Dentalfloss
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The Week Ahead - Preview: 13 to 17 August 2018
It's a busy week for US, Chinese and UK data, with a raft of national European Q2 GDP reports thrown in for good measure. However the question is obviously whether any of this gets much traction, as the crisis in Turkey unfolds, along with any contagion, above all in terms of heightened volatility across asset classes (thus far relatively muted in absolute terms), and thus subordinating macroeconomic influences. A broad view on the Turkish "situation" can be found here: https://www.youtube.com/watch?v=5xvscDSg3v4&feature=youtu.be ; the geopolitical risk view is below. Given that it is also the peak week in terms of the summer holiday season, the events schedule is relatively modest, with little in the way of central bank speakers or meetings, outside of the semi-annual testimony from RBA governor Lowe. Politically, US/China trade tensions will obviously remain front and centre, as will Brexit negotiations, with a further round of high level EU/UK talks taking place on Thursday & Friday, and being touted as 'make or break', though the EU penchant for 'can kicking' always invites a great deal of highly justified scepticism about such 'make or break' hyperbole. The Q2 corporate earnings season starts to wind down, though retailers including WalMart feature in the US, while government bond will be quite as is seasonally typical.
- One can debate the economics of the Turkish situation ad nauseam, and it is in truth largely subsidiary to the geo-politics. My personal best guess is that Erdogan's days are numbered, the military remains the key force in Turkey, and Erdogan's purge of the military following 2016 coup has not changed that. The current economic chaos will force their hand, above all due to pressure from Moscow, Washington, Berlin, Paris, Rome & London - at the end of the day, the economics is heavily subordinate to it being at the nexus of everything that is geo-political in the Middle East, above all now that Assad & Putin have in effect won the brutal and inhuman civil war in Syria. It matters not whether that idea is abhorrent, it still a fact, perhaps best underlined by the point that the Golan Heights border between Syria and Israel is now being patrolled by Russian military police. The primary long-term consideration is that a swathe of countries from Turkey to Iran are being pushed ever further into the arms of the Shanghai Cooperation Organization, and ever further from the US, EU and NATO. In truth no one should be surprised, other than from the aspect that the supposedly 'mighty' western world has facilitated this by its incompetence, and probably still does not comprehend the long term 'direction of travel'.
- Be that as it may, the focus for the US will be Retail Sales, which will be restrained in headline terms (exp. 0.2% m/m) by the drop in Auto Sales, and to a lesser extent the dip in gasoline prices, with core measures seen up 0.4% m/m, sustaining a solid profile for Q3 personal consumption. After June's bumper readings for Industrial Production (0.6% m/m) and Manufacturing Output (0.8% m/m), July's readings are expected to show a more modest pace of expansion, but robust in trend terms at 0.3% m/m for both. The NAHB Housing Index, Housing Starts, NY & Philly Fed Manufacturing surveys, Q2 Unit Labour costs and Import Prices are also due. China's activity indicators are projected to how that Retail Sales growth continues to be restrained, forecasts 9.1% y/ vs. June 9.0% despite assertions from 'planners' that H2 will see a notable pick-up. Industrial Production is seen bouncing to 6.3% y/y from June's 6.0%, though edging down to 6.6% from 6.7% in year to date terms. Fixed Asset Investment (FAI) may be the key item with the headline seen unchanged at its cyclical low of 6.0% y/y, though it is Private FAI which requires most attention (last a solid 8.1% y/y, though lower than June's 8.4%), given that State-Owned (last 4.1% y/y) will likely only regain some traction in the latter part of Q3, and more meaningfully in Q4. German GDP remains forecast at 0.4% q/q, picking up very slightly from Q1, though edging down to 2.1% in y/y terms from 2.3%; the ZEW survey is also due. As a if not the key motor of EU growth, a close eye will also have to be kept on CEE Q2 GDP readings - forecasts look for Bulgaria at 3.3% y/y from Q1 3.6%; Czech Rep at 0.8% q/q 2.8 y/y; Hungary at 0.8% q/q 4.0% y/y; Poland 1.0% q/q 5.0% y/y; Romania at 1.5% q/q 3.8% y/y and Slovakia at 3.7% y/y from 3.6% - overall solid, though Poland stands out.
For the UK another raft of data is projected to see CPI unchanged on the month to edge the y/y rate up to 2.5% from 2.4%, with the unwind of seasonal sales discounting, a further rise in petrol prices and some further modest pressure from utility price hikes that are being drip fed into the index. PPI is seen edging fractionally higher in m/m terms, but little changed in y/y terms as GBP weakness offsets dips in a number of raw materials prices. Labour data forecasts imply market reaction will amount to nothing more than a shrug of the shoulders with Average Weekly Earnings forecast unchanged at 2.5% y/y and 2.7% y/y ex-Bonus, with Employment project to post a solid 95K rise. Retail Sales are not expected to punch out too many lights with a rise of 0.2% m/m headline and flat ex-Auto Fuel seen, both highly unsurprising given BRC and other data.
Japanese Trade (exports seen steady at 6.3% y/y , imports to jump on base effects & energy prices to 14.2% y/y), Australia Q2 Wages (median 0.6% q/q for unchanged 2.1% y/y) and Canadian CPI will be the other items of note.
PLEASE NOTE: I will be away next week, updates will resume on Monday 20th August.
..........................................................................
