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UK inflation data tops modest day for data and events, as US earnings
season cranks up a notch; South Africa CPI, more from Powell, US Housing
Starts and Fed Beige Book accompanied by German 30-yr sale

- UK CPI: petrol price base effects likely to be key driver of rise in
y/y rate, but core seen little changed, mobile charges and seasonal sales
discounting levels the wild cards

- UK PPI: further upward pressure on Input from energy and weaker GBP, but
few signs of significant pass through to Output

- Fed Beige Book: set to reprise robust profile of US economy; consumer
spending likely to be upgraded, focus on tariff impact on manufacturing
sentiment and prices; wages as ever the other point of interest

- Charts: USD Index, GBP/USD, JPY/USD, CNY/USD, WTI and Brent, Wheat

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

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

A relatively quiet day is in prospect with the full gamut of UK inflation indicators topping the schedule, accompanied by South African CPI and US Housing Starts, while more testimony from Powell and the Fed's Beige Book top the events schedule. The US corporate earnings season cranks up another notch in volume terms, with Alcoa, American Express, eBay, IBM, Kinder Morgan and Morgan Stanley likely to provide the headlines. Germany follows yesterday's heavily oversubscribed 2-yr with a modest EUR 1.0 bln of 30-yr, which by contrast with the 2-yr may even be undersubscribed, if recent long dated auction apathy is anything to judge by. Indeed across the pond, the weekly JPM Treasury active client survey showed a remarkably dull 100% neutral position, thus reinforcing the current rather directionless profile of bond markets.

** U.K. June CPI, RPI, PPI, ONS House Prices **
- Headline CPI is projected to rise a modest 0.2% m/m, which would edge the y/y rate up to 2.6% from 2.4% (also implying Average Weekly Earnings dip back into negative territory), though core CPI is forecast to be unchanged at a rather less "rate hike compelling" 2.1% y/y. In the detail, petrol (up around 2.0% m/m this year, down 1.1% last June) will probably be the key point of upward pressure, with the BRC Food prices measure showing a modest dip (though beverages may some Sugar tax related pressure), with perhaps some upward pressure from mobile charges and utility price hikes, while the wild card will be timing effects in terms of seasonal sales in Clothing and household goods In month to month terms the rise in PPI Input should be modest (consensus 0.4%), but still implying a return to a double digit 10.1% y/y rise, but PPI Output Prices are still expected to see a relatively subdued 3.2% y/y (from 2.9%), with core Output very well behaved at 2.1% y/y. As for ONS House Prices, these are expected to dip further to 3.7% y/y from April's 3.9%, but still looking rather too elevated relative to other house price measures and indeed anecdotal evidence.

** South Africa - June CPI **
- Ahead of the SARB rate decision on Thursday, where a no change at 6.50% is anticipated, today's CPI is expected to see a marked pick-up in m/m terms to 0.6% headline that would push the y/y rate up to 4.8% from 4.4%, with rising energy prices and the recent bout of ZAR weakness likely to be the primary pressure points; core CPI is seen up 0.4% m/m, which would see the y/y rate unchanged at 4.4%. Overall this still leaves both headline and core still comfortably within the SARB's 3.0-6.0% target range, and while the risks suggests that the next move in SA rates will likely be higher, that risk is unlikely to crystallize anytime soon, without a much sharper and sustained ZAR drop.

