Trading with point and figure

- China and Japan get busy week for statistics off to a divergent start;
Portugal GDP and India inflation the only highlights for the rest of
the day, as weekend political news is largely overlooked by markets

- China: Q3 starts with rather faster deceleration than expected, Retail
Sales above all, though Private FAI holding up relatively well in the
face of sharp (induced) drop in Property Investment

- Japan Q2 GDP smashes forecasts on strong domestic demand, somewhat at
odds with monthly data; strong Private CapEx likely difficult to sustain
given H1 Machinery Orders slide

- Week Ahead: raft of key US and UK data, EU GDP prints, Oz Unemployment,
Japan Trade likely to provide the highlights

- Week Ahead: politics, domestic and geopolitical continues to spawn
many ugly, unsettling headline, though markets still rather impervious

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

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

Statistically the week has kicked off with the array of monthly activity from China and Japan's preliminary Q2 GDP, the latter esily beating forecasts, the former proving disappointing; while the rest of the day is rather light on highlights, featuring Portuguese Q2 GDP, which kicks off a busy run of EU Q2 GDP readings, and Indian CPI, where commentators will be looking closely for what sort of initial impact the introduction of the Goods & Services Tax has had. In respect of the China data, the slowdown in Retail Sales was perhaps the most disappointing (10.4% vs. expected 10.8% and June's recent high of 11.0%, with the drop in Industrial Production rather less surprising given the squeeze on overcapacity and leverage, as well as on speculative property investment. While govt spending on infrastructure continues to be a key support for Fixed Asset Investment that slowed to a still very respectable 8.3%, Private FAI was solid at 6.9% when one considers the clear slowdown in Property Investment. All in all the data confirms that H2 GDP will, as many expected, be considerably weaker than H1, which was much stronger than expected, but reverting to doom and gloom scenarios for China would be totally misplaced. Japan's Q2 GDP clearly smashed forecasts, paced by a broad based pick-up in domestic demand (adding 1.3 ppt), and perhaps the most impressive for the strongest gain in Nominal GDP (1.1% q/q vs. expected 0.7%), the best outturn since Q1 2015, with external demand deducting 0.3% ppt. Eminently the personal consumption data look to be somewhat out of line with the monthly readings on Retail Sales and Household Spending, while the strong CapEx data were broadly in line with a choppy, but overall solid rise in Industrial Production, though a second consecutive qtr/qtr fall in Private Machinery Orders suggests this momentum will likely be difficult to sustain in Q3. But all of this may prove to be so much water under the bridge, given thin summer markets, which appear to be taking last week's mini-spike in volatility as little more than a storm in a teacup.

RECAP: The Week Ahead - 14 to 18 August 2017

- The question for the week ahead is what will prove the dominant influence, with North Korea tensions seemingly unlikely to dissipate, while thin summer trading conditions may stymie a more serious consideration of a busy schedule of economic data, above all in China, the UK and US. Last week's very modest correction in equity markets and other risk assets was rather overdramatized, though it served as a reminder that this era of financial repression is something of a cliff edge walk, which sits uncomfortably next to the seeming complacency that has been on display in asset prices for most of this year.

- Tuesday sees Germany publish provisional Q2 GDP readings, which are expected to underline solid underlying growth momentum, while the UK kicks off a busy week on Tuesday with CPI (seen flat m/m and edging up to 2.6% y/y), RPI, PPI and ONS House Prices. The US also gets a busy week off the mark with Retail Sales, which are expected to rebound 0.4% m/m across all measures from an unexpectedly weak June, though the sharp drop in Auto Prices within CPI may drag at the headline level; the NY Fed Manufacturing & NAHB Housing surveys, and Import Prices accompany. Wednesday brings Australian Wages, revised Eurozone and a whole gamut of EU countries' likely robust provisional Q2 GDP readings, along with UK Unemployment and Average Earnings, which are expected to see job growth remaining robust, but wage growth remaining weak (Headline 1.8% y/y, ex-Bonus 2.0% y/y); Housing Starts are published in the US. Japanese Trade and Singapore Exports are due on Thursday, along with a sluggish 0.1% m/m in UK Retail Sales, which thanks to base effects will see the y/y rate decelerate sharply to just 1.3% vs. June's 2.9%. The US has Industrial Production with Utilities and Resource sector providing a boost to the headline (exp. 0.3% m/m), though Manufacturing Output is forecast to eke out a 0.1% m/m gain in line with the labour data's Manufacturing Hours rise. Friday's modest schedule has Chinese Property Prices, Canadian CPI, US preliminary Michigan Sentiment and a raft of monthly Polish data. The latter are likely to confirm that the economy continues to expand at a very strong pace, regardless of the government, though July and August data will probably take a hit from the storms that have ravaged the country this summer, above all last weekend.

