Trading with point and figure

Digesting Japan Trade, China Property Price and Australian labour data;
looking to UK Retail Sales, final Eurozone CPI, US Claims & Philly Fed;
US to re-open 5-yr TIPS

- Poor Japan Trade data echoes signal from Singapore on global Trade

- China Property Price suggesting impetus from sector losing traction

- UK Retail Sales: plenty of over-interpretation risks; higher than
expected outturn would put focus on GBP shorts

- US 5-yr TIPS sale: low breakeven rate lagging oil price rebound

- Fed minutes: divisions on how to interpret incoming data in terms of
policy outlook all too clear
********************
** EVENTS PREVIEW **
********************

A busier day in terms of statistics will probably have to offer some surprises, if it is to wake financial markets from their summer holiday related reverie. On the 'to digest' agenda, there are the overnight Japan exports data mirroring the weakness seen in the Singapore data yesterday; rather ho-hum Australian labour data and China Property Price data, which fit with other signals that while property investment has helped to sustain GDP over the past year, the momentum is now fading. Ahead lie final Eurozone CPI, which is seen unrevised, and which will definitely 'play second fiddle' to the overly anticipated UK Retail Sales data, while the US has weekly jobless claims and the August Philadelphia Fed manufacturing survey. In policy terms there is more Fed speak, but from Dudley and Williams, who have already both voiced their opinions this week, and following on from yesterday's FOMC minutes, the generally rather pedestrian and free of fresh insights 'account' of the July ECB policy meeting. In terms of govt bond supply, there is a re-opening of the current US 5-yr TIPS benchmark, where the breakeven rate is at its lowest levels since the end of February, which is rather out of kilter with the loose correlation with oil prices (see attached chart). The July FOMC minutes underlined the point which we made yesterday that 'data dependency' is a redundant concept, when the FOMC members' views of what constitutes a convincing rationale for a modest removal of ultra-accommodative policy is so divergent, with 'some' members seeing the need for a rate hike 'soon', while fewer continued to fret over low inflation, and a couple were concerned about slowing jobs growth, though they would not have had sight of the July labour report. Overnight reports of Saudi oil output reaching a new high in July, and reportedly set to go higher in August, underline that a deal on capping production looks to be as distant as it was earlier in the year. Nevertheless, the faster than expected fall in Crude stocks, and perhaps more significantly a faster unwind of gasoline stocks than is seasonally typical offer support for oil prices, the gasoline unwind being significant in so far as it was the build-up of product stocks that brought the previous rally to an end.

** U.K. - July Retail Sales **
- This is a genuine piece of "post Brexit" data, though it will still need to be treated with some care in terms of trend extrapolation, for a number of reasons. The consensus looks for a 0.1% m/m headline gain, though 0.4% excluding Auto Fuel, which would follow much larger than expected 0.9% m/m falls in June, but still see steady y/y readings of 3.9% and 4.2% respectively. The pointers from the BRC Retail Sales, Visa Consumer Spending and High St Footfall surveys would tend to point to some upside risks, but the official data are inflation adjusted, which theoretically makes them volume measures, but that is contingent on the ONS inflation metrics being correct. The pointers from CPI earlier in the week are mixed, though the 0.7% m/m rise in Fuels & Lubricants does point to the expected drag from Auto Fuel; on the other hand seasonal sales discounting (e.g. Clothing & Footwear -3.4% m/m, Furniture/Household Goods -1.7% m/m) should offer a boost, along with Food & Non-alcoholic beverages (-0.3% m/m). There is the additional complication that some of the rebound, or any strength in coming months, will in part be attributable to the well documented surge in tourist arrivals, and by extension spending. Be that as it may, an upside surprise would pose further questions for the BoE's 'sledgehammer' policy settings, even if it should be noted that the MPC has made it very clear that it does not expect much, if any, short-term impact on consumer spending. In terms of market reaction, a stronger than expected reading looks to pose the greater risk, with GBP/USD looking to have formed a near-term trough, with the record IMM COT short in GBP (see chart) implying scope for a sharper short-term jump, the more so given that shorter dated Gilt yields have a further 15 bps cut in BoE Base Rate pretty much fully discounted, with a rise in yields unwinding some of the sharp narrowing of rate differentials vs. EUR, SEK, CHF, JPY.

from Marc Ostwald
 
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