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 **
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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