Trading with point and figure

eurusd testing that internal/aqua
1.1800 area is trend rez
bulls still there
 

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- Busier day for data and events, though North Korea tensions and summer
lethargy may mute reactions; UK RICS, Japan Orders and PPI to be digested,
UK Production and Trade, US PPI and jobless claims ahead; Fed speak from
Dudley and OPEC Oil market report the other key features

- Japan Orders: unexpected fall leaves Orders down for second consecutive
quarter defying optimism, firmer trend in PMI and Tankan

- Japan PPI: higher than expected and perhaps signalling some emergent
corporate pricing power?

- UK Industrial Production seen little changed again, offering no evidence
of improving trend signalled by surveys

- UK Trade: modest narrowing expected in headline and non-EU balance, but
no sign of any real benefit from weaker GBP one year on from referendum

- US PPI: seen ticking up after recent energy price drag, Trade Services
as ever the wild card

- Mexico rates: Banxico set to pause rate hikes for first meeting in seven,
likely to retain tightening bias

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

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

North Korea tensions will remain close to the top of the agenda, but there is a busy schedule of data and events to negotiate, if markets can be jolted out of their financially repressed summer lethargy. Once the overnight Japan Machinery Orders and UK RICS House Price Balance have been digested, attention turns to Norwegian CPI, UK Trade, Industrial Production and Construction Output ahead of US PPI and weekly jobless claims. In event terms, the OPEC monthly Oil Market Report and the USDA World Agriculture Supply and Demand Estimates provide the focal points for energy and agri markets, while NY Fed's Dudley offers the likely highlight of this week's Fed speak, with rates in Mexico seen held at 7.0%, and the US completing its quarterly refunding with $15.0 Bln of 30-yr Treasury Bonds. In terms of the overnight Japanese data, Orders continue to defy the relative optimism evident in both monthly PMIs and the quarterly Tankan, posting a 1.9% m/m fall against forecasts of +3.6%, and thus leaving Q2 Orders down 4.7% q/q. While Q3 Orders are expected to rebound by 7.0% q/q, offering some hope, it has to be said that Q2 Orders were expected to bounce after falling in Q1 - some scepticism is therefore more than justified. By contrast Domestic CGPI (i.e. PPI) turned out higher than forecast at 0.3% m/m to push the y/y rate up to 2.6%, the highest reading since November 2014. Perhaps critically, this has been achieved without any significant upward pressure from energy prices, nor indeed a weaker JPY, suggesting that perhaps some evidence of corporate pricing power emerging.

** U.K. - June Trade, Industrial Production and Construction Output **
- Forecasts for today's Industrial Production assume that the final month of Q2 saw no improvement on the sluggish profile for the sector during the quarter, with headline Output seen eking out a 0.1% m/m again after dropping 0.1% in May, while Manufacturing is expected to post a flat reading after dipping 0.2% m/m. This is somewhat at odds with yesterday's BoE Agents reports that noted "Manufacturing output growth had strengthened again. Activity in export supply chains had increased, and there was some pickup in import substitution. Demand from the oil and gas sector had also edged up", and indeed with the sector PMI and CBI surveys. Construction is expected to bounce by 1.4% m/m after sliding in prior months by 1.2% and 1.1% respectively, which fits broadly with the BoE Agents assessment "Construction output growth remained modest, with stronger growth in housebuilding in several regions offset by weaker growth in other sectors. There were also more reports of constraints from access to skills and materials". Last but not least, a year after the referendum, and despite a lot of chatter about UK manufacturing benefitting from a weaker GBP, recent Trade data suggests the only real benefit has been to halt the relentless widening in the deficit, which remains very wide. Most worryingly perhaps, the trend in the Non-EU deficit in recent months has been deteriorating, though forecasters are assuming that May's £-3.8 Bln was an aberration, and look for a still wide £-3.0 Bln in June, with the Visible Trade Balance seen narrowing modestly to £-11.0 Bln.

** U.S.A. - July PPI **
- As with CPI tomorrow, today's PPI is expected to arrest a downward drift in recent months, with a 0.1% m/m headline rise forecast that would see the y/y rate push up to a still very subdued 2.2% from June's 2.0%, while core is seen at 0.2% m/m 2.1% y/y vs. June 1.9%. As ever the often very sharp changes in Trade Services are likely to be the wild card, and the consensus expect an uptick after a modest -0.2% m/m in June. Overall PPI is still signalling very muted pipeline pressures, but perhaps the key point at the current juncture is that markets are anticipating a mildly disinflationary trend, whereas the actual trend is in fact modestly higher.

** Mexico - Banco de Mexico rate decision **
- Yesterday's slightly higher than expected July CPI (headline 6.44% vs. June 6.31%, core 4.95% y/y vs. 4.92%) underlines the point that despite the recovery in the MXN this year, the legacy of last year's MXN plunge continues to pressure inflation higher. However, it does appear to be close to reaching a peak, and departing governor Carstens has hinted that rates will be left on hold at 7.0% at this month's meeting after a run of seven consecutive hikes. While some are already speculating about when Banxico might start a rate cutting cycle, given the likelihood that inflation is nearing a peak. But they are likely to retain a tightening bias, particularly as external risks related to NAFTA negotiations have certainly not been banned, and domestic structural reforms look to be very remote, given the unpopularity of the govt, and increasing proximity to next year's election.


from Marc Ostwald
 
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