- Digesting China inflation, better than expected UK BRC Retail Sales,
BOE McCafferty comments, German Trade; awaiting UK Production & Trade,
US Productivity, Labour Costs, Wholesale Inventories; Austria to sell
10-yr, US offers 3-yr, more corporate earnings; OPEC oil output chatter
resurfaces
- UK Manufacturing Output: further slip expected, more a function of
April unwind than Brexit headwinds
- UK Trade: usual large deficit seen, focus on export, import growth
data
- Credit: new record for August corporate issuance likely, as investors
desperately reach for yield... but where is the benefit for the real
economy?
- Charts: GBP/USD, WTI Oil and JPM EMBI spread
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** EVENTS PREVIEW **
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While the day's schedule has plenty to offer in terms of statistics, these will have to spring some surprises, if they are to have anything more than a very passing impact. There are the overnight unsurprisingly better than expected UK BRC Retail Sales, China CPI/PPI (confirming that PPI fell at the slowest pace (-1.7% y/y) since August 2014, which suggests that any PBOC easing moves are likely to focus more on credit channels, rather than a rate cut) and German Trade (exports weaker than expected, Imports higher - emphasizing that domestic demand is the current engine of German growth) to digest. Ahead lies the largely pre-Brexit UK Industrial Production and Trade data and accompanying NIESR GDP estimate, while the afternoon brings US NFIB Small Business Optimism, Q2 Non-farm Productivity & Unit Labour Costs and the more esoteric Wholesale Sales & Inventories. On the policy side, the RBI has left rates unchanged as expected, but also retained a conditional easing bias, while the world of geo-politics has one of the ultimate spectacles of duplicity on offer via way of the Erdogan meeting with Putin, where what is said or supposedly agreed requires careful re-reading, on the surface and between the lines. Beyond that there are the comments from former BoE hawk McCafferty to consider, which were nothing more than a regurgitation of Carney's last week, i.e. underlining that if necessary rates can be cut further and that QE volume can be hiked, which sent the GBP below $1.30 (see chart). Meanwhile oil markets are once again subject to talk of OPEC and other oil producing nations meeting to discuss limiting output, with bankrupt and broken Venezuela as ever acting as a forlorn cheerleader. Reality suggests otherwise, particularly as Russia has already scuppered the idea barring a steep near-term fall in prices. Corporate earnings are again relatively plentiful, while the US kicks off this week's quarterly refunding with $24 Bln of 3-yr. But it is in the primary corporate bond issuance market, where the thundering drums of central bank approved and induced financial repression, as evidenced by a desperate reach for yield to compensate for bone crunching income deficits is most evidenced, as can be seen via the fresh 2016 lows for JPM EMBI spread in the attached chart, with yesterday's 3.0 Bln of 10 & 30-yr USD issuance from Mexico ostensibly nothing more than a drop of water on a hot stone, or via the likelihood that total IG Credit USD issuance this month will be a fresh record for an August. 2016 also looks to be set fair for record total issuance, and the question for central banks to answer is: with so much issuance at near record low interest rates, why is business investment so weak, and why does so much of the money that is borrowed via the credit markets just spin round the financial sector, either via buybacks or special dividends. Outside of the generally much lower overall capital requirements of the Technological (aka fourth industrial) Revolution, perhaps the simple answer is because they (central banks, policy makers) keep on sending negative messages on the economic outlook, both via the rhetoric and their actions, which hardly amounts to an exhortation for business investment, particularly an era where politicians' raison d'etre would appear to either sit on their hands, or put their feet in their mouths.
** U.K. - June Industrial Production / Trade Balance **
- In contrast to the run of survey and other anecdotal data, today's Industrial Production & Trade Balance are in principle pre-Brexit. Industrial Production is forecast to rise 0.1% m/m boosted by the resource sector, while Manufacturing Output for June is seen posting a further 0.2% m/m fall (May -0.5%), though the consensus forecasts look to be nothing more than an extrapolation from the advance Q2 GDP data for the sector, and the weak tone is rather more a function of unwinding April's outlier gain, than a de facto reflection of Brexit related caution or headwinds. As far as the Trade data goes, this is seen little changed at £-10.07 Bln vs. May's £-9.87 Bln, which again fits roughly with the GDP data, but with the 3-month Export and Import growth numbers being the main point of interest, particularly as the last month report omitted these measures in the initial report due to 'quality checks'.
from Marc Ostwald