MARC OSTWALD
Global Strategist & Chief Economist
ADM Investor Services International Limited
It's a busy week for US, Chinese and UK data, with a raft of national European Q2 GDP reports thrown in for good measure. However the question is obviously whether any of this gets much traction, as the crisis in Turkey unfolds, along with any contagion, above all in terms of heightened volatility across asset classes (thus far relatively muted in absolute terms), and thus subordinating macroeconomic influences. A broad view on the Turkish "situation" can be found here: https://www.youtube.com/watch?v=5xvscDSg3v4&feature=youtu.be ; the geopolitical risk view is below. Given that it is also the peak week in terms of the summer holiday season, the events schedule is relatively modest, with little in the way of central bank speakers or meetings, outside of the semi-annual testimony from RBA governor Lowe. Politically, US/China trade tensions will obviously remain front and centre, as will Brexit negotiations, with a further round of high level EU/UK talks taking place on Thursday & Friday, and being touted as 'make or break', though the EU penchant for 'can kicking' always invites a great deal of highly justified scepticism about such 'make or break' hyperbole. The Q2 corporate earnings season starts to wind down, though retailers including WalMart feature in the US, while government bond will be quite as is seasonally typical.
- One can debate the economics of the Turkish situation ad nauseam, and it is in truth largely subsidiary to the geo-politics. My personal best guess is that Erdogan's days are numbered, the military remains the key force in Turkey, and Erdogan's purge of the military following 2016 coup has not changed that. The current economic chaos will force their hand, above all due to pressure from Moscow, Washington, Berlin, Paris, Rome & London - at the end of the day, the economics is heavily subordinate to it being at the nexus of everything that is geo-political in the Middle East, above all now that Assad & Putin have in effect won the brutal and inhuman civil war in Syria. It matters not whether that idea is abhorrent, it still a fact, perhaps best underlined by the point that the Golan Heights border between Syria and Israel is now being patrolled by Russian military police. The primary long-term consideration is that a swathe of countries from Turkey to Iran are being pushed ever further into the arms of the Shanghai Cooperation Organization, and ever further from the US, EU and NATO. In truth no one should be surprised, other than from the aspect that the supposedly 'mighty' western world has facilitated this by its incompetence, and probably still does not comprehend the long term 'direction of travel'.
- Be that as it may, the focus for the US will be Retail Sales, which will be restrained in headline terms (exp. 0.2% m/m) by the drop in Auto Sales, and to a lesser extent the dip in gasoline prices, with core measures seen up 0.4% m/m, sustaining a solid profile for Q3 personal consumption. After June's bumper readings for Industrial Production (0.6% m/m) and Manufacturing Output (0.8% m/m), July's readings are expected to show a more modest pace of expansion, but robust in trend terms at 0.3% m/m for both. The NAHB Housing Index, Housing Starts, NY & Philly Fed Manufacturing surveys, Q2 Unit Labour costs and Import Prices are also due. China's activity indicators are projected to how that Retail Sales growth continues to be restrained, forecasts 9.1% y/ vs. June 9.0% despite assertions from 'planners' that H2 will see a notable pick-up. Industrial Production is seen bouncing to 6.3% y/y from June's 6.0%, though edging down to 6.6% from 6.7% in year to date terms. Fixed Asset Investment (FAI) may be the key item with the headline seen unchanged at its cyclical low of 6.0% y/y, though it is Private FAI which requires most attention (last a solid 8.1% y/y, though lower than June's 8.4%), given that State-Owned (last 4.1% y/y) will likely only regain some traction in the latter part of Q3, and more meaningfully in Q4. German GDP remains forecast at 0.4% q/q, picking up very slightly from Q1, though edging down to 2.1% in y/y terms from 2.3%; the ZEW survey is also due. As a if not the key motor of EU growth, a close eye will also have to be kept on CEE Q2 GDP readings - forecasts look for Bulgaria at 3.3% y/y from Q1 3.6%; Czech Rep at 0.8% q/q 2.8 y/y; Hungary at 0.8% q/q 4.0% y/y; Poland 1.0% q/q 5.0% y/y; Romania at 1.5% q/q 3.8% y/y and Slovakia at 3.7% y/y from 3.6% - overall solid, though Poland stands out.
For the UK another raft of data is projected to see CPI unchanged on the month to edge the y/y rate up to 2.5% from 2.4%, with the unwind of seasonal sales discounting, a further rise in petrol prices and some further modest pressure from utility price hikes that are being drip fed into the index. PPI is seen edging fractionally higher in m/m terms, but little changed in y/y terms as GBP weakness offsets dips in a number of raw materials prices. Labour data forecasts imply market reaction will amount to nothing more than a shrug of the shoulders with Average Weekly Earnings forecast unchanged at 2.5% y/y and 2.7% y/y ex-Bonus, with Employment project to post a solid 95K rise. Retail Sales are not expected to punch out too many lights with a rise of 0.2% m/m headline and flat ex-Auto Fuel seen, both highly unsurprising given BRC and other data.
Japanese Trade (exports seen steady at 6.3% y/y , imports to jump on base effects & energy prices to 14.2% y/y), Australia Q2 Wages (median 0.6% q/q for unchanged 2.1% y/y) and Canadian CPI will be the other items of note.
PLEASE NOTE: I will be away next week, updates will resume on Monday 20th August.
..........................................................................
MARC OSTWALD
Global Strategist & Chief Economist
ADM Investor Services International Limited
