Macroeconomics: The Day Ahead for 9 August

A relatively subdued end to a turbulent week in terms of data and events has inflation data from China, Norway, Brazil and final readings in Germany and Italy, accompanied by Canadian labour data as its highlights. There are no scheduled central bank speakers, and the run of corporate earnings is somewhat light in terms of heavyweight names, with Japan Post, QBE and Rakuten in Asia, while Generali and Lanxess feature in Europe. Overall this should allow markets to pause for breath ahead of next week’s blockbuster schedule of data from the US, China and UK. The US and UK have CPI and PPI, the US and China have Retail Sales and Industrial Production, the UK and Japan have Q2 GDP. The US also has NY & Philly Fed Manufacturing, NFIB and NAHB surveys, China looks to Property Sales & Investment and House Prices, the UK awaits labour and monthly activity data, while Australia looks to Q2 Wages and the monthly labour report. A modest run in Europe sees revised Q2 GDP, German ZEW survey and Swedish CPI. In the agricultural commodity space the USDA WASDE, China CASDE and Brazil CONAB monthly reports will be the focal point.

** China – July CPI and PPI **

– China’s inflation data sent mixed messages, whereby the headline changes are in fact telling the opposite story of what they appear to suggest. Thus the rise in CPI to a still very low 0.5% y/y vs. expected 0.3% and prior 0.2% owed everything to food price (primarily pork) base effects, with core CPI falling back to 0.4% y/y from 0.6%, underlining the weakness of domestic demand. By contrast the steady PPI reading at -0.8% y/y against expectations of -0.9% is relatively speaking impressive, given the adverse base effect of July 2023 PPI moving up to -4.4% y/y from -5.4%, with an even larger effect in August, when it rose to -3.0%. But on balance the data still suggest scope for further small rate cuts, with the PBOC being afforded some breathing space with regards to its concerns about not putting pressure on the CNY, after the sharp rally in the JPY. Credit aggregates may also be released today, with the consensus looking for a paltry CNY 438 Mln increase in New Yuan Loans, while overall Aggregate Financing is seen up CNY 1.2 Trln, the former would be well below typical seasonal patterns, though the latter would be modestly above.

** Canada – July Unemployment & Wages **

– A weaker labour market and the potential for it to dampen a recovery in consumer spending was highlighted as a key factor in the BoC’s decision to cut rate again in July, adding emphasis to today’s monthly report. The Unemployment Rate is expected to edge up 0.1 ppt to 6.5%, which would be the highest level since January 2022, in no small part due to migration, with temporary migrant workers and young people joining the labour market hit especially hard. Employment data has been very erratic this year, with a 25k rebound expected following an unexpected though modest 1.8K drop in June. Hourly Wages are expected to drop sharply to 4.8% y/y from 5.6%, though this will be largely attributable to base effects, rather than a sharp drop in wage settlements.