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Dentalfloss · Aug 1, 2019

WAZAA........

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Dentalfloss · Aug 1, 2019

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Dentalfloss · Aug 1, 2019

Lookin a tad overbopught

Dentalfloss · Aug 1, 2019

Dentalfloss · Aug 1, 2019

Dentalfloss · Aug 1, 2019

Dentalfloss · Aug 1, 2019

Dentalfloss · Aug 1, 2019

Good Morning: The Long & the Short of it and The Bigger Picture - 1 August 2019 - ADM ISI

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Ostwald, Marc

09:15 (10 minutes ago)

to Marc

- Digesting Fed fall-out; trawling through Manufacturing PMIs, also awaiting
BoE rate decision & Q3 Inflation Report, US jobless claims, Auto Sales &
Construction Spending; further rash of earnings, French & Spanish bond
sales

- Manufacturing PMIs: little reason to expect much comfort

- BoE: on hold, manacled by Brexit uncertainty, forecasts in focus, and
any comments on risks from GBP fall

- Fed making a mess of expectations management; as with ECB & BoJ quality
of guidance going MIA

- US Auto Sales: expected to slow after two strong months, industry
estimates imply downside risks

- Audio preview:
https://www.mixcloud.com/MOstwaldADM/adm-isi-morning-call-1-august-2019/

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** EVENTS PREVIEW **
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With the FOMC meeting out of the way, and a new month under way, the data schedule is of course dominated by Manufacturing PMIs/ISM, and otherwise has the already well flagged continued sharp drop in Korea Exports & Imports to digest, where the impact of US/China trade tensions are being additionally exacerbated by the bilateral trade stand-off with Japan. Ahead, the only other items of note are in the US, with weekly jobless claims, Auto Sales and Construction Spending. Aside from digesting the fall-out from yesterday's Fed meeting, the BoE and Czech National Bank are seen holding policy rates, with the BoE also publishing its Q3 Inflation Report, and holding a press conference. France and Spain round off this week's busier week for govt bond auctions in France and Spain. While another rash of corporate earnings has Axa, Barclays, Generali and Standard Chartered on the financials side in Europe, along with BMW, Deutz, Enel, Rio Tinto and Shell in the real economy space. The focus in the US looks likely to be on ADM, General Motors, Kellogg, Kraft Heinz, US Steel and Verizon, with Brazil looking to Petrobras.

Quick and brief Fed / G7 central bank thought - Markets are/were disappointed with the Fed , which was always a high risk, because the Fed let them run away with themselves on the rate outlook, and now Powell has made a hash of communicating their current policy. The key point is however that the ECB, BoJ and Fed are not sounding enthusiastic about easing policy at the current juncture, so the principles of forward guidance and "whatever it takes" have been given a hospital pass, perhaps even a death knell.. markets need to prepare for a paradigm shift, TINA & FOMO may be next up for Madame Guillotine... There is some irony when Brazil's BCB is doing much better on communication with its larger than expected 50 bps rate cut to a record low of 6.0%, and a clear signal of more to come, as long as inflation remains subdued, and public frustration at the slow pace of (lack of?) economic reforms does not boil over.

** World - July Manufacturing PMIs **
- As previously noted, there is no reason to expect any material improvement in today's manufacturing surveys, above all given the downbeat 'flash readings' for the G7, and the weak UK CBI Industrial Trends and SME surveys, and this is already assumed in forecasts, and confirmed by the run of Asian readings. That said, the US ISM may be less downbeat than the PMI, both given the mostly better regional surveys (except for that slide in yesterday's Chicago PMI), and a solid increase in the ADP sub-index for the sector, though the consensus looks for a marginal uptick to 52.0 from a three year low of 51.7 in June. By contrast the UK reading may well miss an already downbeat forecast of 47.6 from June's 48.0, not only given those aforementioned surveys, but also due to the latest GBP slide on the higher risk of a 'No deal' Brexit. Depending on when responses were submitted, this may have a greater impact on August readings.

** U.K. - BoE MPC meeting & Q3 Inflation Report **
- The BoE's hands are still firmly tied its back and to the mast of Brexit related uncertainty, though there will be interest in how the BoE might tweak its forecasts in the face of recent weaker data, notwithstanding the latest Retail Sales and Average Weekly Earnings. While the BoE had already started to row back in June on the suggestion that markets were under-pricing the trajectory (higher) for UK rates, the latest GBP plunge on the back of Johnson's no deal threat leaves its previous core assumption of an orderly Brexit looking at best very tenuous. On the other hand, what will actually materialize in respect of Brexit is now even more opaque than it has been, and is clearly weighing heavily on Capex, which of course makes the task of forecasting an outlook for the UK economy a thankless task, and leaves the BoE in an unenviable position. Unlike the Fed, pre-emption is not an option that is on the table, and even more so given what proved to be an overly precipitous reaction in Q3 2016 after the referendum. As Haldane observed recently, a 'wait and see' mandate until the fog around Brexit starts to clear looks to be the only sensible tactic open to the MPC. Tangentially Haldane is effectively conceding that this is a political endgame (?), which the BoE can only observe from the sidelines, even if it will be expected to help clean up the mess from the fall-out of whatever actually happens, even if, like the ECB and BoJ, its room for manoeuvre in a very adverse economic environment looks to be rather limited, though it cannot admit this ex-ante. That said, the BoE has a supervisory role for the financial sector, and the longer the Brexit uncertainty persists, the more vulnerable the UK's secured lending on property (of all types) banking model, largely unchanged since the mid-19th century starts to look. As an aside, the GBP's weakness could well prove to be the Achilles heel of PM Johnson's current strategy of exuberant over-confidence, and he would do well to heed the damaging lessons that the FX markets inflicted on many a previous UK Prime Minister, most recently Margaret Thatcher and John Major, but also Harold Wilson before them.

** U.S.A. - July Auto Sales **
- Auto Sales, which after two unexpectedly strong months are seen dropping to a 16.9 Mln SAAR pace from 17.4 Mln, with some industry estimates suggesting an outturn as low as 16.6 Mln, and this also tallies with recent anecdotal evidence. It also implies, if correct, that that auto sales will be a fairly large drag on July's Retail Sales.