Dentalfloss
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- Very strong Japan Orders and slate of UK business activity data kicks off
very busy week, as markets give a shrug of the shoulder to calamitous
G7 meeting, and totally ignores harmonious SCO meeting; Brexit meeting
also in focus along with hefty $144 Bln of US Treasury Bill & Note auctions
- UK: Manufacturing and Construction Output expected to post bounce from
weather related drag in March, but underlying trends divergent; Trade
deficit seen narrowing modestly
- Week Ahead: US, China and UK dominate data schedule: Fed and ECB meetings
likely to garner more reaction than BOJ
- Charts: US 3 & 10-yr yields; USD IG, HY and EM Credit spreads; Brent vs
WTI future
..........................................................................
********************
** EVENTS PREVIEW **
********************
While there is a busy run of UK activity data, accompanied by Scandinavian CPI and the overnight very strong Japanese Machniery Orders to digest, the rather petulant and indeed infantile theatrics of the US President at and after the very acrimonious G7 meeting, along with his meeting with the North Korean president which will dominate the headlines. The Brexit 'state of play' meeting between UK's Davis and EU's Barnier will aloo be closely watched, ahead of a series of key Brexit related legislative debates and votes on Tuesday. In respect of the day's UK data, Industrial Production is expected to post another modest 0.2% m/m rise (March 0.1%), though within that Manufacturing should post a reasonable 0.3% m/m rebound after as weather related dip of 0.1% in March, which would also echo the Manufacturing PMIs for the two months. While the sector is not performing as well as in H2 2017, this would still suggest that it is primarily suffering from well documented auto sector weakness, and remains relatively resilient in the face of all the Brexit related uncertainties. Construction Output should also benefit from an improvement in the weather, after a protracted period of weakness (also not helped by Carillion's collapse), with a 2.1% m/m rise expected, which would still leave output down 1.6% y/y, but considerably better than March's -4.9% y/y. If correct (and this data set is often subject to large revisions), it would still not signal the trend has turned, but rather that it is not as badly positioned as the March data implied. Trade data remain very volatile, with a modest narrowing to a still wide £-11.3 Bln Visible Trade deficit from a partly weather disruption related £-12.3 Bln in March seen. But the run of labour, inflation and retail data in the next three days will probably rather more market sensitive. Blockbuster US Treasury supply is something that markets are now becoming accustomed to, with today seeing $90 Bln of 3 & 6-mth T-Bills and $54 Bln of 3 & 10-yr T-Notes, which may require a slightly larger concession in yield terms. It will also be interesting to see how credit supply goes this week, with the market on something of a roller coaster week, initially seeing a 'dash for trash', before moving into reverse last Friday, above all in the EM dollar debt space (see charts).
RECAP: The Week Ahead Preview: 11 to 15 June 2018
There will be absolutely no shortage of macro events contending for markets' attention this week, be that the run of Fed, ECB and BoJ meetings, or a packed programme of first division inflation and activity data in the US, China and the UK. Eminently politics will continue to vie for top billing, above all the various trade tensions with the US. and of course the 'historic' summit between Trump and North Korea's Kim Jong Un. Last but not least there are monthly Oil Market Reports from OPEC and the IEA, and the monthly World Agricultural Supply and Demand Estimates (WASDE), and a whopping $183 Bln of US Bills and Coupon (Monday/Tuesday) auction to digest. As if that were not enough, the Football World Cup also kicks off in Russia on Thursday, which has historically been accompanied by rather subdued levels of market activity.
