Macroeconomics: The Day Ahead for 29 July

  • Very busy day for statistics to end the month: digesting soft UK Lloyds Business Barometer, better than expected Japan, Korea Production, French Q2 GDP; awaiting Eurozone / national Q2 GDP and July CPI, US Q2 ECI, Personal Income/PCE, Mexico Q2 and Canada May GDP; Colombia rate hike; Financials dominate Europe earnings, energy behemoths feature in US
  • Eurozone Q2 GDP: French Q2 GDP beat flatters to deceive, Spain impresses; German and Italy likely to be tepid; outlook poor
  • Eurozone CPI: Germany, France and Spain all higher than expected, implying further rise in Eurozone, core pressures likely very evident
  • US Q2 Employment Cost Index: some moderation expected, focus on wages and benefits, as Fed looks narrative increasingly threadbare
  • US Personal Income/PCE: headline pre-empted by Q2 GDP, modest downside risks; deflators set to jump echoing CPI
  • US 5 vs 30 yr yield spread; US/Japan 10-yr yield spread vs. USD/JPY

EVENTS PREVIEW

The final day of the month brings a very typical deluge of economic data, with Q2 GDP and July CPI readings in the Eurozone/EU and US Q2 ECI, Personal Income/PCE and Chicago PMI heading the line-up, which also has Japanese and Korean Industrial Production, Japan Tokyo CPI & Retail Sales (overall better than forecast) and UK Lloyds Business Barometer along with the July BoJ “summary of opinions” to digest. Also ahead lie German Unemployment, Mexican Q2 and Canada May GDP readings, and an expected further 150 bps rate hike in Colombia; while Sunday sees the release of China’s offical NBS PMIs, and these follow the Politburo abandoning this year’s GDP target of 5.5% y/y in their latest guidance on the economy. A further busy run of corporate earnings has financials featuring heavily in Europe: Amundi, BBVA, Intesa SanPaolo, NatWest, Swiss Re and Standard Chartered, with AstraZeneca and Eni also due, while the US has Chevron, Exxon Mobil and Procter & Gamble amongst the headliners. Yesterday’s US Q2 GDP has served to embed some notable trends, with the US 5/30 yr spread steepening further as markets discount the Fed having to accept higher levels of inflation for longer as growth stalls, while narrowing the US/Japan 10-yr yield spread and in turn seeing the JPY clawing back rather more ground vs. the USD (see charts). As much as these can be termed ‘text book’ moves / reactions in a flow driven world, they still need to be borne in mind; for the time being, markets are fighting the Fed and winning.

** Eurozone – Q2 GDP & July prov. CPI **

As with the weak US Q2 GDP data (above all the drag from Business and Housing Investment, and the large drag from Inventories) yesterday, today’s Eurozone data is primarily about how much it incites markets to further test the resolve of central banks in raising rates to combat high inflation, in the face of weak growth or outright contraction. Pan Eurozone Q2 GDP is expected to slow to just 0.2% from Q1 0.6%, with base effects dictating the expected drop to 3.4% y/y from 5.4%, with high energy prices likely to be a significant contributor to a sharp drag from Net Exports in Germany and Italy, despite adding 0.4 ppt and accounting for much of the better than expected 0.5% q/q in France. The question on personal consumption is how much offset to soft goods will Services spending provide (France saw Household Spending 0.2% q/q), and then there are the Inventories wild card, and the highly erratic and very quirky pattern of Irish growth, which accounted for much of the unexpected strength in Q1 (0.6% q/q). Following on from the much stronger than expected 0.8% m/m 8.5% y/y on German HICP, the expected falls in Spain (-0.8% m/m) and Italy (-0.9% m/m) are unlikely to be a sufficient offset to deliver the forecast -0.1% m/m, and a slight uptick to 8.7% y/y, with core CPI looking likely to be higher than the anticipated 3.9% from 3.7%.

** U.S.A. – Q2 Employment Cost Index / June Personal Income & PCE **

The Fed’s narrative on the economy is looking very threadbare, and today’s Employment Cost Index will be very closely watched given that it is both the Fed’s preferred wages measure, with the headline measure seen at 1.2% vs. 1.4% in Q1, the latter boosted above all by benefits 1.8% q/q as against 1.2% for Wages & Salaries; any signs of moderation in the latter would further lean against the Fed’s line on a “very strong” labour market. The headline Personal Income and PCE data have as ever been pre-empted by yesterday’s Q2 GDP data, and assuming no revision to prior months imply a small downside risk to PCE relative to a forecast of 0.9% m/m, primarily a function of high gasoline prices as evidenced by the Retail Sales data, with Real Personal Spending seen flat. As for the PCE deflators, these are likely to echo CPI with headline seen up 0.9% m/m, to jump the y/y rate to 6.8%, while core is expected to pick up to 0.5% m/m, which would leave the y/y rate unchanged at a high 4.7% (though below April’s 4.9%).

To view the full report and to sign up for daily market commentary please email admisi@admisi.com

The information within this publication has been compiled for general purposes only. Although every attempt has been made to ensure the accuracy of the information, ADM Investor Services International Limited (ADMISI) assumes no responsibility for any errors or omissions and will not update it. The views in this publication reflect solely those of the authors and not necessarily those of ADMISI or its affiliated institutions. This publication and information herein should not be considered investment advice nor an offer to sell or an invitation to invest in any products mentioned by ADMISI.

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.

© 2022 ADM Investor Services International Limited.

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.

Futures and options trading involve significant risk of loss and may not be suitable for everyone.  Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.  The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM.  The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.

Latest News & Market Commentary

Explore the latest edition of The Ghost in the Machine

Explore Now