- Busy day for major US data - CPI, Retail Sales, Industrial Production -
accompanies start of US Q2 earnings season; Nowotny and Kaplan speak;
Singapore Q2 GDP to digest ahead of Brazil monthly GDP
- US CPI: subdued profile of recent months expected to persist, like to
reinforce market scepticism about Yellen contention that inflation
risks are "two sided"
- US Retail Sales: auto sales and gasoline prices seen continuing to weigh
on headline, core sales seen affirming improving trend since March,
watch revisions
- US Industrial Production: resource sectors seen pacing expected gain,
some upside risks given pick up seen in sector surveys
- Charts: Iron Ore, WTi Oil, JPM EMBI spread, High Yield Bond ETF
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** EVENTS PREVIEW **
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While there is a distinctly summery feel to trading volumes, it is also equally clear that the central bank narratives (Fed, ECB, BoE) is the dominant theme, even if today will be a busy one for major US economic statistics via way of CPI, Retail Sales, Industrial Production & prov. Michigan Sentiment, with the sluggish overnight prov. Q2 GDP from Singapore and Brazil monthly GDP providing the other data highlights. Trump's visit to France on Bastille Day follows what appeared to be a fairly constructive Franco-German summit yesterday, even if actual initiatives were limited to defence, tech and cybersecurity, at least Merkel confirmed she / Germany is willing to discuss a the appointment of an Eurozone Finance Minister, though any appointment would have to wait until after the September federal election. The point being that Germany has previously always given a flat refusal to such a discussion. By contrast, the UK govt's handling of Brexit sadly appears to be descending into chaos and farce, with few if any signs of anything that could be called a coherent strategy, and the ensuing political uncertainty is clearly to starting to take its toll on business and consumer sentiment. After the WSJ story on the ECB apparently looking to lay out its taper stall at the September meeting, while ECB's Rimsevics (Latvia) opined that QE would carry on for "a few years", Nowotny's speech will be very closely watched. There will also be some interest in Dallas Fed's Kaplan's speech (neutral/hawkish), after a very clear signal from Yellen in her second round of testimony that she sees the risks on the inflation outlook as being 'two-sided', and thus protesting markets' dovish take on Wednesday's testimony. Last but certainly not least, the US Q2 earnings season kicks off with two of the behemoths of finance - JPM and Citi, accompanied by Wells Fargo and PNC.
** U.S.A. - CPI, Retail Sales & Industrial Production **
- Yellen was pretty clear in her written testimony that the Fed feels vindicated in its view that the weak economic activity of Q1 was transient, noting "more-recent indicators suggest that growth rebounded in the second quarter. In particular, growth in household spending, which was weak earlier in the year, has picked up in recent months and continues to be supported by job gains, rising household wealth, and favorable consumer sentiment. In addition, business fixed investment has turned up this year after having been soft last year. And a strengthening in economic growth abroad has provided important support for U.S. manufacturing production and exports. The housing market has continued to recover gradually, aided by the ongoing improvement in the labor market and mortgage rates that, although up somewhat from a year ago, remain at relatively low levels." As such it will be interesting to see whether markets share that assessment, when today's run are published. Soft Auto Sales and lower gasoline prices are again expected to weigh at the headline level, while the core ex-Autos & Gas measure is seen rebounding from a flat May reading (which followed gains of 0.4% and 0.5% m/m in prior months); a close eye needs to be kept on revisions, which have been frequent and often substantial in recent months.
After a subdued set of PPI readings, within which falling Energy and Services prices were offset by a surge in Food prices (think wheat), today's CPI are expected to post a headline rise of 0.1% m/m that would see the y/y rate decelerate to 1.7% (vs 1.9%), with core CPI expected to post the usual 0.2% m/m rise for an unchanged 1.7% y/y reading. Following on from Yellen's comments about special factors dragging prices, there will be particular interest in items such as mobile charges and pharmaceuticals, though a close eye also needs to be kept on Apparel which has seen a run of -0.8% m/m, -0.3% m/m & -0.7% m/m in recent months, as well as education (-2.5% y/y) and auto prices (-1.4% y/y), with Housing/Shelter costs likely to provide an upside offset. On balance, the report is likely to reaffirm market scepticism that the drift down in prices is transitory, but with a further rate hike only (just) factored in for December, today's report is unlikely to sway FOMC members in one direction on the overall rate trajectory.
Industrial Production is expected to post a 0.3% m/m gain following prior readings of Flat and 1.1% m/m, while Manufacturing Output is seen rebounding 0.2% after May's -0.4% and April's 1.1% m/m, which would overall indicate a solid, though unspectacular pace of sector activity. Energy and the broader resources sector should lead the headline gains, aided by utilities given higher than usual temperatures, while the Manufacturing Output forecast is predicated on the 0.2% m/m rise seen in Manufacturing Hours in the labour report, with auto output gain likely to be the wild card after a very choppy run in recent months: -2.0%, +4.1% & -3.5% m/m. Recent survey data would suggest upside risks relative to forecasts.
from Marc Ostwald
