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- Data and events schedule rather thin: digesting Japan CPI, awaiting UK
PSNB, Canada CPI & Retail Sales, Bullard speech, weekend G-20 meeting;
Trump Fed / Yuan comments

- Week Ahead: French/US Q2 GDP, PMIs, US Durables & Home Sales, Japan &
Australia CPI and ECB meeting

- China: perspective required on CNY fall, largely mirrors KRW & JPY...

- Canada CPI: headline to edge higher, core seen unchanged for fifth month,
little wonder not at the top of list of considerations for BoC

- Canada Retail Sales: solid gains expected on both headline and ex-Autos,
offering backward justification for BoC rate move

- Charts: World rare earths production; USD vs CNY, JPY & KRW; CRB; WTI;
Copper, Iron Ore, Steel, Aluminium, Nickel, Cobalt, Corn & Soybeans

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

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

Today's run of data and events has little that will trouble financial markets, which appear to have settled into a summer slumber outside of the rollercoaster world of FX and commodities, despite the continued cacophony of political noise, be that trade related or other, with Trump's comments on Fed rate hikes and the CNY fall throwing further oil on fire. There are the Japan national CPI (critically missing forecasts on "core core" CPI) and German PPI (as expected) to be digested ahead of the UK June PSNB (deficit seen narrowing £1.0 Bln to £3.6 Bln relative to June 2017, sustaining trend thus far in FY2018/19), Polish Retail Sales (real sales seen at a whopping 6.8% y/y) and Canadian CPI and Retail Sales. The event schedule for today is sparse, limited to the usual ultra-dovish fare from Fed's Bullard, though the weekend brings the G-20 meeting in Argentina, which as with the G7 will be a tense affair given the Trump administration's obvious isolation; the question is thus whether Europe and Asia (primarily China) can present a united front in pushing back on US trade tensions and tariffs. The latter also plays into market speculation on what China is or is not doing in terms of the slide in the CNY, above all vs. the USD, above all following the comments from China's FX regulator SAFE, which hardly offered the impression of wanting to mount a major defence of the CNY, though implicitly dangling 'devaluation' (or rather a policy of benign neglect) as a response to further trade
tension escalation as an option. That said, it should be borne in mind that the CFETS Index that China targets has a hefty weighting towards Asia (being a key trading partner), and as such the persistent weakness of Asian currencies, and above all the recent drop in the JPY and KRW vs. the USD (see chart comparing these with CNY) underline that the CNY "weakness" vs the USD is in principle a mirror of other major Asia currencies. On the attached CRB, Metals and Grains charts, worth taking note of enormous divergence in metals in trend terms, and ostensible break of recent downtrends in grains. Next week's schedule is relatively sparse with a large dose of surveys (PMIs, Ifo) accompanying a very under-anticipated ECB meeting, the advance estimates of US & French Q2 GDP, US Durable Goods and Home Sales, Japanese Tokyo and Australia Q2 CPI, and a deluge of US and European corporate earnings.

** Canada - June CPI / May Retail Sales **
- As the Bank of Canada has made more than abundantly clear, it is not worried about inflation at the moment, indeed it is very content with the current around target trend, and for the time being, it is not at the top of the list of near term game changers for its rate trajectory, which is any case rather fluid. Be that as it may a surprise on today's CPI might at a push prompt some market reaction, with the consensus seeing a flat m/m reading that would edge up the y/y rate to 2.3%, while the 'common' core CPI measure is expected to be unchanged at 1.9% y/y for a fifth consecutive month (so don't hold your breath on a surprise!). While not particularly timely, Retail Sales are at least subject to far less revision than the US and UK versions, and for the first time in a number of months, both headline and ex-Autos are expected to post solid gains of 1.0% and 0.5% m/m respectively.


from Marc Ostwald
 
The Week Ahead Preview:

- The coming week is above all replete with corporate earnings, both in the US (more than a hundred S&P 500 companies reporting) and Europe, while the statistical schedule is rather more sparse, though US & French preliminary Q2 GDP, CPI data in Japan and Australia and a raft of business and confidence surveys will offer points of focus. The ECB meeting is not expected to offer much in the way of fresh insights, though a further sharp rate hike is seen in Turkey. As such trade tensions and politics, in the wake of the likely very tense G-20 meeting, will continue to be the key source of market jarring headlines in subdued summer trading conditions. Preparatory discussions among key policy officials ahead of the end of month China Politburo meeting may also offer some headlines on whether there are to be any significant domestic or international policy tweaks. Pakistan holds a general election on Wednesday, following a campaign which has been plagued with accusations of meddling and interference (above all by the military) on an unprecedented scale, and elsewhere South Africa hosts the 2018 BRICS summit. The US dominates the government debt supply calendar with $166 Bln of Bills and 119 Bln of fixed & floating coupons, with supply elsewhere relatively muted due to the summer holiday season, with a new German 5 yr, a multi-tranche Belgian OLO sale and a re-opening of UK conventional 2024 Gilt.

