Dentalfloss
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- UK Employment & Wages and US PPI data top modest schedule of data; EU
state of the union address, IEA monthly oil market report and rash of
govt bond sales the other focal points
- UK Labour data: Employment seen posting strong gain, Unemployment seen
holding cyclical low; Average Earnings expected to tick up further, but
remain in negative territory in real terms
- US PPI: energy and commodity prices seen pacing headline/core rise, y/y
rates expected to return to 2017 highs, countering low-flation narrative
- Table/Charts: US and UK rate hike probabilities by meeting
..........................................................................
********************
** EVENTS PREVIEW **
********************
UK labour data and US PPI top the day's data schedule, as the overnight Japan PPI and Q3 Business Spending Intentions survey are digested, with little else on the schedule other than the third of the monthly oil market reports via the IEA. While the data and events schedule is therefore modest, it will be a busier day for govt debt auctions with EUR 8.0 Bln of medium and long-dated Italian BTPs, a modest EUR 3.0 Bln of German 10-yr, GBP 2.5 Bln UK 10-yr and USD 12.0 Bln of US 30-yr. The unwind of natural disaster and geo-political flight to safety trades has fashioned a modest concession for this week's supply, though longer-dated G7 govt bond yields remain close to y.t.d. lows, and real yields remain wafer thin.
** U.K. - July/August labour data **
- Yesterday's worse than expected inflation data clearly leave the Bank of England's MPC with a rather acute quandary than the dovish majority would have liked to be confronted with at this week's policy meeting. The fact that price pressures in the non-discretionary areas are fairly broad based - food, petrol, clothing, utilities, household goods, even mobile communications - only serves to make the dilemma all the more acute. Today's labour data are expected to see the Unemployment Rate unchanged at a cylical ca. 40 yr low of 4.4%, with labour demand seen remaining healthy with the FLS Employment measure seen up 150K in the 3 months to July. But the focus will inevitably be on Average Hourly Earnings, with a modest uptick to 2.3% y/y vs 2.1% seen in headline wages, with the ex-Bonus measure forecast to rise 2.2% y/y from 2.1%, which in inflation adjusted terms equate to -0.6% and -0.7% respectively. While the latest REC survey noted an uptick in full-time pay, the fact remains that real wages will remain negative, per se implying a further squeeze on consumer spending, particularly given high levels of consumer debt. Yesterdays' removal of the public sector 1.0% y/y pay cap eminently suggests further upside for Average Earnings in coming months, however the higher pay settlements are anything but 'inflation busting'. On balance, it does heighten the risk of a 6-3 vote at tomorrow's meeting (Haldane being the seen as the most likely to 'switch sides'), though the prospect of a reactive / defensive rate hike now, when the economy remains sluggish, notwithstanding the improvement in Manufacturing (which constitutes less than 10% of GDP), should not really be seen as GBP positive, particularly given ongoing Brexit related tail risks. In a broader context, it is worth looking at the chart of December UK rate hike probabilities at the bottom of the attached table, which highlight a very sharp shift in the wake of the CPI data.
** U.S.A. - August PPI **
- While US PPI is often not a good predictor of CPI on a monthly basis, it is perhaps worth bearing in mind that of the first two of the three major (China, UK & US) monthly CPI readings this week have roundly trounced forecasts. Energy prices are likely to be a key factor in the expected 0.3% m/m headline rise, but core PPI is also seen up 0.2% m/m, and while it should be noted that adverse base effects will account for some of the anticipated jump in the headline y/y rate to 2.5%, this would also match the high for 2017, as would the core rise to 2.1%. Eminently neither would signal an inflationary 'threat', yet core PPI would be back at its highest since May 2014 and headline PPI was last higher in February 2012. Given the strength in yesterday's NFIB survey's sub-indices on pricing, hiring and CapEx intentions, and indeed a fresh record high in JOLTS Job Openings (6.17 Mln), it should come as little surprise that the likes of NY Fed's Dudley has stuck resolutely to the current Fed rate hike trajectory.
from Marc Ostwald
state of the union address, IEA monthly oil market report and rash of
govt bond sales the other focal points
- UK Labour data: Employment seen posting strong gain, Unemployment seen
holding cyclical low; Average Earnings expected to tick up further, but
remain in negative territory in real terms
- US PPI: energy and commodity prices seen pacing headline/core rise, y/y
rates expected to return to 2017 highs, countering low-flation narrative
- Table/Charts: US and UK rate hike probabilities by meeting
..........................................................................
