Trading with point and figure

- Digesting Trump govt shutdown threat; flash PMIs, US New Home Sales and
South Africa, Brazil inflation likely to play second fiddle to Draghi,
Merkel and perhaps Kaplan; busier day for govt bond auctions; EIA oil
inventories

- PMIs: forecasts see little change, but on balance Eurozone seen dipping,
US expected to edge higher

- South Africa CPI: headline seen dropping sharply, core expected to dip,
weaker than expected outturn likely to fuel hopes of further rate cut

- Charts: US High Yield Bond spread, WTI, Aluminium, Coking Coal, Copper,
Iron Ore, Nickel, Tin, Zinc

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

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

A rather busier day in statistical terms will likely find its focal points in the Japan, Eurozone and US 'flash' PMIs, US New Home Sales, South African PI and Brazil IBGE IPCA inflation, though it is probable that Draghi's speech in Lindau, Merkel's panel talk on “Where is the West Headed?” and some Fed speak from Kaplan may grab rather more headlines. It will also be a much busier day for govt bond sales, with Germany selling 10-yr, the UK and Canada 5-yr, with the US rounding off with a 2-yr Treasury FRN. In respect of Draghi's speech, the obvious question is whether he will use this speech to offer any hints on the ECB council's policy deliberations or whether his topic will be rather more theoretical in keeping with this being a meeting of Economic Sciences Nobel Laureates. All the indications are that the council is at best trying to find a set of parameters in which to frame their debate on the policy outlook, and that with inflation still far from signalling a sustainable uptrend, notwithstanding solid growth momentum, they are under no immediate pressure to decide on the appropriate policy path for 2017. South African CPI will be watched closely, with headline seen falling sharply yet again in yr/yr terms to 4.7% from June's 5.1%, and core also seen dipping to 4.7% from 4.8%, with anything weaker than expected likely to heighten expectations of a further 25 bps rate cut in September, as against the current consensus of November. That said, the SARB is notoriously cautious, above all given a volatile political backdrop, and will probably not want to risk a setback in the ZAR by cutting rates at the very next meeting after July's surprise move. A close eye will also be kept on the EIA oil inventories data following an as expected drop in API Crude inventories, but an unexpected build in gasoline stocks, and eye will also need to be kept on the metals sector after a choppy session in China, in no small part probably prompted by a jump in local money market rates due to a liquidity squeeze, and probably not helped by the closure of Hong Kong markets due to typhoon Hato. The final chart also highlights what remains the biggest Achilles heel for equity markets, namely the widening spreads in the high yield ('junk') bond market, which has been widening in recent weeks.

** World - Aug 'flash' PMIs **
- As is often the case, the consensus forecasts for today's Eurozone and US PMIs see little material change, though on balance the Eurozone readings are expected to drift back, and the US to improve - in both cases very modestly, and thus probably confirming a good deal of agnosticism. While PMIs in the Eurozone have missed a couple of times relative to forecasts, national surveys (above all Germany's Ifo) have offered a strong counter, and as such today's readings probably need to be taken with a pinch of salt, with the French PMIs seeing a much stronger than expected Manufacturing reading (55.8 vs. prior 54.9) and modest dip in Services (55.5 vs.56.0). The same comment applies to the Markit PMIs in the US, which have painted a rather more downbeat picture of the US economy for most of the year, in contrast to a rather choppier, but of late clearly improving trend in the ISM readings.


from Marc Ostwald
 
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