- Statistically the 'advance' readings on US and French Q2 GDP get top billing for the week. US Q2 GDP is forecast to post an SAAR rise of 4.0% (best since Q4 2013), paced by a rebound in Personal Consumption (exp. 2.8%), though Business and Housing Investment should also be robust, with Trade expected to be broadly neutral, and Inventories modestly positive, though the latter two are both volatile and often subject to hefty revisions in later iterations. The US also has Durable Goods Order, with aircraft seen pacing a 3.0% m/m gain, with the ex-Transport measure forecast at 0.5% m/m. New and Existing Home Sales are expected to remain at robust levels, even if the former will likely see a correction (exp. -2.8%) after jumping 6.8% in May, with the latter seen little changed m/m. The advance Goods Trade Balance is forecast to widen modestly to $-67.0 Bln, but remain considerably narrower than the large deficits posted in December through February. PMIs and more regional Fed surveys appear likely to echo the NY & Philly Fed surveys and the Beige book in underlining a robust pace of US output

French Q2 GDP is expected to edge up to 0.3% q/q from Q1's sluggish 0.2% (with Germany also likely to post a slight pick-up to 0.4% q/q from Q1 0.3%, when it reports on 14 August), though this would see the French y/y rate dip to 1.9% from 2.2%. 'Flash' PMIs for the Eurozone are (as ever) seen edging back very modestly from June, as is Germany's Ifo, though still indicating a solid pace of current activity, despite heightened concerns about trade tensions; the UK has both CBI surveys. Headline Australian Q2 CPI is seen picking up modestly in headline terms to 0.5% q/q 2.2% y/y (vs 0.4%/1.9%), but core measures are seen little changed at 1.9% y/y, and with Wage growth still very subdued, the RBA's primary concern will likely remain the enormous overhang of household debt on the Australian economy. The Bank of Japan is not expected to get any good news on inflation ahead of its 31 July policy meeting, which will see the BOJ update its economic forecasts. July Tokyo CPI is seen at 0.7% y/y headline and an unchanged 0.4% y/y ex-Food & Energy.

- As is often the case, the pre-summer break ECB meeting is not expected to deliver much in the way of fresh insights, even if markets will be hoping for some clarification on what 'through the summer of 2019' actually means, though the council's well documented differences suggests that the ECB will want to retain the implicit flexibility. There is in theory a chance that they might get rid of the contingency on ending QE in December, but that seems unlikely given the potential for the Trump trade wars to 'boil over' over the summer holidays. As for Turkey's TCMB, it continues to be heavily encumbered by fears of political interference, and while the TRY has stabilized in recent weeks, the sharply higher than expected June CPI data (15.4% y/y vs. forecast 13.9%, May 12.2%) underline that the cumulative pressure of the TRY's slide continues to be very substantial. It is therefore unsurprising that the consensus expects a further 100 bps one week repo rate hike to 18.75%, and a clear signal that the TCMB retains a tightening bias. Russia's Bank Rossi is expected to hold its key rate at 7.25%, the more so given that while CPI remains well behaved (last 2.5% y/y) and the RUB has been broadly stable, it continues to project an acceleration in CPI to 4.0% by year end, in effect precluding a rate cut. Elsewhere in the CEE / EM space, rates are expected to be unchanged in Chile, Colombia, Fiji, Georgia, Hungary, Nigeria, Moldova and Paraguay.

- In the commodity space, trade tensions will indubitably continue to be a key source of volatility, though a very watchful eye needs to be kept on moves by the PBOC and other Chinese authorities to pump in liquidity, and above all any measures to relax the protracted clampdown on leverage, which has been a key factor in the performance of a number of industrial and ferrous metals (most notably Copper). If delays to Chinese infrastructure project approvals were also to ease, the squeeze on accumulated shorts could prove to be quite sharp. The EIA also publishes its 2018 Annual Energy Outlook, which along with speculation on Iran exemptions and an SPR release, and the usual run of API/EA inventory runs will be the key influences on oil markets.

- Corporate earnings highlights - see calendar below

ICYCMI via Core Finance TV earlier: Some thoughts on Fed Beige Book, CNY/USD and upcoming EM foreign currency refinancing challenges - https://www.youtube.com/watch?v=lSJBFQRApnM&feature=youtu.be

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

Marc Ostwald
Strategist
ADM Investor Services International
 
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