Macroeconomics: The Day Ahead for 30 June

  • Month and quarter end likely to dampen price action as deluge of data awaits; OPEC+ production meeting, Energy and Agriculture reports in focus; smattering of central bank speakers; sharp rate hike seen in Colombia
  • Digesting mixed China NBS PMIs, Japan Production slump, UK Business Barometer drop and huge Current Account deficit, record high for French inflation; awaiting German labour data, US jobless claims and Personal Income and PCE
  • Sintra take homes: central banks concede new inflation environment, but trot out same old narrative; BoE ties more aggressive rate hikes to wage growth
  • US Personal Income/PCE: focus on deflators, but unlikely to have material impact on Q3 rate decisions

EVENTS PREVIEW

Another tempestuous quarter comes to a close, with what is a typical final day month deluge of data  that will likely prove to be nothing more than statistical roadkill for markets. While there are a number of central bank speakers accompanied by expected rate hikes in Sweden (+50 bps) and Colombia (+150 bps), it is the commodities space that captures much of the attention. OPEC+ holds its monthly production meeting, and the EIA publishes its Petroleum Supply Monthly & 914 Production reports, while the USDA issues quarterly stockpile data for grains and oilseeds, as well as monthly acreage for Corn, Soybeans and Wheat and Agricultural Prices Paid & Received reports. The agricultural report follow on from the UN FAO-OECD Agriculture Outlook report yesterday that noted: “To achieve the zero-hunger target while simultaneously keeping agricultural emissions on track to reach the Paris Agreement targets, average global agricultural productivity would need to increase by 28% over the next decade,” adding that crop yields would need to rise 24% higher (nearly double the rate of improvement in the past 10 years), and livestock productivity would have to increase by an average 31%. Per se the need for far greater innovation (above all digitalization) is blatantly obvious, and the goal of zero hunger by 2030 looks to be beyond reach based on current trends. Statistically there are China’s mixed official NBS PMIs (manufacturing bounce weak, but services strong), Production data out of Japan (very poor due to auto output) and South Korea, UK Lloyds Business Barometer (sharp slide) & Q1 Current Account (huge 8.3% of GDP deficit, but ONS advising caution on interpretation), French CPI and Consumer Spending, German Import Prices and Retail Sales and Turkish Trade to digest. Ahead lie Eurozone Unemployment, Canada’s monthly GDP, US Personal Income, PCE, weekly jobless claims and Chicago PMI. As has become very clear in recent weeks, spare production capacity in the oil sector is now very limited, and OPEC+ has been missing production target increases in recent months, above all due to output disruptions in Libya, Nigeria and Angola, and rather less to do with Russia. It will doubtless stick with the current production plan increase for August, which given the serial misses relative to targets is meaningless, and as the Shell CEO noted yesterday: OPEC Spare Capacity is smaller than the market thinks, and on Gas he noted “There will be more LNG supply coming into Europe, but will there be a lot of extra new LNG supply to plug the gap? I don’t think so”.

In the US weekly jobless claims are seen little changed at 230K, while Personal Income and PCE are expected to rise 0.5% and 0.4% m/m respectively, with latter implying a real PCE pace of -0.3% m/m, the first negative reading since December. The focus will as ever be on the PCE deflators, which are expected to accelerate in m/m terms to 0.7% m/m headline edging up the y/y rate yo 6.4%, with core seen up 0.4% m/m, for a 0.1 ppt dip in the y/y rate to 4.8%. But with the Fed making it clear that it wants to reach its putative ‘neutral rate’ as soon as possible, today’s outturns are unlikely to have any impact on the Fed’s July rate decision or market expectations for it, especially with month and quarter end flows continuing to distort price action. The latter was above all evident in the non-reaction to the much higher than expected Spanish HICP data yesterday, given that the much lower than expected German HICP (-0.1% m/m 8.2% y/y) was a) still very high, and b) totally distorted by transport prices.

The main take homes from the ECB Sintra forum panel with Lagarde, Powell and Bailey was the acknowledgement that we are in a new inflation regime, i.e. breaking with the disinflation of the past 20 years, to which one can only say: better later than never, though as Powell admitted they really do not understand the key drivers. Per se trying to quell it with interest rates may prove to be ill advised, with hindsight, but the Fed is ostensibly determined to try and cap the rise in inflation expectations, even at the cost of a downturn. Lagarde’s comments on flexibility and optionality again underline that her primary task is how to find a consensus between hawks and doves, while Bailey made it clear that the BoE is primarily watching wages in determining whether it steps up the pace of rate hikes, and underlined that they are not currently running at a pace that would trigger as 50 bps hike.

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