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Macroeconomics: The Day Ahead for 13 July

  • Busy day for data and events: China Trade, UK GDP and RICS House Price survey, BoK rate hold; awaiting Bank Liabilities & Credit Conditions Surveys, ECB June minutes, US PPI, weekly jobless claims and Treasury Budget, Fed speakers, Pepsico heads earnings run; Italy & US debt auctions
  • China Trade: larger than expected exports and imports confirm weak domestic and external demand, reaffirm need for stimulus package; recent property measures a case of giving with one hand, taking with the other
  • UK GDP: less drag from Coronation bank holiday down to boost from erratic healthcare services, as RICS survey confirms expected increased headwinds for housing from sharp rise in rates
  • US PPI expected to confirm minimal pipeline pressures, as CPI suggests Fed can take the foot off rate hike pedal

EVENTS PREVIEW

A relatively busy day for data and event has China’s Trade, UK monthly GDP, business activity indicators and RICS House Price Balance and the as expected no change Bank of Korea rate decision to digest. Ahead lie US PPI, weekly jobless claims and Treasury Budget, the June ECB minutes, the BoE’s Bank Liabilities & Credit Conditions Surveys and some Fed speakers, along with the IEA and OPEC monthly Oil Market Reports, which follow on from Brent breaking out of the $71-79 range since end April. While the official kick-off to the US Q2 earnings does not start until tomorrow, today already has some heavy weight names via way of Conagra, Fastenal and Pepsico. There are also govt bond auctions in Italy (3, 7, 15 & 26-yr) and US (30-yr).

** China – June Trade Balance **

Exports and Imports slid even more than expected at -12.4% y/y and -6.8% y/y respectively, with the rise in commodity exports & imports mostly reflecting base effects, or arbitrage opportunities. But overall the picture remains one of weak domestic demand, and weakening export demand, and again underlying the need for a broader stimulus package. In that latter respect, it is rather disconcerting that having announced measures on Monday to extend measures to support the property sector, in what looked like a Euro crisis example of ‘extend and pretend’, but on Tuesday news broke that the state pension fund had reviewed property sector assets, and was instructed to shed any assets trading at less than 95% of face value, i.e. a case of giving with one hand and taking with another.

** U.K. – May GDP and business activity indicators **

May GDP at -0.1% m/m was better than the expected 0.3% m/m, with growth flat in the 3 months to May, though this was primarily a function of a sharp 1.1% m/m rebound in health care services, though the falls in Manufacturing and Construction Output were also less than expected (both -0.2% m/m against forecasts of -0.5% m/m). However, there was some offset from a 1.0% m/m drop in Energy Output, which is now down -6.9% in annual terms, clearly showing the strain of high prices. Given that Healthcare remains very erratic in m/m terms, and the smaller than expected fall in other sectors, the June data may not show the usual rebound from the one-off Coronation bank holiday. Nevertheless, it is again testament to greater resilience in the economy, even if the sharp slide in the RICS House Price Balance (-46 vs. expected -35, May -30) implies that the anticipated risks to the UK housing market from the sharp rise in interest rates are crystallizing, though some caution is required as some of that slide may be a more emotional response to the latest 50 bps rate hike.

** U.S.A. – June PPI **

PPI will again likely confirm little in the way of pipeline pressures with headline seen at just 0.4% y/y from 1.1%, and core at 2.6% y/y from 2.8%. This following CPI that was, as noted, significantly below forecasts at 0.18% m/m headline & 0.156% m/m Core against forecasts of 0.3%, pushing down y/y rates to 3.0% & 4.8% vs. expected 3.1% and 5.1% respectively. Slower Housing OER 0.4% m/m accounts for most of the miss, with a sharp 7.3% m/m fall in Egg prices seeing Food rise a very modest 0.1% m/m. Energy was up 0.6% m/m on the back of electricity prices, and 1.0% m/m rebound in Gasoline, but New Cars were flat m/m Used Cars -0.5%, Airfares -8.1% m/m. Markets have all but priced out any rate hikes after July, and the PCE Deflators published at the end of the month should also similar declines, assuming forecasts of another modest 0.2% m/m rise in PPI tomorrow are correct. Increasingly it looks as though a July rate hike may be little more than the Fed erring on the side of doing too much, even if the vulnerability to a renewed energy price shock remains ever present.

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