- Statistically, the US will focus on CPI, Retail Sales and Industrial Production. As with many developed economies, adverse base effects are expected to drive CPI higher from 2.5% y/y to 2.8% in headline terms, and more modestly on core CPI to 2.2% from 2.1%; both are forecast to rise 0.2% m/m. Retail Sales are also seen underlining that the sluggish profile of Personal Consumption in Q1 was transitory, even if Auto Sales remain sluggish, with headline seen up 0.4% m/m, ex-Autos 0.5% m/m and the core "control group" 0.4%. Industrial Production is forecast to post a relatively modest 0.3% m/m, with Manufacturing Output up just 0.2%, predicated on the 0.3% m/m dip in manufacturing hours, though following two very solid reports in March & April. Following on from the as expected CPI (1.8% y/y unch from April) and a further acceleration in PPI (4.1% y/y vs. April 3.4%), China's monthly activity data are predicted to see little change vs. April, with Retail Sales seen edging up to 9.6% y/y from 9.4%, while the consensus looks for Industrial Production and Fixed Assets Investment to be unchanged at 7.0% y/y. With even the more dovish members of the Bank of England's reverting to talking up the UK economy (albeit modestly, though seemingly rolling the pitch for an August rate hike), this week's UK data will be closely watched. But Average Weekly Earnings are expected to dip in headline terms to 2.5% y/y from 2.6%, though the ex-Bonus is forecast to hold at 2.9%, while Employment is forecast to revert to a solid 124K, after surging 197K in the prior report (a wary eye also needs to be kept on the Claimant Count which posted a sharp 31.2K rise in April). Wednesday brings the full gamut of UK inflation indicators with headline and core CPI seen unchanged at 2.4% and 2.1% y/y respectively, while further energy and commodity related pressure is expected to materialize in both Input and Output PPI, though the latter will, if forecasts are correct, still remain subdued at 2.9%. After an Easter related jump (1.4% m/m), Retail Sales are forecast to a more modest, though still healthy 0.5% m/m rise, which thanks to base effects would push the y/y rate up to a respectable 2.4% from 1.4%. Japan kicks off the week with its volatile but key Private Machinery Orders, which are seen rebounding 2.4% m/m after an unexpectedly sharp 3.9% m/m drop in March; the Tertiary Industry (services) Index. PPI and the Q2 BSI survey are also scheduled. Australia looks to its labour data, which should confirm continued steady labour demand (Employment +19K), but little sign of any emergent wage pressures. Last but not least CPI is due in both Norway and Sweden, and both headline and core measures are forecast to edge higher, though as previously observed, the respective central banks are not quite on the same page of the book in in terms of the conclusions they are drawing in terms of when an initial rate hike might occur.
- Markets have long discounted a Fed rate hike at this month's meeting, even if there was a wobble in mid-May. The key questions are, will there be any notable shifts in the "dot plot", and will Powell's press conference perhaps hint that the 'dot plot' may be dropped, given that many FOMC members clearly do not like it, and soon to be NY Fed chief Williams has signalled that the FOMC needs to change its communication strategy. As importantly, will there be any shifts in its economic forecasts, which should in theory be little more than modest tweaks (for a summary of the March FOMC projections - see: https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20180321.htm ). Eminently the question then will be what risks related to the numerous trade tensions, and will the Fed offer any signal on how it might respond (probably not is the answer). Last but not least how does the FOMC see financial conditions, to which it is far more sensitive than it freely admits, even if there are no immediate points of concern. The ECB meeting is probably the more heavily anticipated of the two meetings, and sources and some council members have signalled that there will be a discussion on whether to announce how and when it will end its QE programme, which if it does, will almost certainly be accompanied by endless references to how it continue to reinvest its existing QE portfolio. Inevitably the new Italian govt and its budget proposals will engender a long list of questions, many of which will probably be dodged outside of a reiteration of the ECB and Eurozone 'rules of engagement'. There will be a fresh set of forecasts, which sources have indicated will see CPI forecasts revised higher, but GDP forecasts revised lower, and in respect of the latter, much attention will be given to whether the council remains relatively confident that the Q1 setback in France and Germany prove to be largely transitory. The other key element will be what signals the council offer on how it plans to deal with the EUR 432 Bln LTRO that expires in September (and will likely see some bank repayments starting in July), above all from the aspect that a simple rollover of that operation is not an option, given that would tie the ECB's hands on policy for a protracted period. This week's BoJ meeting is probably viewed by most market participants as a quasi non-event, with no changes expected to any of its policy measures, and Kuroda likely to underline that with inflation still very subdued, it is much too early to even vaguely consider an exit from its QE programme. That said, it will be interesting to see if the BoJ shows any sign of concern that recent economic data has suggested the economy is losing considerable momentum. In the EM space, there are policy meetings in Argentina, Chile, Croatia, Georgia, Namibia, Russia and Uganda, all of which are expected to see policy rates left unchanged, though it will be particularly interesting to see what Bank Rossi governor Nabiullina offers on the economic and policy outlook, now that the dust is starting to settle after the RUB drop following the imposition of sanctions.
