- Busier day for statistics but markets likely focussed on Draghi and
Yellen speeches tomorrow; digesting better than expected French Business
Confidence, awaiting UK Q2 GDP details, US jobless claims and Existing
Home Sales; Riksbank af Jochnick speech likely to touch on inflation
targeting; ECB Visco speech and US 5-yr TIPS auction
- UK Q2 GDP: seen unrevised, focus on Serves, Business Investment and
Net Exports
- US Existing Home Sales: modest bounce expected, Redfin data and New Home
Sales suggest downside risks; lack of inventory rather than buyers the
headwind
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** EVENTS PREVIEW **
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For all that many in financial markets will be focussed on Yellen and Draghi's speeches at Jackson Hole tomorrow, today's schedule still has a number of items on the agenda that merit attention. Perhaps surprisingly the speech by Riksbank's af Jochnick may be the highlight, in so far as she is expected to outline how she thinks Riksbank may need to change its approach to inflation targeting, even if many are very sceptical that any change will be implemented. There is little doubt that the Riksbank's reputation as the world's foremost 'inflation nutters' (and indeed currency manipulators) is well established, and is attracting a lot of criticism given its super loose monetary policy looks to be highly inappropriate given the strong momentum in the Swedish economy, a rapid decline in Unemployment, and CPI relatively close to target. As such her speech may offer some insight into how western central banks may be rethinking their approach to inflation targeting, particularly as their efforts over the past 5-10 years have hardly reaped rewards either quickly or very effectively, and have clearly bloated asset prices to levels, which have not only exacerbated already adverse social inequality trends, but clearly pose financial stability risks. ECB's Visco is also scheduled to speak on a panel. Statistically there are another very solid set of French Business Confidence surveys to digest ahead of the detailed first revision to UK Q2 GDP and Polish Unemployment (the latter unlikely to be a market mover, but take a look at the chart of how this has plummeted since the start of 2016), with the US looking to weekly jobless claims, Existing Home Sales and the KC Fed Manufacturing survey. The US also auctions $14 Bln of 5-yr TIPS. ECB Hansson's comments overnight playing down the recent 'strength' of the Euro underscore that the Euro related concerns voiced in the minutes are primarily related to the potential for this to drag inflation down, rather than how this might weigh on exports. More importantly it also suggested that Draghi's speech tomorrow will probably do no more than lay out a framework for the ECB's discussion of how and when it might taper, emphasizing what the QE has achieved (as per his speech yesterday), while stressing that inflation is still from signalling a sustainable uptrend to the ECB's target, though noting that the previous disinflationary threat has clearly been banned. Per se Yellen's speech on Financial Stability may prove to be the more significant one, particularly if she touches on what pressure points the Fed is monitoring in terms of asset prices, given that the FOMC overall is rather uncomfortable with the phenomenon of financial conditions having ease since last December, despite 3 rate hikes.
** U.K. - Q2 GDP revised **
- Headline GDP is expected to be unrevised at 0.3% q/q and 1.7% y/y, and if correct, that may be all that markets pay any attention to in this report. However the details do matter, and there will be particular interest in Gross Fixed capital Formation (seen at -0.4% q/q after a 1.0% rise in Q1), Total Business Investment (seen flat after 0.6% q/q in Q1) and indeed Net Exports, where a modest rebound is expected after a very poor Q1 (Exports seen at +1.0% q/q from -0.8%, Imports +0.7% from 1.7%). As ever the Index of Services will also require attention, with June seen at 0.2% m/m for a Q2 reading of 0.5% q/q, better than a a tepid Q1 print of 0.1%, but still well below the 0.7% average pace seen last year. Chatter about the UK economy rebalancing still looks to be the stuff of fantasies, rather than having any basis in reality.
** U.S.A. - July Existing Home Sales **
- Yesterday's New Home Sales drop of 9.4% m/m looked dramatic, but was as ever quirky, being paced by a >20% m/m fall in the West, which will doubtless see a mean reversion or revision at the next report, as well as the well documented shortage of available housing stock, as reported variously by NAR and NAHB. Existing Home Sales have been very choppy this year, and the expected 0.5% m/m would be the smallest m/m change in the year to date, and follows a 1.8% m/m fall in June. The risks look to be to the downside, with Redfin reporting a -19.6% m/m -3.5% y/y fall in sales and noting that housing inventories are down 11.0% y/y, they did however note that year to date sales are still up 4.0% y/y.
from Marc Ostwald
