Dentalfloss
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Ostwald, Marc
Attachments
08:46 (1 hour ago)
to Marc
- Busier day for data, but still modest: South Africa CPI, US Existing Home
Sales & Canada Retail Sales due; FOMC minutes rather more important as
Cohen/Manafort 'convictions' heighten Trump impeachment risks somewhat
- South Africa CPI: ZAR weakness to put further upward pressure on food
and energy prices; but core CPI seen well contained; SARB more
concerned about growth rather than inflation short-term
- US Existing Home Sales: very steady demand profile expected to be
sustained, 'not too hot, not too cold'
- FOMC minutes: discussion around need for 'restrictive' rate policy in
focus
- Canada Retail Sales: marginal setback expected after May surge, implies
very strong outturn for Personal Consumption in terms of Q2 GDP
- Charts: ZAR/USD and US Financial Conditions
..........................................................................
********************
** EVENTS PREVIEW **
********************
There is a little more on the statistical side of the agenda today, though South African CPI, US Existing Home Sales and Canadian Retail Sales are likely to play second fiddle to the July FOMC minutes in terms of market focus. L Brands, Lowe's and Target sustain this week's modest, but steady stream of US retail sector corporate earnings. Govt bond supply takes the form of an EUR 3.0 Bln sale of 10-yr German Bunds. But all of this seems likely to pale into insignificance, following the guilty plea by Trump's former lawyer Cohen and the conviction on various counts of his erstwhile campaign manager Manafort with obviously negatively implications for the President, even if the peculiarities of the GOP's (Republican Party) current demeanour suggest that a move to starting impeachment proceedings is far from certain, though a higher probability has now to be accorded to such an event. In respect of Canadian Retail Sales, expectations of a marginal dip in headline (-0.2% m/m) and ex-Autos Sales (-0.1% m/m) underline the strength of Personal Consumption in Q2, in so far as this would be a marginal setback following outsized gains of 2.0% and 1.4% m/m respectively in May.
** U.S.A.- July FOMC Minutes / Existing Home Sales **
- Ahead of the FOMC minutes, Existing Home Sales are forecast to be little changed at 5.40 Mln vs. June's (likely revised) 5.38 Mln and May's 5.41 Mln, which is roughly just below mid-range for the period since the start of 2016. Per se this would be rather dull, even if indicative of a solid pace of home demand that is genuinely neither too hot (as per September 2005's 7.25 SAAR peck) nor too cold (as per July 2010's cyclical low of 3.45 Mln). The Cassandra fraternity have been quite vociferous in suggesting that housing is now facing increasingly severe headwinds from rising mortgage rates, though the evidence theretofore is absent barring second derivative type observations that are the bread and butter of the community of hyperbolists that would vent their spleen at the opening of an envelope. The FOMC has plotted a remarkably steady course for some 18 months, and is clearly determined to stick with this gradualist approach, and perhaps cognizant that its collective 'funk' in 2016 in response to equity volatility, above all the ostensible 'meltdown' in China, demonstrated a hypersensitivity to market gyrations that did not enhance its credibility. Today's minutes will be closely watched given the debate on whether the ultimate policy trajectory is the 'neutral rate' (June estimate 2.875%), or whether it needs to be or rather may need to be restrictive (as a dot plot projection of 3.375% for 2020 implies), which should be accorded a higher probability given the formerly very dovish Evans signal shift to a quasi-hawkish stance. While the statement for the meeting had a modestly hawkish tilt, but eschewed references to trade tensions, there will be interest into the discussion on potential risks. Some of the markets' chatterati have also suggested that the FOMC is probably at the point where it will start to debate ending or tapering its balance sheet reduction programme, which is in truth only going to reach its peak pace of $50 Bln / month in Q4 2018 - per se such speculation looks to be very premature. This is all the more the case given that US financial conditions remain very loose - see chart.
** South Africa - July CPI **
- As forecasts for today's data underline, the primary upward pressure on inflation will likely be cumulative pressures from a weaker ZAR (likely to be rather more emphatic in the August edition) on the very sensitive non-discretionary areas of food and energy. Base effects also play a role, with a low m/m reading in July 2017 (0.3% m/m) falling out of the comparison in headline terms, with a 0.8% m/m expected to push up the y/y rate up to 5.1% from a lower than projected 4.6% in June, which would be the highest since September 2017 though still well contained in the SARB's 3-6% target range. Core CPI is however projected at a more modest 0.5% m/m, that would see the y/y rate remain relatively subdued at 4.2%. Recent SARB commentary has underlined that deteriorating growth projections are its primary point of concerns, effectively bemoaning uncertainty around the proposed govt 'land grab' and a lack of clarity, indeed impetus, on other very necessary structural reforms. The SARB has thus far eschewed any suggestion of propping up the ZAR via intervention, perhaps correctly given that last week's ZAR swoon in the face of TRY contagion has proved to be rather less of a 'one way ticket' to EM obloquy than the 'crash' to 15.55 suggested (see chart), given the subsequent recovery. The vulnerabilities remain all too obvious.
