Trading with point and figure

- China data run dominates otherwise modest daily schedule; US NY Fed
Manufacturing, EU/UK Brexit meeting and US earnings also on tap

- China GDP 'beat' less relevant than strong Retail Sales, Industrial
Production; plenty of evidence of economy rebalancing away from
investment to consumption led growth


..........................................................................

********************
** EVENTS PREVIEW **
********************

In a week which sees a modest calendar contend with political risk of many varieties (the US Health Care Bill vote and today's Brexit meeting in Brussels being primi inter pares), and central banks attempting to unseat ostensible market complacency with financial stability concerns, and 'sourced' hints of less monetary accommodation, China provides today's highlights. While China's GDP data are always to be treated with some scepticism, the array of quarterly and monthly data underlined that China's economy has considerably better momentum than many have suggested. GDP was fractionally better than expected in y/y terms at 6.9%, though quarterly growth was as forecast 1.7% q/q vs Q1 1.3% q/q. However it was the monthly data which impressed, with Retail Sales at 11.0% y/y posting its strongest growth since December 2015, and all the more robust given that this is a value not a volume measure, and CPI inflation has been very subdued in recent months. Industrial Production 'smashed' forecasts at 7.6% vs. expectations of an unchanged 6.5% y/y, with the breakdown highlighting strength in 'new economy' (Telecoms/Computing 13.1% y/y vs prior 10.3%), Pharmaceuticals (13.6% vs./ 10.75) and the volatile / seasonal Food sector 11.0% vs. 7.6%), while resource processing sectors' output remains subdued, which can only be considered to be healthy. Taking all of this in conjunction with the solid 7.2% y/y in the Private sector investment component of Fixed Asset Investment (8.6% vs. expected 8.5%), there is goodly volume of evidence that China's economy is indeed rebalancing away from being investment led to consumption led, paced both by domestic and external demand, given the 3.6% contribution from Net Exports to 2017 H1 GDP. That said, today's array of resource sector data will raise concerns: a) Steel and Aluminium Output hit record levels, which will only serve to fuel concerns about trade tensions with the US, and to a lesser extent the EU; b) Oil refinery output also rebounded to near record levels, which will renew concerns that this will spill into global markets, in so far as domestic demand is proving to be weaker than expected, which is hardly surprising given the authorities attempts to rein in pollution in the face of enormous environmental damage. It should be add that processed output may well drop in H2, with state owned refineries reportedly set to drastically cut in H2 2017. Last but not least the resilience of Property Investment in the face of the clampdown on credit, leverage and property speculation is perhaps less surprising, in so far as the sector should in the medium term weather any credit bubble shocks, above all in comparison with much of the WMP (Wealth Management Products) sector.


RECAP - Week Ahead: Brief preview

- The ECB meeting on Thursday, Monday's run of Q2 GDP and monthly growth aggregates from China, UK inflation and Retail Sales, US Housing data (NAHB, Starts), Japan's Trade and week-ending BoJ policy meeting, US and UK politics feature on the macro calendar for next week, while the US Q2 earnings season starting to get into full swings tops the micro calendar.

- UK CPI is expected to be steady in yr/yr terms at 2.9% y/y, which would leave just inside the BoE's 2.0% +/- 1.0% target range, and by extension avoid the need for Mr Carney to write a letter to the Chancellor, with an August rate hike looking unlikely given weakening growth metrics and very subdued wage growth.

- ECB - there is now much speculation about what the ECB might announce at this meeting with regards to tapering its QE programme (as of January 2018). 'Sources' are suggesting the ECB will not want a fixed timetable like the Fed had, but rather factor in considerable flexibility. What may be announced at the meeting is that various ECB departments and committees will be given the task of exploring the best methodology, with a decision deferred until September.

- BoJ - That Abenomics and QQE are not really delivering on growth or inflation is all too obvious, and as such the BOJ is expected to keep policy unchanged, while edging up its GDP forecasts, but lowering its CPI forecasts (perhaps quite sharply) and pushing back on the timeline for CPI to hit its 2.0% target. Overall this would underline that the BoJ looks set to be at the back of the queue of G& central banks in terms of rate 'normalization'.

- Govt bond auctions - the Eurozone sees sales from France (3 & 5-yr OATs plus I-L), Spain (4, 5 & 10-yr) and a tiddler 30-yr from Germany, in total around EUR 14.0 Bln, roughly matched by redemptions in Greece and the Netherlands. The UK offers a new 2023 Gilt, while the US sells 10-yr TIPS.


- Earnings: highlights in the US include Alcoa, Bank of America, BlackRock, Blackstone, General Electric, Goldman Sachs, Honeywell, Johnson & Johnson, Microsoft, Morgan Stanley, Netflix and Visa, while elsewhere Novartis, SAP, Unilever and Volvo top the schedule.


from Marc Ostwald
 
Making the most of the sunshine this morning so taking the Tandem out for a spin,
back later guys. Good luck all.
 
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