** EVENTS PREVIEW **
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While the day belongs to the Fed, the pre-amble has a number of points of interest, kicking off with the overnight Australian CPI , surveys in France, Germany and Italy ahead of the as ever scantily detailed preliminary reading on UK Q2 GDP accompanied by the generally not overly sensitive CBI Distributive Trades survey, ahead of US Durable Goods Orders and Pending Home Sales. A further rash of US and other Corporate earnings will provide the micro-economic mood music. The other point of discussion will be the Japanese supplementary budget, with details of how much of the JPY 28 Trln package is genuinely new, and how much a redeployment of existing spending, and what it implies for the BoJ policy decision on Friday. I have previously referenced the phenomenon of apophenia, or 'patternicity', in the context of discussing 'big data'. For all that the 'on the follow' point appears to be rather philosophical, I can only observe that if financial markets and the very non-omniscient central banker community have sunk so deeply into an undiscerning 'love in' with survey statistics (most recently MPC's Weale), then the navigation course is 'set the controls for shipwreck'. Numbers, above all statistics are in essence nothing more than a brutal binary perspective, shorn of any form of any qualitative judgement. A digitally mediated age moderated by verbal hyperbole almost inevitably trusts numbers more than words, despite the very bright neon proverbial warning sign of 'lies, damn lies and statistics'. A numerical narrative is per se a variation on Russian Roulette - bald, absolute and unforgiving as a gambler's de facto environment.
** U.K. - Q2 GDP **
- As has been long apparent, the UK economy was humming along at a very respectable pace in Q2, and today's preliminary GDP data are expected to confirm that with a 0.5% q/q 2.1% y/y reading. An uptick in the manufacturing sector along with a robust pace of private consumption are likely to have been the key drivers, though the accompanying Index of Services is expected to highlight a rather sluggish pace, with the consensus looking for just 0.1% m/m, and 0.3% q/q in the three months too May. All of this is likely to be seen as rather moot in the context of the August MPC policy decision, even if a better than expected reading gives the GBP a modest boost. The CBI Distributive Trades Survey's Retailing Sales index is expected to slip only modestly to 1 from 4, with anecdotal evidence offering little reason to suggest that consumer spending has slowed materially in the immediate wake of the Brexit referendum, though this may of course change going forward.
** U.S.A. - FOMC rate decision **
- As the attached chart highlighting a near vertical ascent in Citi's US Economic Surprises Index attests, incoming US data make a more than compelling case for the FOMC to take a further step away from its extreme level of monetary accommodation, were it not for the cohort of global economic and geo-political uncertainties. That said, it has been noticeable that most Fed speakers have taken the view that the fall-out from the Brexit referendum will have only a marginal, if any impact on the US economy. The question in terms of the statement is the extent to which the FOMC acknowledge the strength of incoming data, and hints at the possibility of a September rate hike, but without any pre-commitment. The Fed's dilemma is one of its own making, namely the incessant vacillation between expressing optimism and acknowledging the relative strength of the US economy on the one hand, and then opting for caution due to international developments, primarily due to concerns about negative feedback loops into the US financial sector. Outside of undermining its credibility, given that financial stability is not a primary target for monetary policy (though obviously a consideration), the impression that the FOMC is primarily concerned about asset prices is overwhelming, and certainly the primary reason for market scepticism about the Fed delivering on its policy tightening hints.
** U.S.A. - Durable Goods Orders, Pending Home Sales **
- While Durable Goods Orders are a volatile series, the trend in both headline and core measures has been sluggish for a protracted period. Today's headline orders are expected to take another hit from aircraft orders with a 1.4% m/m fall expected to follow May's -2.3% m/m, the ex-Transport measure is seen rising 0.3% m/m though this would merely be a reversal of a similarly sized fall in May. As for the CapEx proxy that is Non-defence Capital Goods Orders ex-Aircraft, a very modest 0.2% m/m rise is expected, which would paint a very weak underlying picture, given that this follow's May's -0.4% and April's -0.9%. However in terms of last minute tweaks to forecasts for Friday's advance Q2 GDP reading, it is the Shipments data that will be key with a 0.4% m/m gain expected after a drop of 0.5% in May and a rise of 0.6% m/m in April, which would suggest that the Equipment spending component of GDP should eke out a small gain. Pending Home Sales are expected to rebound 1.2% m/m after an unexpected, indeed counterfactual drop of 3.0% m/m in May, with the risks ostensibly to the upside given the broad based strength seen in most housing sector indicators.
from Marc Ostwald