from Marc Ostwald
very busy week, as markets give a shrug of the shoulder to calamitous
G7 meeting, and totally ignores harmonious SCO meeting; Brexit meeting
also in focus along with hefty $144 Bln of US Treasury Bill & Note auctions
- UK: Manufacturing and Construction Output expected to post bounce from
weather related drag in March, but underlying trends divergent; Trade
deficit seen narrowing modestly
- Week Ahead: US, China and UK dominate data schedule: Fed and ECB meetings
likely to garner more reaction than BOJ
- Charts: US 3 & 10-yr yields; USD IG, HY and EM Credit spreads; Brent vs
WTI future
..........................................................................
********************
** EVENTS PREVIEW **
********************
While there is a busy run of UK activity data, accompanied by Scandinavian CPI and the overnight very strong Japanese Machniery Orders to digest, the rather petulant and indeed infantile theatrics of the US President at and after the very acrimonious G7 meeting, along with his meeting with the North Korean president which will dominate the headlines. The Brexit 'state of play' meeting between UK's Davis and EU's Barnier will aloo be closely watched, ahead of a series of key Brexit related legislative debates and votes on Tuesday. In respect of the day's UK data, Industrial Production is expected to post another modest 0.2% m/m rise (March 0.1%), though within that Manufacturing should post a reasonable 0.3% m/m rebound after as weather related dip of 0.1% in March, which would also echo the Manufacturing PMIs for the two months. While the sector is not performing as well as in H2 2017, this would still suggest that it is primarily suffering from well documented auto sector weakness, and remains relatively resilient in the face of all the Brexit related uncertainties. Construction Output should also benefit from an improvement in the weather, after a protracted period of weakness (also not helped by Carillion's collapse), with a 2.1% m/m rise expected, which would still leave output down 1.6% y/y, but considerably better than March's -4.9% y/y. If correct (and this data set is often subject to large revisions), it would still not signal the trend has turned, but rather that it is not as badly positioned as the March data implied. Trade data remain very volatile, with a modest narrowing to a still wide £-11.3 Bln Visible Trade deficit from a partly weather disruption related £-12.3 Bln in March seen. But the run of labour, inflation and retail data in the next three days will probably rather more market sensitive. Blockbuster US Treasury supply is something that markets are now becoming accustomed to, with today seeing $90 Bln of 3 & 6-mth T-Bills and $54 Bln of 3 & 10-yr T-Notes, which may require a slightly larger concession in yield terms. It will also be interesting to see how credit supply goes this week, with the market on something of a roller coaster week, initially seeing a 'dash for trash', before moving into reverse last Friday, above all in the EM dollar debt space (see charts).
RECAP: The Week Ahead Preview: 11 to 15 June 2018
There will be absolutely no shortage of macro events contending for markets' attention this week, be that the run of Fed, ECB and BoJ meetings, or a packed programme of first division inflation and activity data in the US, China and the UK. Eminently politics will continue to vie for top billing, above all the various trade tensions with the US. and of course the 'historic' summit between Trump and North Korea's Kim Jong Un. Last but not least there are monthly Oil Market Reports from OPEC and the IEA, and the monthly World Agricultural Supply and Demand Estimates (WASDE), and a whopping $183 Bln of US Bills and Coupon (Monday/Tuesday) auction to digest. As if that were not enough, the Football World Cup also kicks off in Russia on Thursday, which has historically been accompanied by rather subdued levels of market activity.
