Macroeconomics: The Day Ahead for 29 July

A very subdued start to a busy week in statistical terms, with Swedish Q2 GDP and the run of Vietnam’s monthly indicators to digest ahead of UK credit aggregates, CBI Retailing survey and US Dallas Fed Manufacturing survey. In event terms, there are the widely disputed results of Venezuela’s election to digest, as UK Chancellor Reeves announces the results of the public spending audit. UK media outlets suggest that the new Labour govt will go down an all too familiar path of cancelling major projects (road and rail), which has been the ‘weapon of choice’ when the UK faces budget problems since WWII, and is also why its infrastructure is so poor. It will also be a quiet start to this week’s busy run of corporate earnings, with Chesapeake Energy and McDonald’s providing the likely highlights.

RECAP: The Week Ahead Preview

The new week’s schedule is packed with major central bank meetings (Fed, BoE and BoJ), and a further rush of corporate earnings (US, Europe and Asia), Manufacturing PMIs, Eurozone & EU CPI and advance Q2 GDP reports, the week ending US labour data, as well as Japan’s activity data, and of course end of month. A bumper week for corporate earnings will inevitably focus on the tech sector (Amazon, Apple, Meta, Microsoft along with ARM and Samsung Electronics), ‘Big Oil’ (BP, Shell, Chevron, Exxon Mobil), European and Asian banks (e.g. HSBC, ING, Intesa Sanpaolo, Mitsubishi UFJ, Mizuho Financial), Miners (Rio Tinto, Q2 Production from Glencore) and Automakers (BMW, Tata Motors, Toyota Motor, VW) will also feature. Govt bond supply comes primarily from the UK and Eurozone, with no coupon supply in either the USA or Japan). Outside of the G7 central bank meeting, there are also rate decisions in Brazil, Chile, Colombia and Czechia, though there is a seasonally typical and policy meeting related lull in central speakers, with the ECB publishing its Economic Bulletin. In the commodity and energy space, there is an OPEC+ Joint Ministerial Monitoring Committee that is expected to stick with the decision on tapering production cuts gradually (despite recent oil price falls), the aforementioned run of earnings reports, the UN FAO World Food Price Index, as well as the Antaike Base Metals Summit and Australian Grains Industry Conference. Govt bond supply is concentrated in Europe (UK, Germany, France, Italy and Spain), with no coupon issuance in either Japan or the USA. Politics (national and geopolitical) will remain an ever-present leftfield threat, with the potential for an escalation of tensions between Israel and Hezbollah in the Middle East following the weekend rocket attack on the occupied Golan Heights in focus, while the results of the weekend national elections in Venezuela also in view.

– U.S.A.: The FOMC meeting and a broad array of monthly and quarterly labour market indicators take centre stage in the US. The FOMC is expected to hold rates at 5.25%-5.50%, with the initial focus on whether there is any dissent (presumably for a rate cut), or whether the unified messaging since the first rate cut in 2022 holds. The statement will likely note the improvement in inflation, and the downside risks to employment, though it may not offer a clear signal that a rate cut is imminent, though opening the door via tweaks to ‘The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent’, or perhaps more subtly by emphasizing that risks to the inflation and employment outlooks are now balanced.  Powell will likely send a more emphatically dovish signal, hinting at the possibility of a September rate cut, with a clearer signal likely at the end August Jackson Hole conference. Outside of the run of monthly labour market indicators, there are also the Q2 Employment Cost Index (seen at 1.0% q/q vs. prior 1.2%, though little changed in y/y terms at 4.2%) and Unit Labour Costs (seen at 1.9% vs. prior 4.0%). JOLTS Job Openings are expected to reverse some of May’s rebound to 8.140 Mln, with a drop to 8.055 Mln, but remain above April’s cyclical low of 7.919 Mln, revisions will as ever be important. ADP Employment is forecast to be almost unchanged at 150K, while Friday’s Payrolls are seen lower in headline terms at 178K (vs. June 206K), but Private Payrolls slightly higher at 148K (vs. June 136K). As importantly the Unemployment Rate is seen steady at 4.1%, while Average Hourly earnings are forecast at unchanged 0.3% m/m and 4.1% y/y, also keeping the 3-mth annualized pace at 4.0%, not quite as low as the Fed would want. Consumer Confidence is expected to dip to 99.5 from 100.4, with all eyes on the Labour Differential (Jobs Plentiful minus Hard to Get, last 24.0) that has trended broadly sideways over the past couple of months.  Last but certainly not least, Auto Sales are expected to rebound sharply to 16.20 Mln from the cyber-attack drop to 15.29 Mln in June, and remain well below pre-pandemic levels, thanks in the main to financing costs.

