Written Commentary
- Digesting BoJ June minutes, strong Japan & South Korea Trade, Australia Retail Sales slide and UK PSNB, awaiting South Africa CPI; busy day for Europe and US Corporate Earnings, Germany, US and Canada bond auctions
- South Africa CPI: headline seen easing, core holding at benign levels, allowing SARB to focus on growth outlook uncertainty
- Uncertainty on how govts react to rising infection rates, thinner trading volumes, while contending with reality of financial repression suggests choppier price action for many markets
EVENTS PREVIEW
Corporate earnings are more likely to be the market
movers than anything that is on the data and events schedule today. The latter
is heavily front loaded with June BoJ minutes, Japanese and South Korea Trade
(both showing continued strength thanks to US/European demand), Australian
Retail Sales (much weaker than expected due to lockdown measures) and UK PSNB
to digest, and only South Africa’s CPI ahead. Govt bond sales come via way of
German 27-yr, Canadian 10-yr and US 20-yr. A busy day for corporate earnings is
likely to feature see the following among the highlights: ASML, Daimler,
Iberdrola, Nordea, Novartis and SAP in Europe, and Anthem, Baker Hughes,
Coca-Cola, Discover, Johnson & Johnson, Nasdaq, Seagate, Texas Instruments
in the US. Ahead of tomorrow’s SARB meeting, which is expected to see rates
held at 3.50% and perhaps a downgrade to it growth outlook given the rise in
infection rates and related lockdown measures, CPI is expected to rise a modest
0.2% m/m on headline and core, which would see headline dip to 4.8% y/y from
5.1%, and core unchanged at a well contained at 3.1% y/y.
Be that as it all may, markets look to be in a more
volatile phase, exacerbated by thinner summer trading volumes, as questions
about the pace of the recovery mount, primarily due to the surge in infection
rates, particularly how govts react in terms of re-imposition of activity
restrictions, (even if low hospitalization and fatality rates in well
vaccinated countries is of comfort), as well as worsening US/Europe tensions
with China/Russia, with the incidence of extreme weather events at seemingly
unprecedented levels. On the other hand, the reality of central bank financial
repression and a renewed push back on expectations about when some of the ‘largesse
to excess’ will start to be tapered leave investors scrabbling to generate
returns, and per se ostensibly forced to reach for yield and riskier assets on
any setbacks. In that respect tomorrow’s ECB meeting is the focal point, with a
consensus view emerging that while it may be short on specifics, it will signal
more monetary ‘largesse’ for longer in order to meet its inflation target. The
key question is if there will be any shift away from couching the rationale for
policy changes in terms of staff forecasts (above all inflation), or whether
actual outcomes may play a larger role.
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ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
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© 2021 ADM Investor Services International Limited.
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