All - I am "renaming" this daily preview to ' The Long & the Short of it and The Bigger Picture' in no small part to reflect how much markets ride roughshod over much of what is termed 'macro', the content will however remain the same.
- Month end brings a deluge of data, as markets digest BoJ policy tweaks,
Eurozone CPI and various national Q2 GDP follow Japan Production & Labour
data and China NBS PMIs, while US looks to ECI, PCE, Chicago PMI and
Consumer Confidence; also digesting sharp increase in US Treasury issuance
plan for Q3
- Eurozone CPI: higher than expected French HICP offsets drag from soft
German and Spanish CPI
- Eurozone GDP: steady picture seen in q/q terms, though French and Spanish
'miss' may lean against pick-up in Germany
- US ECI: focus on wages component, expected to slow modestly after Q1 jump
- Bank of Japan: forward guidance unlikely to expunge speculation about
QQE exit, even though wider 10-yr YCC target range appears more market
liquidity than policy related
- Charts: 10-yr JGB yield, China NBS Manufacturing PMI, US Treasury issuance
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** EVENTS PREVIEW **
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As is often the case, the last day of the month brings with it a torrent of economic data across the globe, to accompany what in the end was a rather underwhelming BoJ meeting, and the IEA's 2018 estimates of world energy demand and supply. On the to digest menu are Chinese official PMIs (Services dipping quite sharply to 54.0 vs 55.0, but still solid and within the range of the past 18 months), Japan's Industrial Production and labour data and the ever errant German Retail Sales. Ahead lie German Unemployment, Eurozone CPI and Q2 GDP (with French and Italian reports also due), while the US looks to Q2 ECI, Personal Income & PCE, Consumer Confidence and the Chicago PMI, and Canada has monthly GDP. BoJ Kuroda's press conference is ongoing, but it has clarified that 'allowing' yields to move a little more means that the 10-yr yield curve control (YCC) target has been moved from 0.0% +/-10 bps to 0.0% +/-20 bps, how this works in practice remains to be seen, but it probably indicates that the BoJ hopes that it will allow banks to more actively trade JGBs, and hopefully improve what have become very poor liquidity conditions. Of perhaps greater note was the Treasury's revised estimate of borrowing for Q3 to $329 Bln, an upward revision of $56 Bln, with markets now awaiting how this will be distributed along the curve, though the sharp increase in today's 1-mth Bill volume to $65 Bln from the prior week's $55 Bln underlines that much of the increase will be at the front of the curve. While the BoJ's expected downward revisions to its CPI forecast (20.18 1.1%, 2019 1.5% and 2020 1.6%) effectively underline that it will be sticking with its QQE programme for a very protracted period, the fact that it has carved itself a little more room for manoeuvre will likely sustain market speculation that it is fashioning itself an exit, despite Kuroda's assertion that the aim of introducing 'forward guidance' was to dispel that notion. In truth, today's measures do look to be a case of having to create some additional flexibility given that it will be sticking with QQE for a much longer period than it had been anticipating.
** Eurozone - July CPI / Q2 GDP **
- The downside miss in Spanish and a soft 0.4% m/m German HICP, predicated in Germany on much sharper summer sales discounting above all on Clothing & Footwear (resulting in Goods HICP falling to 2.4% y/y from 2.8% in June), suggested some scope for a downside miss on both headline (seen at an unchanged 2.0% y/y) and core (exp. 1.0% y/y vs. June 0.9%), however the offset from today's higher than expected French HICP (0.1% m/m 2.6%, highest since March 2012) should mitigate the drag elsewhere. Is this material to the ECB policy outlook? Not really, the ECB can wait till October to definitively confirm that QE will end in December, and is an even longer distance from being under any pressure to clarify what is meant by 'through the summer of 2019' on the timing of a first rate hike, above all given the very low level of core CPI. Today's run of provisional GDP readings are above all interesting in the context of the very soft (above all in detail terms) 0.2% q/q French GDP and the much better than expected Swedish (even though not a member of the Eurozone) Q2 GDP (1.0% q/q vs. expected 0.5%); in other words was Sweden exceptional, or was France an outlier - the latter perhaps spelling some more trouble for M Macron. The obvious distinctions being a) France Personal Consumption, while Sweden remained robust at 0.9% q/q vs. Q1 0.8%; and b) a sharp deduction from Net Exports in France vs. a very solid contribution to Swedish GDP. Thus far a small miss on Spanish GDP (0.6% vs. expected 0.7%) and another solid reading from Austria (0.7% q/q following Q1's 0.8%) tends to suggest that France, probably along with Italy (exp. 0.2% q/q), is the laggard.
** U.S.A. - Q2 ECI and June PCE/Personal Income **
- As is always the case, the 3rd month of the quarter Personal Income/PCE data come after the advance GDP reading, and as such forecasts are predicated on the Q2 GDP data, and barring prior month revisions (generally tweaks), the scope for a surprise is very modest, with both measures seen rising a solid 0.4% m/m. Of greater interest will be the Q2 Employment Cost Index, which beat forecasts in Q1 at 0.8% q/q on a robust rise in Wages (0.9%, best since Q1 2007). the Q2 edition assumes that the Q1 bump was mostly a function of Q4's 'soft' 0.5%, and wil thus 'mean revert' to 0.7%, above all given the lack of any obvious broad based upward pressures in Average Hourly Earnings, which also mirrors the Atlanta Fed's monthly Wage Growth trackers (last May 3.2% y/y vs. March 3.3%). That said the monthly labour report data and the quarterly ECI reading are far from being strongly correlated. However in bigger picture terms, the FOMC (meeting today and tomorrow) will still view the underlying wage growth trend as being surprisingly weak in the context of robust growth and low unemployment, whatever the outcome of today's report. Consumer Confidence is expected to remain close to its cyclical high, but drift slightly lower on the month to 126.0 from 126.4, with the labour differential in focus ahead of Friday's labour report.
** Canada - May monthly GDP **
- Today's monthly GDP is to a certain extent rather moot, in so far as the BoC would have much of the component data to hand at its late 11 June meeting, where it hiked rates 25 bps to 1.50% as expected. Be that as it, the risk for choice after the very strong Retail Sales (ex-Autos 1.5% m/m, Apr revised up to 0.2% from
-0.1%) look to be modestly to the upside of the consensus for 0.3% m/m 2.3% y/y vs. April's 0.1%/2.5%.
from Marc Ostwald