- Busier day for statistics - Korea Q2 GDP, Europe surveys, US Goods Trade
Balance, Durable Goods, weekly jobless claims - accompany ECB meeting
and WTO meeting on US/China trade tensions; US/EU 'agreement' and
Facebook earnings debacle to be key talking points; plethora of Europe
and US corporate earnings; Italy and US bond auctions
- EU/US agreement a welcome step back from confrontation, but no panacea,
and subsidiary to US/China trade concerns
- Facebook tumble a totem to all the worst aspects of markets at the current
juncture
- ECB meeting unlikely to offer significant fresh insights, but will need
to offer some clarification on rate guidance and 'operation twist'
speculation, unlikely to ditch QE contingency
- US Goods Trade Balance seen reverting to March-May average; risk of
very sizeable outlier very high
- US Durable Goods Orders: aircraft to lead strong headline rebound; surveys
point to solid core Orders gains
- Charts: France 10/30 yr spread and ECB rate probabilities by meeting
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** EVENTS PREVIEW **
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While not overwhelming, there is rather more 'meat on the bone' of the day's statistical schedule via way of th overnight as expected South Korea advance Q2 GDP reading and much better than expected (and as ever volatile) Singapore Industrial Production, with surveys once again dominating in Europe, ahead of the day's key US data via way of Goods Trade Balance, Durables Goods orders, weekly jobless claims and the KC Fed Manufacturing survey. Corporate earnings are again very plentiful in both Europe and the USA (see schedule below), and then there is the much unanticipated ECB meeting along with the start of the WTO General Council meeting regarding US-China trade conflict (which ends 27 July). However all of this may prove to be rather moot in terms of market performance and focal points, which will inevitably hone in on the US/EU agreement to step away from an outright trade war and negotiate, which is certainly not a game changer, given Trump's ability to swing from egregious bonhomie to very pugnacious hostility. It also does not mitigate any of the risks in terms of US/China trade tensions, which are rightly a higher order concern for financial markets. Then there is the Facebook car crash in the wake of what were in truth highly unsurprising results, even if the equity analyst fraternity somehow managed to ignore what was staring in the face. That is primarily of concern in so far as it underlines that the already deeply embedded market penchant for wilful blindness and wishful seeing has tea he'd a highly destructive stage, above all exacerbated by the central bank swamp of liquidity and vaporisation anything that might be termed market making (and by extension markets liquidity) due to the post-GFC regulatory backdrop. As BOE's Haldane noted a number of years ago, in principle the risks that previously sat on the balance sheets of banks has merely been shifted to the investment and pension fund sectors. On the govt bond supply front, Italy offers 2-yr CTZs (zeros) and (inflation-linked BTPei), while the US rounds off this week's refinancing with $30.0 Bln of 7-yr Treasury Notes.
** Eurozone - ECB Council meeting **
- Markets are clearly not holding their collective breath for any fresh insights from today's meetings. But having offered rather vague guidance at the June meeting, there is scope for some tightening up of said 'guidance'. At a push the council could dump the contingency wording for ending QE in December, but it is doubtful that they would want to do that ahead of next set of forecasts, and indeed given the still extant trade related uncertainties. Draghi will surely get a lot of (likely tediously repetitive) questions about the commitment not to raise rates 'through the summer of 2019'. However given that this ambiguity is no small part due to a wide range of opinions on the council, which are unlikely to have narrowed since last meeting, as well as carving out a degree of policy flexibility, the picture that emerges is unlikely to be much clearer However Draghi & Co. would do well to clarify whether the mooted 'operation twist' (i.e. an active lengthening of the duration of its holdings) on its QE reinvestments is a reality, and if not then the ECB must act swiftly to disabuse markets of this impression, given the already marked flattening of the 10/30 yr section of Eurozone curves, above all French OATs.
** U.S.A. - June Goods Trade Balance / Durable Goods Orders **
- These are the last two major data items ahead of tomorrow's advance Q2 GDP reading, and may prompt some tweaks to forecasts (current median 4.2% SAAR). The Goods Trade Balance is expected to widen out to $-67.0 Bln from the better than expected $-64.8 Bln, predicated on the assumption that the marked improvement evident since March has flattered to deceive. However the risk of a very large outlier looks to be very high, and on both sides of the equation, i.e. imports and exports. On the import side, there have been widespread reports that Chinese and other exporters have been speeding up shipments to beat tariff deadlines, while on the export side, there has been some volatility in the oil / energy product numbers, but it is US agricultural exports which may be heavily distorted, for example it has been reported that Chinese imports of US pork dropped close to zero in June, and numerous reports of Soy and Sorghum being diverted while on the high seas. As such a very close eye will need to be kept on the details of this report, even if the headline is not that far from the consensus estimate. Given strong Boeing Orders, it is unsurprising that the consensus sees a solid rebound from May's disappointing -0.4% m/m to 3.0% m/m at headline level; the broad array of manufacturing surveys imply that the core measures (ex-Transport & the capex proxy that is Non-defence Capital Goods Orders ex Aircraft) should pick up to the expected 0.5% m/m, at the very least (and/or see upside revisions to the May data).
from Marc Ostwald