Macroeconomics: The Day Ahead for 3 August

  • Geopolitics front and centre as Services PMIs dominate data run; digesting record German Exports, downward revision to Japan Services PMI; Swiss and Turkish CPI; US Factor Orders and plenty more Fed speakers also on tap; OPEC+ production meeting, Brazil rate decision, German 16-yr sale and further raft of corporate earnings
  • Services PMIs: largely seen better than Manufacturing, but trending lower; focus on contrast between in Services ISM vs. sharp slide in PMI
  • Brazil: 50 bps rate hike expected and hawkish pause signal as inflation pressures appear to use, some chatter of 25 bps

EVENTS PREVIEW

Geopolitics will continue to dominate the day’s schedule, throwing in yet another grenade into an already elevated intra-day volatility mix, and riding roughshod once more over markets’ tussle with central banks. Whether history shows this to have been a heavily choreographed exercise in machismo, the level of tension is so high that the primary risks are knee-jerk or precipitous military reactions that plunge the world into a much more serious crisis. It has to be hoped that the stage managers and directors are fully in control of all the involved actors. Sadly this frightening spectacle is borne on the wings of local party politics, a display of political personal profiling and egotistical self-gratification and illusory ‘legacy’ totems, which spits in the face of any form of strategic geopolitical thinking (this applies to Xi as much as Pelosi). The search for a one-eyed man or woman in this land of the blind is now a desperate one. If a reminder is needed, those that have not learnt the lesson of this decade that ‘anything can happen’ are in a for a rough ride (and yes that of course can rub in both directions).

Services PMIs dominate the day’s statistical schedule, with German Trade, Swiss and Turkish CPI to digest, and the generally largely ignored US Factory Orders ahead. The events schedule has plenty more Fed speak, though the focal point is likely to be the OPEC+ meeting, which is expected to stick to the plan to hold output levels at the current target through to the end of December, when the current OPEC+ agreement is due to expire. The India Coal Outlook Conference and weekly US EIA oil inventories data will be the other points of focus for energy markets. The consensus looks for Brazil’s BCB to hike rates by 50 bps to 13.75%, and perhaps signal a hawkish rate pause as it assesses the cumulative impact of 1175 bps of tightening in the current cycle, amid some signs that overall inflation pressures are easing (thanks to goods and services tax cuts and drops in administered gasoline prices. That said core price pressures remain sky high, and inflation expectations remain well above target, and a minority look for a 25 bps hike and a signal of further modest rate hikes in coming months. The earnings run has results from Nomura and Sumitomo Corp in Asia, with AP Moller-Maersk, BMW, Commerzbank, Infineon, Societe Generale, Taylor Wimpey and Telecom Italia on the radar in Europe. Across the pond Albemarle, eBay, Marathon Oil and Yum! Brands will feature among the headlines; meanwhile Germany will offer a modest EUR 1.5 Bln of 16-yr Bunds via auction.

** World – July Services PMIs **

The G7 flash Services PMI showed varying degrees of loss of momentum, with UK and France dropping but remaining in expansionary territory, by contrast German (49.2) and above all the USA (47.0) contracted, with these readings expected to be confirmed in their final versions, and Spain and Italy also expected to lose momentum. That said, there were quite sharp revisions in Australia (up to 50.9 vs 50.4) and Japan (down to 50.3 vs. 51.1), while the welcome pick-up in China’s Services PMI remains subject of renewed lockdown measures and could reverse as a result, and sits uncomfortably with the drop in the equivalent NBS measure. As was seen in the US Manufacturing PMI vs ISM, trends often diverge, with the consensus looking for a less dramatic drop in the Services ISM to 53.5 from 55.2, though this would be the weakest reading since the height of the initial stages of the pandemic. Of particular note as with Manufacturing will be how sharp a fall is seen in Input Prices, and how this contrast with Orders, Order Backlogs, Inventories and Supplier Delivery Times. After another drop in JOLTS Job Openings, albeit still very high at 10.7 Mln, the Employment sub-index will be watched very carefully, even if it has a very poor correlation to Payrolls trends, with any sharp fall likely to be pounced up on as further denting the Fed’s case for continuing to pursue an aggressive policy trajectory.

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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.                  

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© 2021 ADM Investor Services International Limited.

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