Macroeconomics: The Day Ahead for 28 August

Today’s data schedule is very light, with Australia’s CPI and Q2 Construction Output, and French Consumer Confidence to digest, and only Turkey’s Trade Balance and the often overlooked Eurozone M3 and Private Sector Credit ahead. A smattering of central bank speak from Fed’s Waller and Bostic, along with BoE’s Mann, is accompanied by an expected no change rate decision in Israel and Banco de Mexico’s Q3 Inflation Report. Govt bond supply take the form of auctions of UK I-L 9-yr, US 5-yr T-Note and FRN 2-yr. So the focus for the day will be very squarely on Nvidia’s Q2 earnings report, which will not just be a question of Nvidia beating EPS and revenue estimates, but a lot will also rest on its outlook expectations for corporate AI related spending plans, and is likely to set the tone for equities for the often tricky month of September. The paralysis evident in markets yesterday ahead of the report suggests that reaction will be binary, underlining the very skewed, imbalanced and leveraged positioning in markets, which central banks and regulators should give a great deal more thought to, above all their ‘laissez faire’ approach to excesses, and their Pavlovian responses when markets go into their roller coaster moments. Geopolitics also continues to cast a long shadow as the threat of escalation in the Israel-Gaza conflict remains real, Libya remains on a knife edge and the fighting in Ukraine intensifies once again.

The Australian CPI 0.3 ppt drop to 3.5% y/y (from 3.8%) was a case of ‘good but no cigar’, even with the Trimmed Mean core CPI measure also falling 0.3 ppt to 3.8%, it still leaves both measures uncomfortably above the RBA’s 2-3% target range, but it should allow the RBA to at least dispense with discussing a rate hike when it meets in September. Yesterday’s run of data offered a few points for consideration, with the breakdown of German Q2 GDP revealing that an unexpected 1.0% q/q govt spending was the key factor offsetting a 0.2% q/q drop in Private Consumption and a more alarming, though also unsurprising -2.2% q/q drop in CapEx. In the UK the unexpected fall in BRC Shop Prices while good in terms of the outlook for inflation also underlines the very sluggish pace of consumer goods spending, just as the PM Starmer confirmed that the new government will effectively stall the nascent upturn with tax rises and spending cuts in the October budget. Last but not least the rise in US Consumer Confidence to 103.3 was rather deceptive given that it did show increasing optimism about the economic outlook and rate cuts, it nevertheless saw employment measures deteriorate (Jobs Plentiful at a 3-yr low), less optimism about personal income and a further fall in the climate for major purchases.