- Statistically, the US will focus on CPI, Retail Sales and Industrial Production. As with many developed economies, adverse base effects are expected to drive CPI higher from 2.5% y/y to 2.8% in headline terms, and more modestly on core CPI to 2.2% from 2.1%; both are forecast to rise 0.2% m/m. Retail Sales are also seen underlining that the sluggish profile of Personal Consumption in Q1 was transitory, even if Auto Sales remain sluggish, with headline seen up 0.4% m/m, ex-Autos 0.5% m/m and the core "control group" 0.4%. Industrial Production is forecast to post a relatively modest 0.3% m/m, with Manufacturing Output up just 0.2%, predicated on the 0.3% m/m dip in manufacturing hours, though following two very solid reports in March & April. Following on from the as expected CPI (1.8% y/y unch from April) and a further acceleration in PPI (4.1% y/y vs. April 3.4%), China's monthly activity data are predicted to see little change vs. April, with Retail Sales seen edging up to 9.6% y/y from 9.4%, while the consensus looks for Industrial Production and Fixed Assets Investment to be unchanged at 7.0% y/y. With even the more dovish members of the Bank of England's reverting to talking up the UK economy (albeit modestly, though seemingly rolling the pitch for an August rate hike), this week's UK data will be closely watched. But Average Weekly Earnings are expected to dip in headline terms to 2.5% y/y from 2.6%, though the ex-Bonus is forecast to hold at 2.9%, while Employment is forecast to revert to a solid 124K, after surging 197K in the prior report (a wary eye also needs to be kept on the Claimant Count which posted a sharp 31.2K rise in April). Wednesday brings the full gamut of UK inflation indicators with headline and core CPI seen unchanged at 2.4% and 2.1% y/y respectively, while further energy and commodity related pressure is expected to materialize in both Input and Output PPI, though the latter will, if forecasts are correct, still remain subdued at 2.9%. After an Easter related jump (1.4% m/m), Retail Sales are forecast to a more modest, though still healthy 0.5% m/m rise, which thanks to base effects would push the y/y rate up to a respectable 2.4% from 1.4%. Japan kicks off the week with its volatile but key Private Machinery Orders, which are seen rebounding 2.4% m/m after an unexpectedly sharp 3.9% m/m drop in March; the Tertiary Industry (services) Index. PPI and the Q2 BSI survey are also scheduled. Australia looks to its labour data, which should confirm continued steady labour demand (Employment +19K), but little sign of any emergent wage pressures. Last but not least CPI is due in both Norway and Sweden, and both headline and core measures are forecast to edge higher, though as previously observed, the respective central banks are not quite on the same page of the book in in terms of the conclusions they are drawing in terms of when an initial rate hike might occur.
- Markets have long discounted a Fed rate hike at this month's meeting, even if there was a wobble in mid-May. The key questions are, will there be any notable shifts in the "dot plot", and will Powell's press conference perhaps hint that the 'dot plot' may be dropped, given that many FOMC members clearly do not like it, and soon to be NY Fed chief Williams has signalled that the FOMC needs to change its communication strategy. As importantly, will there be any shifts in its economic forecasts, which should in theory be little more than modest tweaks (for a summary of the March FOMC projections - see: https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20180321.htm ). Eminently the question then will be what risks related to the numerous trade tensions, and will the Fed offer any signal on how it might respond (probably not is the answer). Last but not least how does the FOMC see financial conditions, to which it is far more sensitive than it freely admits, even if there are no immediate points of concern. The ECB meeting is probably the more heavily anticipated of the two meetings, and sources and some council members have signalled that there will be a discussion on whether to announce how and when it will end its QE programme, which if it does, will almost certainly be accompanied by endless references to how it continue to reinvest its existing QE portfolio. Inevitably the new Italian govt and its budget proposals will engender a long list of questions, many of which will probably be dodged outside of a reiteration of the ECB and Eurozone 'rules of engagement'. There will be a fresh set of forecasts, which sources have indicated will see CPI forecasts revised higher, but GDP forecasts revised lower, and in respect of the latter, much attention will be given to whether the council remains relatively confident that the Q1 setback in France and Germany prove to be largely transitory. The other key element will be what signals the council offer on how it plans to deal with the EUR 432 Bln LTRO that expires in September (and will likely see some bank repayments starting in July), above all from the aspect that a simple rollover of that operation is not an option, given that would tie the ECB's hands on policy for a protracted period. This week's BoJ meeting is probably viewed by most market participants as a quasi non-event, with no changes expected to any of its policy measures, and Kuroda likely to underline that with inflation still very subdued, it is much too early to even vaguely consider an exit from its QE programme. That said, it will be interesting to see if the BoJ shows any sign of concern that recent economic data has suggested the economy is losing considerable momentum. In the EM space, there are policy meetings in Argentina, Chile, Croatia, Georgia, Namibia, Russia and Uganda, all of which are expected to see policy rates left unchanged, though it will be particularly interesting to see what Bank Rossi governor Nabiullina offers on the economic and policy outlook, now that the dust is starting to settle after the RUB drop following the imposition of sanctions.
from Marc Ostwald
