Macroeconomics: The Day Ahead for 6 September

  • Heavily front loaded, but overall light data run has UK BRC Sales, Japan Spending and Wages, Australia Current Account and German Orders to digest ahead of UK Construction PMI and US Services PMI & ISM; UK 3-yr, German I-L and Austria 3 & 10-yr
  • UK BRC Sales: impact of squeeze on household incomes very evident
  • Germany Orders: plunge in Consumer Goods highlights weakness of domestic demand due to energy crisis
  • US Services ISM: seen expanding at slower pace, some downside risks from logistics and housing related sectors

EVENTS PREVIEW

The day is not overwhelming in terms of data, with a heavily frontloaded calendar having UK BRC Retail Sales, Japan’s Wages and Household Spending, Australia’s Current Account and German Factory Orders to digest, while ahead lie the UK Construction PMI and probably most significantly US Services ISM and final Services PMI. As expected the RBA got this week’s run of major central bank meetings underway with a 50 bps hike, while later in the day Chile’s BCC is seen hiking a further 75 bps. The UK tests the water of demand for Gilts after their recent rout with a £3.5 Bln sales of 3-yr, while Germany offers inflation-linked Bunds and Austria sells 3 & 10-yr.

Within the overnight run of data, UK BRC Retail Sales were unsurprisingly weaker at 0.5% y/y and Barclaycard Consumer Spending also slowed to 4.7% y/y, with clothing, Dept Store sales and travel related categories seeing particular weakness, and underlining the large squeeze on household incomes, and along with an array of other woes, the enormous challenges requiring the immediate attention of new PM Truss. German Factory Orders fell marginally more than expected (-1.1% m/m and -15.4% y/y), and marking the sixth consecutive monthly drop. The details bear some inspection, above all as they emphasize that the drop is now wholly due to the energy crisis, given that Intermediate Goods rose 1.5% m/m for a second month, confirming that supply chain disruptions are no longer having a major impact. However the collapse in Consumer Goods (-16.9% m/m) goes well beyond any typical m/m volatility, and owes something to weak demand out of China, even if energy price pressures account for the bulk of that fall. While the RBA signalled further rate hikes to come, the statement highlighted that it will be watching housing market and consumer spending trends particularly carefully as it navigates its ‘not pre-set path’. It noted that inflation pressures and rising rates “are putting pressure on household budgets, with the full effects of higher interest rates yet to be felt in mortgage payments”.

** U.S.A. – August Services ISM **

In contrast to the super dismal 44.1 on the US Services PMI reading, the ISM equivalent is expected to drop but only to a still solid expansionary reading of 55.4 from July’s 56.7; retail, transport and logistics, housing and construction related impart some downside risk relative to forecast. That said, outside of the housing sector, US indicators are for the time being still not suggesting a sharp slowdown that would tip the economy into a real recession by Q4, even if they do underline a clear loss of momentum.

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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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