Macroeconomics: The Day Ahead for 26 July

  • Busier day for statistics: digesting small beat on South Korea GDP, awaiting UK CBI Retailing, US House Prices and New Home Sales, with focus on Consumer Confidence: EU emergency Energy Summit; IMF World Economic Outlook update; Alphabet & Coca Cola headline busy day for earnings; Italy 2yr & I-L, US 5-yr; Hungary rate decision; FOMC vigil likely to dampen volumes
  • EU Energy Summit: divergent national interests likely to mean any agreement very long on exceptionalism
  • Hungary rates: MNB forced into aggressive rate hiking corner, paying price for earlier caution, but primarily doing the heavy lifting for be government policymaking
  • US Consumer Confidence: gasoline price drop, firmer equities likely to cushion expected fall; labour market indicators key
  • US Consumer Confidence Labor Differential

EVENTS PREVIEW

A busy day for data and events awaits, even if the FOMC vigil may tend to dampen trading activity. There is South Korean Q2 GDP to digest, while ahead lie the UK CBI Retailing Survey, US House Prices and New Home Sales, though US Consumer Confidence will get overall top billing. A busy run of corporate earnings has LVMH, Michelin, UBS and Unicredit likely to grab headlines in Europe, while the US looks to 3M, ADM, Alphabet, Coca Cola, General Electric, General Motors, Kimberly-Clark, Mondelez, PulteGroup and UPS amongst others. On the events side of the equation, EU Energy Ministers hold an emergency meeting to try and find some form of agreement to cut gas demand, though the volume of objections to the original proposal for a 15% cut (above all from countries that were previously subject to bailouts during the Euro crisis) suggests that Czechia as the current holder of the EU presidency has a colossal task to achieve any form of consensus, which may end up with so much exceptionalism as to render any agreement to be little more than a rather farcical fudge.  This will be accompanied by the latest IMF World Economic Outlook which is likely to see a good many downward revisions for most major economies, thus fanning the flames of markets’ current recession chatter. Be that as it may, there are also govt bond auctions in Italy (2-yr and longer-date I-L) and the US (5-yr).

** Hungary – MNB rate decision **

Hungary’s MNB is expected to continue its rear-guard action to combat roaring inflation and a weak HUF with a further 100 bps rate hike to 10.75% as it, like so many other central banks. is forced to do all the heavy lifting, with investors turning their backs due to Hungary due a combination of its twin budget and current account deficits, and its long running ‘rule of law’ dispute with the EU that is blocking EU funds. While the MNB like many CEE central banks was slow in reacting to inflationary pressures that were already very palpable in H1 2021, responsibility for the current crisis lies very firmly at the door of the government.

** U.S.A. – July Consumer Confidence & May/June Housing data **

Consumer Confidence has fallen a considerable way from June 2021’s recent peak of 128.6, and is expected to drop somewhat further to 97.0 from 98.7, which in contrast to Michigan Sentiment, close to all-time lows, would still leave it around the long-term average. The drop in gasoline prices, and the July recovery in equities should cushion the fall, with much depending on perceptions about the labour market, as represented by the Labour Market Differential (Jobs Plentiful minus Jobs Hard to Get), which has drifted somewhat lower, but remains close to its 2000 peak of 42.7; given the upturn in weekly jobless claims, it is likely to drift lower, but still signal a tight labour market. Also on today’s US data run are House Prices, which are forecast to post another large m/m jump of 1.45% (Corelogic CS), though base effects will see the y/y dip from its April peak of 21.2% to 20.6%. But prices are very much a lagging indicator, with the accompanying New Home Sales measure expected to fall 5.2% m/m, primarily a reactive correction to an unexpectedly sharp 10.7% jump in May, and to a 660K SAAR pace, well down from December 2021’s 831K recent peak. If forecasts are correct then inventory levels (month’ worth of supply) are likely to climb back to the 8.3 level seen in April. Anecdotal evidence about house purchases contracted but then cancelled have seen a sharp rise in recent months.

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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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