********************
** EVENTS PREVIEW **
********************
UK labour data and US PPI top the day's data schedule, as the overnight Japan PPI and Q3 Business Spending Intentions survey are digested, with little else on the schedule other than the third of the monthly oil market reports via the IEA. While the data and events schedule is therefore modest, it will be a busier day for govt debt auctions with EUR 8.0 Bln of medium and long-dated Italian BTPs, a modest EUR 3.0 Bln of German 10-yr, GBP 2.5 Bln UK 10-yr and USD 12.0 Bln of US 30-yr. The unwind of natural disaster and geo-political flight to safety trades has fashioned a modest concession for this week's supply, though longer-dated G7 govt bond yields remain close to y.t.d. lows, and real yields remain wafer thin.
** U.K. - July/August labour data **
- Yesterday's worse than expected inflation data clearly leave the Bank of England's MPC with a rather acute quandary than the dovish majority would have liked to be confronted with at this week's policy meeting. The fact that price pressures in the non-discretionary areas are fairly broad based - food, petrol, clothing, utilities, household goods, even mobile communications - only serves to make the dilemma all the more acute. Today's labour data are expected to see the Unemployment Rate unchanged at a cylical ca. 40 yr low of 4.4%, with labour demand seen remaining healthy with the FLS Employment measure seen up 150K in the 3 months to July. But the focus will inevitably be on Average Hourly Earnings, with a modest uptick to 2.3% y/y vs 2.1% seen in headline wages, with the ex-Bonus measure forecast to rise 2.2% y/y from 2.1%, which in inflation adjusted terms equate to -0.6% and -0.7% respectively. While the latest REC survey noted an uptick in full-time pay, the fact remains that real wages will remain negative, per se implying a further squeeze on consumer spending, particularly given high levels of consumer debt. Yesterdays' removal of the public sector 1.0% y/y pay cap eminently suggests further upside for Average Earnings in coming months, however the higher pay settlements are anything but 'inflation busting'. On balance, it does heighten the risk of a 6-3 vote at tomorrow's meeting (Haldane being the seen as the most likely to 'switch sides'), though the prospect of a reactive / defensive rate hike now, when the economy remains sluggish, notwithstanding the improvement in Manufacturing (which constitutes less than 10% of GDP), should not really be seen as GBP positive, particularly given ongoing Brexit related tail risks. In a broader context, it is worth looking at the chart of December UK rate hike probabilities at the bottom of the attached table, which highlight a very sharp shift in the wake of the CPI data.
** U.S.A. - August PPI **
- While US PPI is often not a good predictor of CPI on a monthly basis, it is perhaps worth bearing in mind that of the first two of the three major (China, UK & US) monthly CPI readings this week have roundly trounced forecasts. Energy prices are likely to be a key factor in the expected 0.3% m/m headline rise, but core PPI is also seen up 0.2% m/m, and while it should be noted that adverse base effects will account for some of the anticipated jump in the headline y/y rate to 2.5%, this would also match the high for 2017, as would the core rise to 2.1%. Eminently neither would signal an inflationary 'threat', yet core PPI would be back at its highest since May 2014 and headline PPI was last higher in February 2012. Given the strength in yesterday's NFIB survey's sub-indices on pricing, hiring and CapEx intentions, and indeed a fresh record high in JOLTS Job Openings (6.17 Mln), it should come as little surprise that the likes of NY Fed's Dudley has stuck resolutely to the current Fed rate hike trajectory.
from Marc Ostwald
