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Dentalfloss · Jul 3, 2019

lined up

Dentalfloss · Jul 3, 2019

Good Morning: The Long & the Short of it and The Bigger Picture - 3 July 2019 - ADM ISI

Ostwald, Marc

08:56 (10 minutes ago)

to Marc

- Digesting EU/ECB appointments, BRC Shop Prices, Australia Trade and Riksbank
rate decision, as Services PMIs and US ADP Employment dominate schedule;
NBP rate decision and BoE speakers also on tap; new German 5-yr

- Services PMIs - overall more positive profile than poor Manufacturing
readings; Italy, UK likely to echo disappointing India profile

- US ADP Employment: expected to rebound along with Payrolls, though
pace of labour demand seen slowing relative to prior to 12-mth average

- EU/ECB: Lagarde appointment puts even more focus on who will succeed
Coeure: von der Leyen tenure as German defence minister a very poor
steer in capability, likely to be a large improvement on Juncker

- Poland NBP Rate decision: on hold again, but perhaps more dovish?

- Audio preview:
https://www.mixcloud.com/MOstwaldADM/adm-isi-morning-call-3-july-2019/

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** EVENTS PREVIEW **
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A much busier day awaits in terms of statistics, though a shortened US session ahead of tomorrow's Independence Day holiday will likely impair trading volumes. Services PMIs globally and US ADP Employment top the run of data, as markets digest UK BRC Shop Prices, Australia Building Approvals & Trade Balance along with Turkish CPI & PPI. Sweden's Riksbank is expected to hold rates at -0.25%, and for the time being has not materially adjusted its rate trajectory, even if the latest 'dovish' turns by the Fed, ECB & BoJ inject a note of renewed caution. Poland's NBP is also seen holding rates at 1.50%, though there is some speculation that it may indicate that if the economy were to slow, it would look to ease policy. especially with core CPI subdued; though the fact is that Q2 GDP is seen marginally stronger at 4.4% y/y vs. 4.3% in Q1. Otherwise there are a number of BoE and Riksbank speakers, while Germany sells a new 5-yr OBL. Services PMIs should offer something of a salve after the poor Manufacturing PMIs, though Italy and the UK will probably be downbeat, though the drop in India's Services PMI underlines the challenges that the re-elected Modi govt is facing in terms of getting the economy back on drop, above all given the headwinds from the from the financial sector. However it is the US ADP Employment report which may command most attention, following from the very weak ADP and Payrolls reports for May. For all that May's ADP was a good pointer for Payrolls, the usual caveats do apply that the correlation in directional terms relative to consensus forecasts is by no mean reliable. As with Payrolls, a rebound is expected to 140k from May's 27K, per se suggesting that while labour demand appears to be slowing, it is nothing as dramatic as the May readings implied.

The hot topic for the day will inevitably continue to be the hard won compromises on the senior EU and ECB appointments. Much is being made of Ursula von der Leyen's tenure as German defence minister, which to be frank is THE most poisoned chalice as far as ministerial positions in the German cabinet go, given the deep pacifism that has taken root in Germany over many decades, but above all since the end of the cold war. In
truth Merkel moved her to Defence, knowing full well that this would neutralize von der Leyen, after she the latter successfully challenged Merkel when she was Family Minister, a role in which she instituted a number of much needed and successful reforms, and it is that which makes her an excellent choice as the new Commission President. By contrast the appointment of Lagarde as ECB president will a) raise questions about politicization of the role, above all because b) in sharp contrast to Draghi, Lagarde does not have any background in economics or indeed monetary policy formulation. By extension this puts even greater emphasis on finding a successor for the excellent, always thoughtful and extraordinarily Benoit Coeure as director of operations - who would have been the ideal choice as Draghi's successor.