Japan Retail Sales ahead of UK lending stats, German CPI and US Pending
Home Sales and Dallas Fed Survey; Caterpillar tops earnings run
- U.K lending: Consumer Credit growth seen little changed; Mortgage Lending
set to get a boost from re-financing activity ahead of expected BoE hike
- German CPI: seasonal factors to pace m/m rise, but y/y seen unchanged
- US Pending Home Sales: marginal gain expected after two months of
declines
- Chart: 10-yr JGB yield, USD vs. CNY, KRW & JPY; CFTC positioning & open interest
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** EVENTS PREVIEW **
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While today's schedule is not bereft of highlights, the perceived event risk surrounding this week's run of central bank policy meetings, kicking off with the BoJ (still fighting a rear-guard action to protect the 0.1% cap on 10-yr JGB yields) and RBA tomorrow is likely to mute any reaction to today's run of data. The latter has the as expected Japan Retail Sales to digest ahead of German CPI, the run of monthly EC Confidence surveys and UK lending and monetary aggregates, while the US looks to Pending Home Sales and Dallas Fed Manufacturing Activity survey. Earnings highlights are likely to include Heineken and Vivendi, though pride of place will go to Caterpillar given that its performance is something of a bellwether for the performance of the global economy, particularly in the context of the impact of current trade tensions. UK lending data are anticipated to show Consumer Credit unchanged at £1.4 Bln, which would leave the y/y rate still well above 8.0%, while Lending Secured on Dwellings is seen edging up to £4.0 Bln, paced by re-mortgaging activity in anticipation of the BoE rate hike, rather than an underlying in still subdued housing demand. German CPI and HICP are both seen up 0.4% m/m, mostly due to seasonal factors, which would see the y/y rate unchanged at 2.1%, and by extension likely to have little or no market impact, perhaps all the more so after last week's 'as you were' ECB statement and press conference. US Pending Home Sales are projected to rise 0.2% m/m, which would be a rather tepid bounce after falls -0.5% and -1.3% in the first two months of the quarter, though in line with other housing sector indicators, though the question remains open how much this reflects still historically subdued inventory levels, and how much reflects the gentle move higher in mortgage rates and the affordability factor. But as noted in Friday's QA2 advance GDP review: "There will be many who point to the weakness in Housing Investment -1.1% q/q SAAR following a downwardly revised -3.4% in Q1. But a look at that in terms of contribution to overall GDP underlines how relatively insignificant a contributor to GDP Housing Investment is, above all by comparison to the 2000s, i.e. Q2 drag as a 'whopping 0.04 ppt following Q1's -0.14 ppt. This is not a game changer, even if rising mortgage rates are weighing on housing affordability."
The Week Ahead - Preview:
- A busy week is in prospect as the summer holiday season sets in. On the central bank front, there are BoJ, RBA, Fed and BOE policy meetings in G10 terms, and there are also rate decisions in Brazil, India and Mexico. The data schedule sees Eurozone CPI and a raft of EU/Eurozone preliminary Q2 GDP readings, the usual month end run of activity data in Japan, along with Manufacturing and Services PMIs ahead of Friday's US labour data. It remains peak season for US and European corporate earnings reports. The overarching themes remain very familiar: global trade tensions, above all US/China, Brexit negotiations and the stand-off between the USA and Iran. China's efforts to rein in CNY weakness, and offer some domestic economic stimulus will be the other key them, as the Chinese Politburo meets this week, amid talk of another boost for infrastructure spending, which has been stalled by the crackdown on leverage and shadow bank financing for local authorities, as well as environmental damage limitation efforts.
- Markets remain highly selective in their reaction to economic data beyond the minutiae of fleeting 'stronger/weaker than expected', which all too often rides roughshod over any broader or longer-term perspective, and all too frequently ignores the increasingly obvious very poor quality of forecasts. Be that as it may, Eurozone CPI is expected to be unchanged at 2.0% y/y headline with the core edging up to 1.0%, paced by marginally higher French and Spanish HICP, but no change in Germany. By extension the more interesting items on the continental European calendar will be the array of preliminary national Q2 GDP readings, following on from the soft print in France. Sweden is seen slowing to a respectable 0.5% q/q from 0.7% (y/y seen at 2.6% vs. 3.3%); Lithuania and Latvia should hold quite close to Q1 readings of 3.7% y/y and 4.3%, and the OeNB assumes little loss of momentum in Austrian GDP (Q1 0.8%/3.4%), though Italy is expected to post a rather tepid 0.2% q/q to edge the y/y rate down to 1.3% from 1.4%, with pan-Eurozone Q2 GDP seen unchanged at 0.4% q/q, which would see the y/y rate drop to 2.2% from 2.5%.
