Dentalfloss
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** EVENTS PREVIEW **
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A busier day is in prospect with the ECB meeting and press conference as its centrepiece, along with a very large slug of US corporate earnings. At the macro statistical level, the UK continues to hog the limelight, with Retail Sales and PSNB rounding off this week's official data (the one-off 'flash' PMIs being on tomorrow's schedule, while the US has weekly jobless claims, the Philly Fed Manufacturing Survey and Existing Home Sales, and Brazil its IPCA-15 CPI. There will be some interest in how the French and Spanish bond auctions fare, following one of the worst attended German 5-yr sale yesterday (EUR 5.0 Bln offer, just EUR 3.486 Bln of bids), though the latter was always a hard sell as a new issue, i.e. zero coupon and an inital price 102.69, with redemption as ever at 100.00. In addition to the ECB, there are also expected no change rate decisions in Indonesia, and rather more sensitively South Africa, even if the local political risk is now seen as modest relative to Turkey. Last but not least as the oil market continues to fret over the implications of lowered global growth expectations for oil demand, there is the EIA's annual energy outlook.
** U.K. - June Retail Sales / PSNB **
- Following on from yesterday's labour data and perhaps more significantly the Bank of England's Agents' reports, there should be some rather big questions being asked of the MPC. The Agents' report made it very clear that while there a lot of caution due to the Brexit related uncertainty, there were few, if any indications that it has impacted business flows or employment, as yet. So the first question goes to Mr Haldane's call for a "muscular" easing move in August, and preferably of the variety that equates to using a sledgehammer to crack a nut: so what about if you do not know which nut, you are trying to crack? Not only might this have a series of unintended consequences, but it should also be fairly obvious that the necessary intelligence and signals about what is happening in the UK economy post referendum will probably not emerge until Q4. "We must do something" is not a policy strategy, above all in the absence of necessary evidence, the Bank's (and indeed anybody's) models are worthless in such an unprecedented situation. This is not to say they are powerless, but rather that circumspection should be their watchword, the more so given the limited scope of policy at the zero bound on rates, and having already loosened bank capital requirements and introduced the weekly medium-term repo operations. As for Mr Carney, the question is: why did you paint yourself and the MPC into a corner with that stong hint of policy action in the "summer months", was it just a panic reaction to the political chaos, and how are you now going to "manage market expectations" ahead of the August QIR and policy meeting? This is not about 'forward guidance', this is about ensuring that 'market disappointment' is contained, if the need to postpone a major policy decision continues to become ever more obvious. At least Ms Forbes appears to be on this page of the book along with the departing Mr Weale. It should be equally obvious that it is the fiscal policy response that is critical, and potentially far more effective (if the correct options are adopted), and therefore today's PSNB will be interesting for what indicates about how the government's coffers look at the current juncture, with forecasts looking for no change in the headline PSNB relative to last June, which cumulatively leaves the budget deficit at the same level as the first quarter of FY2015/16 in nominal terms. Eminently the sharp moves in the GBP means that the ONS will have to make some substantial adjustments to the budget arithmetic. As for Retail Sales, these are expected to see a drop of 0.5% m/m, though this has to be viewed in the context of the strength seen in April (+1.9% m/m) and May (+0.9% m/m), and therefore such a fall would be more of a mean reversion, than signalling pre-referendum caution. It should also be noted that some of the post referendum retail footfall has to be treated with some care, in so far as it would have been negative in y/y terms as the pendulum continues to swing from High Street to Internet.
from Marc Ostwald
********************
A busier day is in prospect with the ECB meeting and press conference as its centrepiece, along with a very large slug of US corporate earnings. At the macro statistical level, the UK continues to hog the limelight, with Retail Sales and PSNB rounding off this week's official data (the one-off 'flash' PMIs being on tomorrow's schedule, while the US has weekly jobless claims, the Philly Fed Manufacturing Survey and Existing Home Sales, and Brazil its IPCA-15 CPI. There will be some interest in how the French and Spanish bond auctions fare, following one of the worst attended German 5-yr sale yesterday (EUR 5.0 Bln offer, just EUR 3.486 Bln of bids), though the latter was always a hard sell as a new issue, i.e. zero coupon and an inital price 102.69, with redemption as ever at 100.00. In addition to the ECB, there are also expected no change rate decisions in Indonesia, and rather more sensitively South Africa, even if the local political risk is now seen as modest relative to Turkey. Last but not least as the oil market continues to fret over the implications of lowered global growth expectations for oil demand, there is the EIA's annual energy outlook.
** U.K. - June Retail Sales / PSNB **
- Following on from yesterday's labour data and perhaps more significantly the Bank of England's Agents' reports, there should be some rather big questions being asked of the MPC. The Agents' report made it very clear that while there a lot of caution due to the Brexit related uncertainty, there were few, if any indications that it has impacted business flows or employment, as yet. So the first question goes to Mr Haldane's call for a "muscular" easing move in August, and preferably of the variety that equates to using a sledgehammer to crack a nut: so what about if you do not know which nut, you are trying to crack? Not only might this have a series of unintended consequences, but it should also be fairly obvious that the necessary intelligence and signals about what is happening in the UK economy post referendum will probably not emerge until Q4. "We must do something" is not a policy strategy, above all in the absence of necessary evidence, the Bank's (and indeed anybody's) models are worthless in such an unprecedented situation. This is not to say they are powerless, but rather that circumspection should be their watchword, the more so given the limited scope of policy at the zero bound on rates, and having already loosened bank capital requirements and introduced the weekly medium-term repo operations. As for Mr Carney, the question is: why did you paint yourself and the MPC into a corner with that stong hint of policy action in the "summer months", was it just a panic reaction to the political chaos, and how are you now going to "manage market expectations" ahead of the August QIR and policy meeting? This is not about 'forward guidance', this is about ensuring that 'market disappointment' is contained, if the need to postpone a major policy decision continues to become ever more obvious. At least Ms Forbes appears to be on this page of the book along with the departing Mr Weale. It should be equally obvious that it is the fiscal policy response that is critical, and potentially far more effective (if the correct options are adopted), and therefore today's PSNB will be interesting for what indicates about how the government's coffers look at the current juncture, with forecasts looking for no change in the headline PSNB relative to last June, which cumulatively leaves the budget deficit at the same level as the first quarter of FY2015/16 in nominal terms. Eminently the sharp moves in the GBP means that the ONS will have to make some substantial adjustments to the budget arithmetic. As for Retail Sales, these are expected to see a drop of 0.5% m/m, though this has to be viewed in the context of the strength seen in April (+1.9% m/m) and May (+0.9% m/m), and therefore such a fall would be more of a mean reversion, than signalling pre-referendum caution. It should also be noted that some of the post referendum retail footfall has to be treated with some care, in so far as it would have been negative in y/y terms as the pendulum continues to swing from High Street to Internet.
from Marc Ostwald