– Japan: Given the ostensible short-term success of Japan’s recent GFX intervention, there is quite a lot riding on this week’s BoJ policy meeting. The run of data ahead of that will not weigh very heavily in that decision, with the expected steep -4.5% m/m fall in Industrial Production once again due to regulators shuttering output at another automaker due to the data falsification scandal, while Retail Sales are expected to lose some momentum posting a modest 0.2% m/m rise, but picking up to 3.2% y/y from May’s 2.8%, but still heavily boosted by tourism, rather than the desultory picture presented by Household Spending (that has fallen for four consecutive quarters).  The consensus looks for the BoJ to hold the Call Rate target at 0.0-0.1%, though there is a sizeable minority looking for a 15 bps hike to 0.15-0.25%, arguing that with CPI in line with BoJ forecasts, and with wage settlements also picking up sharply, the BoJ will want to tighten policy further. Many of those expecting the BoJ to hold at this meeting, still expect a rate hike in September, and for the BoJ to send a hawkish message by scaling back its monthly JGB purchases by up to 50% from the current Y6.0 Trln, (those expecting a hike look for a reduction to around Y4.5 Trln). Given the breadth of expectations, considerable JPY volatility seems highly probable, particularly after the sharp unwind of carry trade positions over the past 10 days.

– UK: a light week for UK data has Consumer Credit (seen lower at £1.5 Bln) and Mortgage Lending (expected at £1.1 Bln vs. prior £1.2 Bln) ahead of BRC Shop Prices (last 0.2% y/y) and Nationwide House Prices (median flat m/m 1.7% y/y), none of which will have impact on the MPC’s decision on Thursday. But Monday’s statement by Chancellor Reeves on the new government’s audit of UK public sector spending, which weekend statements suggest will show a £20 Bln ‘black hole’, may be of greater significance, with speculation about an increase in Capital Gains and Inheritance taxes doing the rounds. Be that as it may, the consensus looks for an initial 25 bp BoE rate cut when it meets, but opinions are divided, and none held with any great conviction either, with markets pricing in a 50/50 chance. Both Services and core CPI, and Average Weekly Earnings have fallen more slowly than the BoE had been expecting, and the limited volume of BoE speakers have erred to the side of caution on rate cuts, even if most of them are in the more hawkish camp. The voting is likely to be tight (5-4 or 6-3). The accompanying Monetary Policy Report will likely see GDP forecasts upgraded modestly, and CPI in 2 years perhaps shaded marginally lower from May’s 1.9%, though held 1.6% in 3 years’ time, per se offering support for a rate cut.

– Eurozone: While this week brings both provisional Q2 GDP and monthly CPI data, these may need to surprise to have more than a passing impact given what is happening elsewhere. The consensus looks for Eurozone Q2 GDP to slow modestly to 0.2% q/q, as Germany slows to 0.1%, Italy and France are seen at 0.2% q/q, while Spain leads the way at 0.5% q/q, though slowing from Q1’s 0.8%; the risks above all for Germany and France look to be modestly to the downside. The ECB and others may continue to call this a recovery, which in technical terms it is, but certainly one that lacks momentum, with risks clearly, even if moderately, skewed to the downside. Eurozone CPI is expected to fall 0.1% m/m, but remain unchanged at 2.5% y/y, though core CPI is anticipated to ease 0.1 ppt to 2.8% y/y, with Services CPI also seen edging down to a still uncomfortably high 4.0%, though base effects in energy and services prices should ensure a more meaningful drop in August. German Unemployment is expected to edge up once again (+15K), while Spanish Unemployment should by contrast fall. Politics in France and Germany remain in view, while there will also be some interest in how Italian PM Meloni’s visit to China pans out.

– China NBS and World Manufacturing PMIs: China’s NBS PMIs are forecast to ease modestly from June’s sluggish levels (Manufacturing -0.2 to 49.3, Non-manufacturing -0.3 to 50.2), while the Caixin Manufacturing is expected to ease to 51.1, after hitting a 3-yr high in June. None of which will come as any surprise, and sustain considerable about China’s economic outlook, which last week’s array of monetary and fiscal policy measures did nothing to alleviate. Last month’s Asia ex-China readings offered grounds for optimism, even if the flash Japan Manufacturing PMI slowed sharply. No revisions are expected to Eurozone or UK flash readings, but there will be interest in US Manufacturing ISM (median 48.8 vs. June 48.5), after a steep fall in the equivalent flash PMI (49.5 vs. 51.6). The latter was doubtless partly related to increased trade tensions, and it has to be noted that official activity data for the sector has proven to be a lot more resilient than surveys have suggested for much of this year.