** U.S.A. - Beige Book / June Housing Starts **
- Following on from the as expected unchanged NAHB Housing Index (68), that maintains the very steady profile of H1, today's inherently much more volatile Housing Starts (very much THE lagging indicator on housing) are seen dipping 2.2% m/m to 1.32 Mln SAAR after a stronger than expected jump to a post GFC high of 1.35 Mln in May. There is perhaps some risk of a larger reactive correction, but this would still imply a strong underlying trend. As for the Beige Book, this will doubtless stick to the well-established depiction of 'moderate' growth, though it should also see an upgrade on Consumer Spending, after what was a rather quirky suggestion that spending had slowed in the prior report (https://www.federalreserve.gov/monetarypolicy/beigebook201805.htm), which flew in the face of overall very solid Retail Sales readings since March. Of particular interest following a somewhat mixed Industrial Production report yesterday (June in line with forecasts, but May's drop amplified, if for specific one-off factors), will be the description of the manufacturing sector, given May's report suggested that 'manufacturing shifted into higher gear with more than half of the Districts reporting a pickup in industrial activity and a third of the Districts classifying activity as "strong".' This is above all from the aspect of how escalating trade tensions (be that stalled NAFTA talks, or tariffs on Chinese and EU goods) are impacting incoming order flows, as well as outlook sentiment. As ever there will be plenty of focus on wage trends, as well as the extent of any upward pressures being reported on prices, which will in broad terms will probably be described as 'slight or modest' outside of those areas directly impacted by tariff measures. But overall it is unlikely to offer any reason for the Fed to change tack, with Powell again emphasizing that the Fed will continue with further 'gradual' increases in rates.

from Marc Ostwald
 
Indices....you are not goin to get a meaningful dump unelss that 25100 pivot area becomes rez on a bounce
 
- Digesting Fed Beige Book, Japan Trade and Oz labour data, awaiting UK
Retail Sales & US Philly Fed Manufacturing and jobless claims; US
auto tariffs decision in focus; plenty of corporate earnings and
govt bond supply; Indonesia and South Africa rate decisions

- UK Retail Sales: marginal gain expected after May jump, CPI data
imply some upside risks

- US Beige Book: strong growth, rising capacity constraints and trade
tariff related price pressures and concerns

- Charts: CNY/USD vs. CNY CFETS Index; US vs China 5 and 10-yr yields;
WTI Crude and LME Zinc

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

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

There is a strong sense that markets are now becalmed by subdued summer trading conditions, and as such the onus in terms of data and events is on springing a surprise. Be that as it may, there are the Japan Trade and solid Australian labour data to digest ahead of UK Retail Sales, and Initial Claims and the Philly Fed Manufacturing survey in the US. On the policy front, Fed's Quarles speaks at an alternative reference rates conference, while Indonesia's BI and South Africa's SARB are both expected to hold policy rates at 5.25% and 6.50% respectively, though the former's decision is rather finely balanced, even if the IDR has shown some stability this month after June's sell-off. As for the SARB, a very modest and lower than expected uptick in headline CPI, and a dip in core CPI, leaves the SARB in a comfortable position to signal a neutral policy stance for the rest of the year. Corporate earnings feature ABB, Nordea, Publicis, SAP, Unilever & Volvo in Europe, while the US has among others Blackstone, BNY Mellon, Capital One Financial, Domino's Pizza, Microsoft, Philip Morris, Skechers & Union Pacific. Government bond supply is plentiful, with multi-maturity sales in France & Spain, and re-openings of the UK 2057 Gilt and the US 10-yr TIPS. Outside of this the US is expected to opine on the supposed 'security threat' posed by Auto Imports, which in actual terms is basically about trade barriers, and is obviously sensitive for the EU and Japan (above all), and comes just ahead of the G-20 meeting starting tomorrow in Argentina. It also comes ahead of the Juncker visit to the US next week, which according to Trump adviser Kudlow will see a substantive set of offers from the EU to the US on trade, which will almost certainly have elements related to the auto sector.

** U.K. - June Retail Sales **
- Following on from the rather more compelling rebound in Retail Sales in May (1.3% m/m), June's Warm weather allied with a boost from the World Cup is projected to see June Retail Sales rise 0.2% m/m, broadly in line with the anecdotal evidence from the BRC, Barclaycard and Visa measures. The risks look to be to the upside, in so far as the sharp drops in Food CPI (-0.5% m/m) and Clothing & Footwear CPI (-2.1% m/m) will in turn serve to boost Retail Sales, given that this is a volume (inflation adjusted) number rather than a value measure (like the USA). The fact that the weaker than expected CPI was primarily down to these two elements, which are a function of factors that rates cannot 'legislate' for (Food) and the timing of seasonal discounting (i.e. transitory) suggests that the MPC should look through the CPI drop. However the MPC's record on overreacting to single month official or survey data is notoriously poor, and per se, the Retail Sales data will need to imply a rebound in Q2 GDP to 0.4% q/q or better to sustain a high level of probability of an August rate hike.

