Macroeconomics: The Day Ahead for 25 June

There is a relatively modest schedule of data and events to end the week, with Japan’s Tokyo CPI, UK and German GfK Consumer Confidence to digest ahead of Italy’s Confidence surveys, UK CBI Retailing survey, Brazil’s IPCA-15 inflation, while the US has Personal Income and pCE and final Michigan Confidence. Central bank speak comes via way of de Cos, Mester and Rosengren, who have all spoken in the past week. The other talking point will be the US infrastructure spending bill agreement (still to be debated in Congress in detail terms), which can only be described as a shadow of what was originally proposed at $1.21 Trln over eight years, above all as there is only $579 Bln of new spending, i.e. $72.375 Bln per annum, which in an economy that is estimated at $22.68 Trillion is less than a drop in the ocean – only the most disingenuous could describe this as stimulus. Some may argue that it will help to stimulate private sector lending, but again facts speak louder than words, all the monetary stimulus over the past 12 years has served to inflate asset prices, boost share buybacks and special dividends, and provided little in the way of lending to the real economy (admittedly it has at least stopped real economy funding being cut, but that is not stimulus either), and exacerbate already bad trends in terms of inequality. Per se the real focus should be on two other bills going through Congress that may have far more profound effects a) the anti-trust bill that threatens to break up tech behemoths, b) the ‘Eagle Act’ which promises sweeping legislation to boost economic competitiveness and push Beijing on human rights, as part of Congress’ ongoing efforts to pressure China.

 Next week brings month and quarter end, which will doubtless result in occasionally anomalous price action in markets, along with Eurozone and national CPI readings, Japan’s Q2 Tankan and its usual end of month run of activity and labour data, UK credit aggregates, Manufacturing PMIs from around the world, as well as the US labour report, Auto Sales, Construction Spending and Pending Home Sales, with plenty of central banks speakers, but no major policy meetings, while OPEC holds a potentially critical ministerial meeting to decide on a further easing of production cuts.  There are also a number of key USDA monthly and quarterly reports on the agricultural sector, even if these will likely remain subordinate to short-term weather prospects.

U.S.A. – May Personal Income / PCE

Markets will inevitably be transfixed by the deflators, though the Personal Spending data does require attention, in so far as an expected 0.4% m/m rise would contrast sharply with the headline 1.3% m/m fall in Retail Sales. Re-opening likely prompted a shift from goods consumption to Services, most notably items such as eating out, hotels, car rental and airfares, as can be seen on the attached chart, though the boost will not be as significant as in Q3 2020, above all given that Q1 lockdown measures had a far more modest impact than in Q2 2020. As for the deflators, these are seen rising 0.5% m/m headline and 0.6% m/m core, i.e. at roughly the same pace as CPI, but enough to boost y/y rates by 0.3 ppt to 3.9% y/y headline and 3.4% core, as compared with CPI readings of 5.0% and 3.8%.