Macroeconomics: The Day Ahead for 9 August

A rather busier schedule of data and events awaits, though the statistical run of the overnight Australia very mixed business and consumer confidence surveys, UK BRC Retail Sales (turning positive, but flattered by base effects, as will continue to be the case in coming months), Philippines Q2 GDP (missing forecasts with Q1 revised lower), with China Credit Aggregates, US NFIB survey & Q2 Non-farm productivity, and Brazil & Mexican inflation data may ultimately prove to be little more than a distraction, with the focus firmly on tomorrow’s US CPI. There are also the comments from BoE’s Ramsden to ponder, as he floats the idea of a rapid reversal of recent cuts, even while the BoE continues with QE – as if markets weren’t confused enough already about central banks’ monetary policies!

As oil markets continue to swing between focussing on supply concerns and recession worries, the US EIA’s Short Term Energy Outlook (STEO) will require a lot of scrutiny, with the focus likely to be on headline oil demand, but perhaps more attention will need to be paid to product demand prospects, given some evidence of demand destruction, but as with crude output, still very obvious constraints on refining capacity. Kenya holds what will be a very closely contested presidential election. A busy day for govt bond auctions sees the UK sell 29-yr, Germany 2-yr, Austria 10 & 22-yr and the US kick off this week’s quarterly refunding with $42 Bln of 3-yr. Amid all the volatility in the cryptoverse and the failure of a number of related businesses, Coinbase Global is likely to get the most attention among today’s companies reporting corporate earnings, with Abrdn, Munich Re and Suntory also to generate some headlines.

Thought for the day on the Unemployment conundrum: for the best part of twenty years regular wages for the majority of working people have been under intense downward pressure, both due to a highly mobile global workforce and other forces of globalization and advances in technology. That workforce is now much less mobile, workforce demographics are increasingly adverse in most countries, and labour skills shortages were all too evident long before the pandemic. Wages are singularly failing to keep up with the current bout of inflation, which in a country such as the UK (and in much of the Eurozone) has been true for most of the past decade. The assumption that hiking rates will ease tight labour markets, without a sharp contraction in output is therefore deeply flawed, and given that governments, corporates and households have accumulated so much more debt than there has been growth in output or wages, it looks to be a simultaneous recipe for some form of debt crisis.

** U.S.A. – July NFIB Small Business Optimism **

NFIB Small Business Optimism will bear a lot of scrutiny, even if headline is expected to be unchanged at  the 9 year low of 89.5 posted in June. But after the plunge in June ‘Expect Higher Sales’ to -28 from -15, amid weakening, though not soft, labour demand (‘Plan to Hire’ has already been published for July at 20 vs. 19 in June 26 in May), and with Economy expectations plummeting to yet another record low in June, the details will be as, if not more important than the headline. But as has been previously noted, the very heavy political influence on views about the economy (particularly in this and the Michigan Sentiment surveys), the ostensibly dismal outlook has to be treated with a good deal of caution.

** China – July Credit Aggregates **

Credit Aggregates should be published today. After a huge boost from local govt borrowing and targeted CRR cuts in June, Aggregate Social Financing is expected to drop back to just CNY 1.325 Trln from June’s CNY 5.17 Trln, with seasonal effects accounting for much of the drop, though the moves to prop up the calamitous property market suggests some modest upside risks.