesel, which is now being disrupted by record seasonal low water levels on the Rhine), and on the other hand demand, as the drumbeat of recession talk continues, exacerbated by China’s seemingly incessant, even if intermittent battle with Covid.

** U.K. – June CPI, RPI & PPI **

The marginally higher than expected 0.8% m/m 9.4% y/y headline reading and as expected dip in core CPI to 5.8% y/y from 5.9% are unlikely to change the views of any of the MPC members on th next policy decision. The primary pressures came as expected from fuel above all, food and restaurants / hotels also added 0.14 ppt in m/m terms. What may trouble the MPC rather more are the worse than expected PPI data, with PPI Input up 1.8% m/m 24.0% y/y (vs. expected 1.2% m/m) and PPI Output 1.4% m/m 16.5% y/y (vs. expected 1.0% m/m), in so far as this underlines that pipeline pressures are building, with the weakness of the GBP also a contributing factor to this. The fact that the Services PPI component hit a fresh record of 5.4% y/y in Q2 vs. Q1 4.2% will perhaps be most troubling.

** Canada – June CPI **

To a certain extent, today’s inflation readings are somewhat following the BoC’s decision to plump for a very aggressive 100 bps last week, and BoC governor Macklem reiterating this week that headline CPI is set to top 8.0% this month, stay there for a few months. The consensus looks for a 0.9% m/m headline jump, with fuel and to a lesser extent prices likely to be the key drivers, which would see the y/y rate jump to 8.4% from May’s 7.7%; rather more ominously for the BoC, the average of core CPI measures is seen jump from 4.5% y/y to 5.0%, underlining broadening services related pressures. The question would how much more aggressive the BoC wants to be, with the majority of forecasters seeing rates up a further 100 bps at 3.5% by year end. While the BoC does not appear to be particularly concerned about a sharp cooling of the housing market, particularly as avg prices are still way above pre-pandemic levels (see chart), the pace of the plunge that is taking place may soon start to raise some alarm bells.

** U.S.A. – -Jun Existing Home Sales **

Yesterday’s Housing Starts data fell modestly in line with forecasts, but are very much “the” lagging indicator for the sector, with Monday’s sharp slide in the NAHB index offering a more timely signal on the extent of the slowdown the sector is facing in the face of sky high prices and the near doubling of 30-yr mortgage rates over the past year. Today’s Existing Home Sales are forecast to dip a further 0.9% m/m, with low inventories (still a lowly 2.6 months of supply as against a whopping 7.7 Months for New Homes) expected to temper the setback.

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Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.

ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.                  

A subsidiary of Archer Daniels Midland Company.

© 2021 ADM Investor Services International Limited.

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