** EVENTS PREVIEW **
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In the hiatus between Japan's fiscal stimulus plan and the BoE meeting tomorrow, markets have Services PMIs to digest along with the not necessarily reliable pointers for Friday's US Labour market report via way of the ADP Private Employment estimate. There are also the UK BRC Shop Price Index to digest along with inflation readings from Turkey, while South Africa's local elections will be closely watched for signals on the potential for regime change. Another raft of US corporate earnings is also due, while Germany offers a further tranche of its 2-yr Schatz (coupon free as ever), for which something of an auction concession has been fashioned, though a yield of -0.60% is only marginally less repressive than the mid-July low of -0.70%. Thus far August appears to be warming up to be another edition of 'wash, rinse, repeat', in this case of August 2015, as poor seasonal factors combine with the rediscovered anxiety that: a) central bank monetary largesse is not and has not been effective and may have largely reached its denouement, and is certainly no cure of bank balance sheet woes (evn though the US lesson about the efficacy of TARP/TALF clearly underlined that); b) that achieving demand balance in the oil market is not just a matter of crude, but also oil product demand, which is as dependent on the price depressing impact of technological developments that are positive in terms of end user energy costs, but not demand accretive; c) that political developments cannot simply be dismissed as 'sound and fury' that will ultimately signify nothing, and that without political actors complementing ultra-accommodative monetary policy with fiscal and reform actions, then economies will remain stuck in a rut. Ultimately this is all very much in the vein of Hirschman's 'hiding hand' principle, which argues that creativity is the key problem solving tool when we face unexpected situations; and that it is only via the experience of impotence when faced with the unexpected that we develop the innovative knowledge to solve problems, and that ‘rational choice’ dogma often stifles innovation and creativity.
** World - July Services PMIs **
- As was the case with Monday's Manufacturing PMIs, a large dose of 'shoulder shrugging' may well be all that markets can muster in terms of a reaction to most of today's readings. There will be particular interest in whether the final UK reading is revised lower as was the case with the Manufacturing reading, or whether it sees any stability at subdued levels, as per yesterdays' Construction PMI. 'Across the pond', the Non-Manufacturing ISM is projected to be marginally lower at 56.0 vs. June's final 56.5, though the Business Activity is seen unchanged at a very solid 59.5, in both cases signalling a much more robust sector profile than the Markit Services PMI (prov. 50.9).
** U.S.A. - July ADP Employment **
- As the attached chart highlights, after a relatively close correlation in the early part of the year, the ADP survey has seen some hefty divergence with the official Private Payrolls reading in the past two months. As ever projections for the two measures are the same at a solid +170K, with the anecdotal evidence from surveys proving to be rather mixed, and official pointers rather divergent with a seasonally typical fall in the JOLTS jobs Openings to 5.5 Mln from 5.85 Mln, while Initial Claims for the establishment survey were very low at 253K. Recent comments from Fed officials have suggested that while the breakeven rate for payrolls growth is in the 80K to 100K range, the more dovishly inclined would like to see a pace of 150K maintained, presumably in the hope that this will put more upward pressure on wages .... and they can then find themselves hopelessly behind what should be a very unambitious curve for raising rates. Be that as it may, it has to be added that there is so much data to be published between now and the September 20/21 FOMC meeting, that this week run of labour market readings is merely one among many data points, which may or not give financial markets a jolt, but not decisive in terms of the policy outlook. The latter is very much the gist of Fed policy centrist Lockhart's comment overnight that it is 'too soon to rule out rate hike at next Fed meeting'.
from Marc Ostwald