- On the central banking front, the Fed and ECB publish the minutes of their July policy meetings. In both cases there will be particular attention paid to the discussions about the respective inflation outlooks, as markets question whether the Fed will really hike rates in December, and the ECB continues to lack concrete evidence that Euro area inflation is on a sustainable path back to just below 2.0%. There will also be some interest in the Fed's discussion about the timing of initiating balance sheet reduction, given the statement's nuanced change to indicating that this will start 'soon'. Dallas Fed's Kaplan is the only scheduled Fed speaker this week, and will likely merely reiterate that he wants to see more evidence that the current dip in inflation is 'transitory', before the Fed hikes rates again. The RBA also publishes the minutes of its August meeting, though having had the quarterly Statement on Monetary Policy and last week's semi-annual testimony from governor Lowe, it is hard to see how this will offer any fresh insights, given a resolutely neutral policy trajectory, and the ratcheting-up of protests against AUD strength. In the EM space, central banks in Chile, Egypt, Namibia (fresh from a surprise Moody's credit rating downgrade) and Thailand are all expected to hold key policy rates.

- Politics will doubtless continue to provide the unscheduled surprise, and not just limited to North Korea, but also Trump's ongoing Russia related woes, and truly abysmal extremist violence in Charlottesville, Virginia over the weekend. Trump's threat to use military force against Venezuela only serves to compound the damage that his behaviour as president is inflicting on the US's standing internationally, and will doubtless feature heavily as Vice President Pence tours Colombia, Argentina, Chile and Panama this week. There will also be a high level meeting of NAFTA trade and foreign ministers to resolve tensions with the US over the treaty. Defence chiefs from the US and Japan also meet this week with Korea tensions top of the agenda in discussions about Japan's missile defence system. In the UK, the factions of the Conservative party feuding over the government's priorities in respect of Brexit negotiations appear to be trying to paper over their differences. Meanwhile the German election campaign gets under way, with Merkel speaking at election rallies nearly every day this week, and while the CDU/CSU remain clear leaders in all opinion polls, Merkel's personal ratings have taken a sharp hit over her handling of the diesel scandal and the allegations of the German auto companies operating cartels.

- Corporate Earnings - as the US earnings season winds down, it will again be the Retail sector, which is likely to provide many of the headlines, with Coach, Gap, Home Depot, Target TJX and Wal-Mart topping the schedule, with Applied Materials, Cisco and Deere & Co also reporting. In Europe, AP Moller-Maersk, Balfour Beatty, Bilfinger, Carlsberg, RWE & Vestas Wind Systems report, while a very busy week in Asia features Alibaba, Geely Automobile, Ping An Insurance, QBE, Samsung Electronics, Telstra and Tencent among others.

- Govt bonds - As often happens at height of the summer holiday season, there is no issuance in the US, UK or indeed the Eurozone this week, with Japan selling 5-yr and Canada selling 30-yr. On the corporate front, Amazon is holding an investor call on Munday ahead of a potential jumbo $15 bln multi-tranche, and there will be a good deal of focus on the High Yield sector after a high volume week last week ($8.02 Bln), led of course by the upsized $1.8 Bln issue for Tesla. Outside of M&A related issuance, it should otherwise be seasonally quiet on the issuance front.


from Marc Ostwald
 
dax 5 min data
 

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