Macroeconomics: The Day Ahead for 30 August

  • Digesting Japan labour data, awaiting German & Spanish CPI, UK Credit & Mortgage Lending, US Consumer Confidence, House Prices & JOLTS Job Openings; plenty of ECB and Fed speakers; Italy debt auctions
  • Germany/Spain CPI: fuel price falls likely to offset further food and utility pressures, second round effects in focus, as PPI readings remind about pipeline pressures
  • US Consumer Confidence: bounce expected on lower gasoline prices, focus on inflation expectations and labour differential
  • US House Prices: some further m/m moderation and base effects to help pull y/y rates down, more rapid deceleration ahead

EVENTS PREVIEW

A relatively busy day awaits in terms of data and events, with Japan’s Unemployment to digest, while ahead lie German and |Spanish CPI, UK Credit and Mortgage Lending, EC Confidence surveys, and US House Prices, JOLTS Job Openings and Consumer Confidence. As markets start to zero in on the likely size of the ECB’s September rate hike, there are an array of ECB speakers along with Riksbank’s Ingves and Richmond Fed’s Barkin, while Hungary’s MNB is seen hiking rates by a further 100 bps to an eye-watering (by European standards) 11.75%. Having digested a busy run of Chinese corporate earnings (including Baidu and Great Wall Motor), the highlights in North America are likely to include: Best Buy, HP, Alimentation Couche-Tard and Bank of Montreal.

** Germany/Spain – August prov. CPI **

National CPI readings will again diverge in trend terms, reflecting for the most part differing impacts of fuel and utility prices and accompanying base effects, above all due to the impact of temporary tax and other measures. Thus Spanish HICP is expected to rise just 0.1% m/m, allowing the y/y rate to dip to 10.3% from 10.7%, with a drop in fuel prices largely offsetting a rise in utility prices, and persistent food price pressures, the wildcard will be the extent of service price pressures, such as restaurants and hotels. In Germany, the initial state reading from NRW (0.3%/8.1%) was broadly in line with an HICP forecast of 0.4% m/m which would push the y/y rate up to 8.8% from 8.5%. The primary upward pressure will also be utilities and food prices, with an offset from transport thanks to lower petrol prices, though as the seismic jump in July PPI underlined, pipeline pressures remain large, and second round effects are becoming all to evident in services prices. It should be noted that the special EUR 9.0 per month public transport ticket measure, which drove June CPI down, will end in September giving a large boost to Sept CPI. Whatever the outcome of this week’s Eurozone inflation readings, they will probably only impact the decision on the size of the September rate cut at the margin, given that the bigger discussion is around the balance between deteriorating growth prospects, and how aggressive rate hikes need to be to try and rein in inflation, while at the same time considering an already sharp squeeze on ‘financing conditions’.

** U.S.A. – August Consumer Confidence, June House Prices **

Consumer Confidence is expected to bounce to 98.0 from 18-mth low of 95.7 in July, with lower gasoline prices likely to be a key element in the rebound. Details will likely be more important than the headlines, with 1-yr inflation expectations having already dropped in July (Avg. 7.6% vs. 7.9%, Median 7.0% vs. 7.6%). Though the focus will be the labour differential, which has declined from its March peak, but as the attached chart underlines, this only signals that the labour market has moved from incredibly tight to very tight on any historical measure. Anecdotal evidence on hiring freezes and a rise in layoffs does imply further loosening, but as today’s JOLTS Job Openings are likely to highlight (exp. 10.375 Mln vs. June 10.698 Mln), vacancies are still some 25-30% above pre-pandemic levels, which were already high by comparison with the prior 20 years. House prices are expected to rise at a more moderate pace in m/m terms (0.8%/0.9%), which along with base effects will help to ease y/y rates, but as this is data for June, it is already rather historical especially given tumbling sales.

RECAP: Week Ahead – Preview: 

The new week brings month end, which in the aftermath of Powell’s hawkish speech on Friday could prompt some rebalancing flows from equities to bonds, though credit may be less of a beneficiary given the extent of the Q3 spread tightening. It also has Eurozone provisional August CPI readings, US labour data, Consumer Confidence, Auto Sales and House Prices; Manufacturing PMIs around the world, China NBS PMIs and a further array of other surveys, along with the usual run of month end Japan readings, Japan and Australia Q2 CapEx, and Canadian Q2 GDP. Central bank speakers are relatively plentiful, but unlikely to signal any shift in their views on the outlook for rates, with specific guidance remaining minimal, while Hungary’s MNB is expected to hike rates a further 100 bps to an eye watering 11.75%, and Banco de Mexico publishes its Q3 inflation report. China dominates the corporate earnings schedule, with particular focus on the handful of banks reporting, and the impact of the property sector crisis and a weak economy on loan portfolios; a minimalist run in North America features Best Buy, Campbell Soup, HP and Lululemon Athletica. While there is no govt bond coupon issuance in the US or Germany, there are auctions in the UK, EU, France, Italy, Spain and Ireland, and Japan sells 2 & 10-yr.

The overarching themes remain the energy and drought crises, above all in Europe and China, and accompanying acute cost of living challenges and social and labour unrest in so many countries, along with the Russian invasion of Ukraine. There remains an all too palpable sense that the political fraternity in most countries are inept, incompetent and clueless about how to deal with any of the problems that they face, with now deep seated polarization adding to the many impasses. As is well documented, seasonal patterns for equities in September are the least favourable for the year, for example the S&P 500 has an average return of -0.6% since 1945, and has posted an overall gains only 44% of the time. Per se, the summer lull in volatility (relative above all to a stormy H1 2022) looks unlikely to last.

In the commodity space, energy prices will remain choppy, as markets chop between worrying about the impact of recessionary forces on demand, and on the other hand ongoing supply constraints and latterly the threat of an OPEC output cut. The impact of drought and extreme weather on agricultural output will continue to be a key focal point, with the International Cocoa Association holdings it annual conference in Indonesia this week.

In terms of this week’s data, the focus will be on: a) China’s NBS PMIs that are expected to see Manufacturing still contraction (49.0 vs. 49.2), and Services weakening (52. vs 53.8); b) Eurozone CPI readings that are forecast to see headline and core measures edge up 0.1 ppt to 9.0% and 4.1% in y/y terms; c) Whether the US Manufacturing ISM is less bleak than the flash PMI, and how much deterioration there is elsewhere, with US Consumer Confidence expected to recover to 97.7 from 95.7; and d) Friday’s US labour data, where a lower but still robust 300K Payrolls gain is seen, with Average Hourly Earnings only expected to ease modestly to 0.4% m/m, to leave the y/y pace unchanged at 5.2%

The corporate earnings run is likely to see the following among the highlights according to Bloomberg news: Baidu, Bank of China, Bank of Montreal, Beijing-Shanghai High Speed Railway, Broadcom, China Construction Bank, China Pacific Insurance Group, Citic, Cosco Shipping, Crowdstrike, Fortescue Metals Group, Hormel Foods, HP, Industrial & Commercial Bank of China, Lululemon Athletica, Luzhou Laojiao, Midea Group, Muyuan Foods, Partners Group Holding, Pernod Ricard, Pinduoduo, Poly Developments & Holdings Group, SF Holding, Shaanxi Coal Industry, Shanghai Pudong Development Bank, Tianqi Lithium, Veeva Systems & Woodside Energy Group.

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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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