** U.S.A. - Initial Claims / July Philly Fed Manufacturing / Beige Book **
- Claims are expected to edge back up to 220K after dipping to a 214K, which was probably Independence Day related, but overall the simple point is that labour demand remains very strong, and while there may be trade related clouds on the horizon, they are not showing up in the labour market for the time being. The Philly Fed survey is seen picking back up to 21.5 from a slightly larger than expected dip to 19.9 in June, and as with the slightly better than expected NY Fed survey (22.6) continue to signal a robust pace of sector activity. However it is the Fed's Beige Book yesterday that requires most attention, given that it highlighted that while growth remains very robust, capacity constraints above all in terms of labour availability, but also broader price pressures emerging, above all due to trade tariffs, which were cited copiously by business contacts as a major concern and headwind to growth prospects.

========================== ** THE DAY AHEAD ** ===========================

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** TODAY'S EVENTS **
********************

Indonesia ----- BI rate decision - no change 5.25%
Sth Africa ----- SARB rate decision - no change 6.50%
U.S.A. 14:00 Fed's Quarles speaks at Alternative Reference Rates
Committee Roundtable
----- US Commerce Department to decide whether auto imports
pose a US security threat (ends 20 July)
Argentina ----- BCRA holds press conference on monetary policy report

- Govt Bond Auctions / Buybacks:
China 02:30 CNY 15.84 Bln total 2023, 2025 & 2028 Fujian Munis
New Zealand 03:05 NZD 150 Mln 2.75% 2037 Govt
China 03:30 CNY 7.09 Bln 2023, 2025 & 2028 Fujian Specail Munis
Thailand 04:00 THB 45.0 Bln 2021 (#BOT213A) Bank of Thailand
China 07:00 CNY 30.28 Bln total 2021, 2023, 2025 & 2028 Shanghai
Munis
China 07:00 CNY 4.05 Bln total 2023 & 2025 Shanghai Special Munis
Kazakhstan 08:00 Regular Govt Bond auction
Spain 09:45 EUR 4.0-5.0 Bln 0.35% 2023, 5.90% 2026, 1.40% 2028 &
2.35% 2033 Bonos
France 09:50 EUR 6.5-7.5 Bln total 0% 2021 & 0% 2024 OATs
Kosovo Rep. 10:00 Regular Govt Bond auction
Albania 10:00 Regular Govt Bond auction
Hungary 10:00 Regular FRN auction
U.K. 10:30 GBP 2.0 Bln 1.75% 2057 Gilt
France 10:50 EUR 1.25-1.75 Bln total 0.1% 2025, 0.7% 2030 &
0.1% 2047 OATeis
Romania 11:00 RON 400 Mln 3.25% 2024 Govt
U.S.A. 18:00 USD 13.0 Bln 2028 TIPS

- Corporate Earnings:
ABB (Q2 0.34) * Epiroc (Q2 1.09) * Kone (Q2 0.47) * Nordea Bank (Q2 0.18) * Publicis (H1 1.97) * SAP (Q2 0.99) * Unilever (H1 1.18) * Volvo (Q2 3.54) // Alliance Data Systems (Q2 $4.65) * Blackstone (Q2 $0.75) * BNY Mellon (Q2 $1.02) * Capital One Financial (Q2 $2.62) * Danaher (Q2 $1.09) * Domino's Pizza (Q2 $1.74) * Farmland Partners (Q2 $0.08) * Intuitive Surgical (Q2 $2.49) * Microsoft (Q4 $1.08) * Philip Morris (Q2 $1.23) * PPG Industries (Q2 $1.88) * RPM (Q4 $1.18) * Skechers (Q2 $0.41) * Union Pacific (Q2 $1.95)


from Marc Ostwald
 
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