Ostwald, Marc
08:41 (11 minutes ago)
to Marc
- Digesting and awaiting remaining run of G7 flash PMIs, US Claims, New Home
Sales, FHFA House Prices along with Brazil and Mexico inflation; ECB
minutes not hotly anticipated; US 5-yr TIPS sale; markets still mulling
fall-out from Manafort/Cohen
- FOMC minutes offers few surprises, though underlines trade tensions
concerns, and flags autumn discussion on future of balance sheet
reduction programme
- Eurozone/US PMIs: seen improving modestly in Eurozone, edging fractionally
lower in US, but overall indicating solid pace of activity
- US News Home Sales; seen rebounding from June drop, though current
array of headwinds (but not demand) imply downside risks
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** EVENTS PREVIEW **
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Surveys dominate the day's statistical schedule, via way of G7 'flash' PMIs, French Business Confidence and the UK CBI Retail/Distributive Trades survey, with Us weekly Jobless Claims, New Home Sales, FHFA House Prices, Brazil IPCA-15 inflation and Mexico's mid-month CPI also due, while the ECB publishes the minutes of its July meeting, as the KC Fed's Jackson Hole Symposium kicks off. A busier day for earnings includes results from Alibaba, Gap, Hormel Foods and HP, while the US will also auction $14 Bln of 5-yr TIPS. Given that the message from the ECB at its July meeting was simply 'nothing has changed since the June meeting', today's minutes appear very unlikely to offer any fresh insights into the policy outlook. However the main market talking point is likely to be what are the implications of the Manafort / Cohen cases for Trump (specifically in impeachment risk terms), and by extension whether the USD correction has further to run. Eminently the GOP (Republicans) will not instigate any impeachment process, thus it is contingent on the Democrats winning control of the House at the November .mid-term elections. As a reminder, the US’ founding fathers primary intention with the inclusion of the impeachment process was to rein in the risk of a president behaving like a monarch, but without constraining the presidency to the will or whim of Congress. Thus the primary grounds for impeachment are ‘high crimes and misdemeanours’ including ‘great and dangerous offenses’, i.e. serious political crimes, rather than anything that might be tried in a criminal court, so as Cass Sunstein noted in his book, the list of potential offences in respect of Trump could amongst other be: "directing the Justice Department to prosecute someone for political reasons; pledging in advance to pardon anyone in law enforcement who commits a crime; using the F.B.I. or C.I.A. to get evidence of criminality against a political opponent; egregiously defaulting on his core presidential responsibilities; secretly bribing others in a direct quid pro quo or similarly receiving bribes; and secretly cooperating with a foreign power to promulgate false information against a political opponent" so the Russia case and obstruction of justice certainly fits with that list. The UK government will also be publishing a paper today on the impact of a Brexit “no-deal” on the financial services sector. The FOMC minutes offered few surprises, offering a very clear signal that rates will rise again in September barring an economic catastrophe. They also highlighted (very unsurprisingly) that protracted trade tensions posed a risk to the growth outlook, though without opining on how the FOMC might respond, but clearly the FOMC would respond once it has tangible evidence of what type of impact such tensions are having. The minutes note that the FOMC will hold a discussion in the 'fall' about what happens next with its balance sheet reduction (QT) programme, and markets will thus be hoping that tomorrow's Powell speech may offer the off hint or two on how the FOMC's thinking on QT is shaping up, above all given the fact that the theme for this year's Jackson Hole symposium is Changing Market Structure and Implications for Monetary Policy" - also see preview with IG here:
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** G7 - August 'flash' PMIs **
- As is very often the case, forecasts for today's 'flash' PMIs look rather agnostic, with a marginal improvement seen for the Eurozone, with the Services sector expected to break the gentle downtrend that has been in place this year, as Manufacturing did in July, with the French PMIs turning out modestly stronger than expcected along (Mfg 53.7 up 0.4, Services 55.7 up 0.8) with French Manufacturing Confidence also rising to 110 from an upward revised 109 in July) . As for the US, PMIs are seen dipping a little further with the Manufacturing index seen at a low for 2018 at 55.0, which would still signal a robust pace of activity, and in truth still sustain a very narrow range, given the year's high was 56.5. Price and Employment indices will probably provide the main talking points, and overall these reports will need to be quite wide of forecasts to have anything more than a passing impact. Much the same can be said of the UK CBI Distributive Trades Survey, which has long fallen out of favour with markets given the rather more reliable indications from the likes of the BRC, Kantar, Barclaycard and Visa reports on consumer spending.
** U.S.A. - July New Home Sales **
- The marginally lower than expected Existing Home Sales (-0.7% m/m vs. expected 0.4%) probably has very little in the way of read across for today's New Home Sales, which are expected to claw back some of June's relatively sharp 5.3% m/m fall with a 2.2% rebound to a very solid 645K SAAR. The risks look to be to the downside, given the headwinds of higher raw materials prices (mainly lumber) and a lack of skilled labour, and a historically still relatively low level of new home inventories, due in no small part due to a lack of suitable lots for development in some prts of the country. Per se a weak number would say little about underlying demand, and should certainly not be attributed to higher mortgage rates, but would imply that the modest drag (ca -0.1 ppt) on GDP from housing investment in H1 2018 may well persist into Q3.
from Marc Ostwald