from Marc Ostwald
Attachments
08:46 (1 hour ago)
to Marc
- Busier day for data, but still modest: South Africa CPI, US Existing Home
Sales & Canada Retail Sales due; FOMC minutes rather more important as
Cohen/Manafort 'convictions' heighten Trump impeachment risks somewhat
- South Africa CPI: ZAR weakness to put further upward pressure on food
and energy prices; but core CPI seen well contained; SARB more
concerned about growth rather than inflation short-term
- US Existing Home Sales: very steady demand profile expected to be
sustained, 'not too hot, not too cold'
- FOMC minutes: discussion around need for 'restrictive' rate policy in
focus
- Canada Retail Sales: marginal setback expected after May surge, implies
very strong outturn for Personal Consumption in terms of Q2 GDP
- Charts: ZAR/USD and US Financial Conditions
..........................................................................
********************
** EVENTS PREVIEW **
********************
There is a little more on the statistical side of the agenda today, though South African CPI, US Existing Home Sales and Canadian Retail Sales are likely to play second fiddle to the July FOMC minutes in terms of market focus. L Brands, Lowe's and Target sustain this week's modest, but steady stream of US retail sector corporate earnings. Govt bond supply takes the form of an EUR 3.0 Bln sale of 10-yr German Bunds. But all of this seems likely to pale into insignificance, following the guilty plea by Trump's former lawyer Cohen and the conviction on various counts of his erstwhile campaign manager Manafort with obviously negatively implications for the President, even if the peculiarities of the GOP's (Republican Party) current demeanour suggest that a move to starting impeachment proceedings is far from certain, though a higher probability has now to be accorded to such an event. In respect of Canadian Retail Sales, expectations of a marginal dip in headline (-0.2% m/m) and ex-Autos Sales (-0.1% m/m) underline the strength of Personal Consumption in Q2, in so far as this would be a marginal setback following outsized gains of 2.0% and 1.4% m/m respectively in May.
** U.S.A.- July FOMC Minutes / Existing Home Sales **
- Ahead of the FOMC minutes, Existing Home Sales are forecast to be little changed at 5.40 Mln vs. June's (likely revised) 5.38 Mln and May's 5.41 Mln, which is roughly just below mid-range for the period since the start of 2016. Per se this would be rather dull, even if indicative of a solid pace of home demand that is genuinely neither too hot (as per September 2005's 7.25 SAAR peck) nor too cold (as per July 2010's cyclical low of 3.45 Mln). The Cassandra fraternity have been quite vociferous in suggesting that housing is now facing increasingly severe headwinds from rising mortgage rates, though the evidence theretofore is absent barring second derivative type observations that are the bread and butter of the community of hyperbolists that would vent their spleen at the opening of an envelope. The FOMC has plotted a remarkably steady course for some 18 months, and is clearly determined to stick with this gradualist approach, and perhaps cognizant that its collective 'funk' in 2016 in response to equity volatility, above all the ostensible 'meltdown' in China, demonstrated a hypersensitivity to market gyrations that did not enhance its credibility. Today's minutes will be closely watched given the debate on whether the ultimate policy trajectory is the 'neutral rate' (June estimate 2.875%), or whether it needs to be or rather may need to be restrictive (as a dot plot projection of 3.375% for 2020 implies), which should be accorded a higher probability given the formerly very dovish Evans signal shift to a quasi-hawkish stance. While the statement for the meeting had a modestly hawkish tilt, but eschewed references to trade tensions, there will be interest into the discussion on potential risks. Some of the markets' chatterati have also suggested that the FOMC is probably at the point where it will start to debate ending or tapering its balance sheet reduction programme, which is in truth only going to reach its peak pace of $50 Bln / month in Q4 2018 - per se such speculation looks to be very premature. This is all the more the case given that US financial conditions remain very loose - see chart.
** South Africa - July CPI **
- As forecasts for today's data underline, the primary upward pressure on inflation will likely be cumulative pressures from a weaker ZAR (likely to be rather more emphatic in the August edition) on the very sensitive non-discretionary areas of food and energy. Base effects also play a role, with a low m/m reading in July 2017 (0.3% m/m) falling out of the comparison in headline terms, with a 0.8% m/m expected to push up the y/y rate up to 5.1% from a lower than projected 4.6% in June, which would be the highest since September 2017 though still well contained in the SARB's 3-6% target range. Core CPI is however projected at a more modest 0.5% m/m, that would see the y/y rate remain relatively subdued at 4.2%. Recent SARB commentary has underlined that deteriorating growth projections are its primary point of concerns, effectively bemoaning uncertainty around the proposed govt 'land grab' and a lack of clarity, indeed impetus, on other very necessary structural reforms. The SARB has thus far eschewed any suggestion of propping up the ZAR via intervention, perhaps correctly given that last week's ZAR swoon in the face of TRY contagion has proved to be rather less of a 'one way ticket' to EM obloquy than the 'crash' to 15.55 suggested (see chart), given the subsequent recovery. The vulnerabilities remain all too obvious.
from Marc Ostwald