– Elsewhere: Canada’s monthly GDP is seen rising just 0.1% m/m, vs. May’s 0.3%, per se vindicating the BoC’s decision to cut rates again last week, emphasizing downside risks to the economic outlook. Perhaps rather more pivotal will be Australia’s Q2 and June CPI data, where forecasters look for headline Q2 CPI to accelerate to 1.1% q/q and 3.9% (vs. Q1 1.0% and 3.6%), though June CPI is expected to ease to 3.8% y/y from 4.0%. Both core CPI measures are expected to be unchanged at 1.0% in q/q terms, which would see y/y rates remain stubbornly high at 4.0% and 4.3%, and above an RBA forecast of 3.8%. However, both the higher than expected April and May CPI readings were somewhat distorted by one-off factors, which should ebb in June, and impart some downside risks relative to the consensus, and could easily see markets swing from being concerned about a further rate hike, to entertaining the possibility of an initial rate cut in Q4.

– It is peak US earnings week, and also a very busy week in Europe and Asia, there are 171 S&P 500 companies reporting this week, with worldwide highlights as compiled by Bloomberg News likely to include: Adani Enterprises, Adani Ports & Special Economic Zone, Adani Power, Adidas, AMD, Advantest, Aena SME, Aflac, Agnico Eagle Mines, Air Products & Chemicals, Airbus, Allstate, Alnylam Pharmaceuticals, Altria Group, Amadeus It Group, Amazon, Ambev, American Electric Power, AIG, American Tower, American Water Works, Ametek, Anheuser-Busch InBev, Ansys, Apollo Global Management, Apple, Arch Capital Group, ADM, Ares Management, Arista Networks, ARM Holdings, Atlassian, ADP, AvalonBay Communities, AXA, BBVA, Bank Mandiri Persero, Barclays, BMW, BCE, Becton Dickinson, Bharat Electronics, Biogen, Block, Blue Owl Capital, Boeing, Booking, CaixaBank, Canadian Pacific Kansas City, Carvana, CDW, Cellnex Telecom, Cencora, Cenovus Energy, Chevron, Church & Dwight, Cigna Group, Cloudflare, Cognizant Technology Solutions, Coinbase Global, ConocoPhillips, Consolidated Edison, Corning, Corteva, Credit Agricole, Cummins, Daiichi Sankyo, Daimler Truck Holding, Danone, Delta Electronics, Denso, Deutsche Post, Diageo, Dominion Energy, DoorDash, DSM-Firmenich, DuPont de Nemours, Eaton, EBay, Ecolab, Electronic Arts, Emirates Telecommunications Group, Enbridge, Engie, Enterprise Products Partners, EOG Resources, Equity Residential, Exelon, Extra Space Storage, Exxon Mobil, Fanuc, Ferrari, Ferrovial, Garmin, Gartner, GE HealthCare Technologies, GSK, Haleon, Heineken, Hershey, Hess, Hitachi, Howmet Aerospace, Hoya, HSBC Holdings, Humana, ICICI Bank, Illinois Tool Works, Imperial Oil, Indian Oil, ING Groep, Ingersoll Rand, Intact Financial, Intel, ICE, Intesa Sanpaolo, Iron Mountain, ITC, Japan Tobacco, KDDI, KKR, Komatsu, Kraft Heinz, L’Oreal, Lam Research, Legrand, Linde, London Stock Exchange Group, LyondellBasell, Mahindra & Mahindra, Marriott International, Marubeni, Maruti Suzuki India, Mastercard, McDonald’s, MediaTek, Merck, Merck, Meta Platforms, MetLife, Mettler-Toledo International, Microchip Technology, Microsoft, MicroStrategy, Mitsubishi, Mitsubishi Electric, Mitsubishi UFJ Financial, Mitsui, Mitsui Fudosan, Mizuho Financial, Moderna, Mondelez International, Monolithic Power Systems, Motorola Solutions, Murata Manufacturing, Nintendo, On Semiconductor, Oriental Land, Otsuka Holdings, OCBC, PayPal, Pfizer, Phillips 66, Pinterest, Procter & Gamble, Prudential Financial, Public Service Enterprise Group, Public Storage, Qualcomm, Quanta Services, Regeneron Pharmaceuticals, ResMed, Rio Tinto, Roblox, Rocket, S&P Global, Safran, Samsung Electronics, Saudi Basic, Schneider Electric, Shell, Siemens Healthineers, Sika, Southern, Starbucks, Stryker, Sumitomo, Sumitomo Mitsui Financial Group, Sun Pharmaceutical, Swisscom, Sysco, T-Mobile US, Takeda Pharmaceutical, Targa Resources, Tata Motors, TC Energy, TDK, Telefonica, Thomson Reuters, Titan, Toyota Industries, Toyota Motor, Trane Technologies, United Overseas Bank, Verisk Analytics, Vertex Pharmaceuticals, Vici Properties, Volkswagen, Vonovia, WEC Energy Group, WEG, Welltower, Wolters Kluwer, WW Grainger, Xcel Energy, Xylem.