In PMI terms, the primary point of interest will almost certainly be China with the official NBS Manufacturing reading forecast to dip to 51.3 from 51.5, but Services to hold at 55.0, with the Caixin Manufacturing PMI expected to edge down to 50.9 from 51.0. Given rising trade tensions, and the export orders led dip in Japan's flash Manufacturing PMI, there will be particular interest in the array of Asian PMIs. Having surprised on the upside in June, UK PMIs are all expected to dip modestly (Mfg 54.2, Construction 52.8, Services 54.7), though overall still solid, above all given Brexit related uncertainties. The UK also has Consumer Credit & Mortgage Lending, BRC Shop Prices, GfK Consumer Confidence and Nationwide House Prices.
For Japan, where the run of data will definitely be secondary to what the BoJ does or does not deliver in the way of policy tweaks, Industrial Production is forecast at a disappointing -0.2% following May's -0.3%, which thanks to base effects would see the y/y rate slide to just 0.6% from May's 4.2%. Retail Sales are on the other hand forecast to post a solid bounce of 1.5% m/m after sliding (partly weather related) 1.7% in May, with Unemployment, Consumer Confidence and the gamut of monthly construction data also due.
As for the US, the risks following Q2 GDP look to be modestly to the upside for PCE 0.4% m/m, with Personal Income seen at a similar m/m pace, though the Q2 ECI (Employment Cost Index) will be of rather more interest, with expectations centring on an increase of 0.7%, just shy of 0.8% q/q in Q1. Consumer Confidence is projected to remain very buoyant at 126.0 (June 126.4), with the ISM surveys expected to edge down to still very robust readings of 59.2 (Mfg) and 58.6 (Non-Mfg). If readers have not already guessed this, the consensus for Non-farm Payrolls is yet again 190K, with the nowadays more market sensitive Average Hourly Earnings seen at 0.3% m/m for an unchanged 2.7% y/y, while the Unemployment Rate is forecast to dip back to 3.9% from 4.0%. Pending Home Sales, Factory Goods Orders and the overall Trade Balance are also due.
Elsewhere Australia has its Trade Balance, and monthly / quarterly Retail sales, and Canada also has Trade, while New Zealand sees Q2 Unemployment and Wages; while in the EM space, Turkey has CPI with another sharp rise to 16.5% y/y from 15.4% projected (1.1% m/m), with core CPI seen little better at 14.9% y/y from 14.6%.
- In central bank terms, the Bank of Japan meeting (Monday/Tuesday) will be 'front and central', with some tweaks to its QQE programme expected (above all equity ETFs), along with downward revision to its CPI forecast. As previously noted: some broader perspective on the BoJ policy outlook is required here. If, as is widely recognized the BoJ will have to stick with its QQE programme for a very protracted period, given that attaining its 2.0% CPI target will take a number of years more, then it really does need to a) consider how it could tweak the QQE programme to make it more effective, and b) consider the fall-out of a further protracted period of QQE on domestic asset markets (it already downs >40% of JGBs and more than 70% of Japan equity ETFs), and on the domestic banking and fund management sector. Both those challenges are very substantial and markets would do well to eschew a simplistic interpretation that the BoJ will effectively be 'tapering'. As for the BoE a 25 bps rate hike to 0.75% is almost fully discounted, while Fed statement will almost certainly keep the door wide open for a September rate hike wide open. The RBA is seen on hold at its meeting, and is expected to signal rates will remain on hold for a protracted period. A discussion of major central banks' policy trajectories can be found in this video via Core Finance TV earlier today:
. In the EM space rates are seen on hold in Brazil and Mexico, but India's RBI is expected to respond to a solid pick-up in growth, and cumulative inflationary pressures from higher energy prices and a weaker INR by hiking rates 25 bps.
- Govt bond supply comes largely via the Eurozone (Germany, Italy, France & Spain), while in the energy space the IEA publishes its World Energy Balances 2018 overview.
From Marc Ostwald