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Macroeconomics: The Day Ahead for 6 September

  • Quiet session likely given US Labor Day holiday, amid light data and events schedule: digesting German orders surge, UK auto sales fall; awaiting UK Construction PMI and Eurozone Sentix Investor Confidence
  • Week Ahead: central bank policy meetings (ECB, RBA, BOC) in focus, busy run of China, Eurozone and UK data, lighter run in the US
  • Week Ahead: China trade, EIA S-T Energy Outlook, US WASDE, Brazil CONAB in focus for commodities, as Ida aftermath assessed
  • Chart: China equity market capitalization vs. Shanghai Composite & CSI300

EVENTS PREVIEW

With the US closed for Labor day, the schedule of data and events is modest, and heavily front loaded. There are Australia’s MI Inflation Gauge and Germany’s Factory Orders (way above forecats at 3.4% m/m on the back of a 5.7% m/m surge in non-Eurozone orders, June revised up to 4.6% from m/m 4.1%) to digest, while ahead there are only the UK Construction PMI and New Car Registrations (already leaked as down 22% y/y on a combination of adverse base effects and low inventories), and the Eurozone Sentix Investor Confidence, which are hardly likely to capture the hearts and minds of financial markets. 

 

RECAP: The Week Ahead – Preview: 

 

The new week has a relatively modest run of US data, after the Labor Day holiday on Monday, but a much busier one in China, Eurozone and the UK, with the ECB (a case of ‘when’s a taper not a taper?’) front and centre in terms of monetary policy meetings, which will also see rate decisions in Australia, Canada, Russia, and a number of other EM countries. China will look to Trade, CPI, PPI and monetary & credit aggregates, the UK has monthly GDP, Industrial Production, Trade, Index of Services, BRC Retail Sales and RICS House Price Balance. Germany awaits Factory Orders, Industrial Production and Trade (the latter two are also on hand from France and Italy), with JOLTS Job Openings, PPI and the Fed’s Beige Book on hand in the US, while elsewhere there are Canada’s labour data, Japanese Wages, Household Spending and final Q2 GDP, and Brazil, Mexico and Russia have inflation data. The corporate earnings schedule is seasonally light, while a busier week for govt bond auction is led by the US with $120 Bln 3, 10 & 30-yr, with the UK selling 4 & 50 yr conventionals and 10-yr Index-linked, while the Eurozone sees sales in Germany, Austria and Ireland.

 

Politically, the UK Conservative Party’s internal fight over the proposal to hike national insurance to cover social care costs adding to the woes of PM Johnson’s govt, along with the increasingly acute haulage crisis, which is disrupting retail and restaurants. The revival of the SPD in the German election race continues to require careful monitoring, though probably not to the extent that a two party coalition might emerge; while the fall-out from the US/NATO exit from Afghanistan continues to reverberate across the world.

 

In the Commodities space, all eyes will be on the latest monthly USDA WASDE report, while the EIA publishes its Short-term Energy Outlook, as the fall-out in terms of destruction and disruption from Hurricane Ida is assessed, with China’s commodity import and export data the other point of focus. Brazil’s CONAB and China’s Farm Ministry CASDE crop reports are also due, while weather events and drought conditions in the Black Sea/Volga regions and the Americas, above all US and Brazil, will continue to be the other talking point.

 

– Statistically, there are a good number of major data points, but as has been the case for some time, markets have been riding roughshod over many of them, preferring to oscillate between fixating on infection rates and supply chain disruptions on the one hand, and central bank policy narratives on the other, leaving aside the fact that the data are and will remain noisy. Be that as it may, in the US July JOLTS Job Opening are expected to remain extraordinarily high at 10.0 Mln vs. June’s 10.073 Mln, but the question is when will these start to be filled at a more rapid pace, given skills mismatches and shortages. The Beige Book will be scoured for evidence on price, wage and labour pressures, supply chain disruptions impact on inventories of raw materials and finished goods, and above all on business outlooks. Weekly jobless claims are expected to edge lower again, while Friday’s PPI is expected to see some easing in the headline m/m pace to the lowest since December on the back of energy prices, while core is expected to drop back to the still high average pace that prevailed in March through June, but both would still pick up in y/y terms.

 

China’s inflation data are expected to remain heavily bifurcated, with PPI remaining very high at an unchanged 9.0% y/y, while CPI continues to show little of any ‘pass through’ at an unchanged 1.0% y/y, effectively evidencing the sluggish recovery in private consumption, though there may be some sector spikes and dips related to the localized lockdown measures. Trade data are forecast to see a marginal slowing in the pace of Export and Import growth in y/y terms at 17.2% and 27.0% y/y respectively, with the inherent volatility of the series, along with port and airport shutdowns implying a quite high probability of outlier readings. Credit aggregates are expected to see a sharp rebound after a typical seasonal drop in July, with hefty local govt bond issuance in August expected to boost Aggregate Social Financing to CNY 2.75 Trln from July’s CNY 1.056 Trln, and a much smaller boost to New Yuan Loans to CNY 1.35 Trln, with the PBOC’s easing of bank capital requirements more likely to be evident in September / Q4. But all of this remains rather secondary to speculation about the impact of the raft of regulatory interventions, and where the authorities might look to greater state control next.

 

In the UK, the ‘pingdemic’ is seen dragging monthly GDP for July back to a more modest 0.5% m/m from June’s 1.0%, and the Index of Services down to 0.6% m/m from 1.5%, with falling auto output set to continue to constrain Manufacturing Output, which is expected to post another marginal rise of 0.1% m/m. BRC Retail Sales are expected to slow to 3.2% y/y, in part due to base effects, but also the ‘pingdemic’; while the RICS House Price balance is forecast to remain very high at 75 vs. July’s 79, and thus far seeing little impact from the end of the Stamp Duty cut. In Germany, some role reversal is expected for orders and output, with Orders expected to dip 0.7% m/m following a robust 4.1% m/m rebound in June, while anecdotal evidence from the VDA automakers association suggests that auto output should allow Industrial Production to post a rise of 0.9% m/m, that would be only the second m/m gain in 2021. Trade data are forecast to see little change in m/m terms in either Exports or Imports, while the ZEW survey is anticipated to show a further dip in Expectations, contrasting with a further uptick in Current Conditions.

 

Elsewhere, Japan’s Q2 GDP is seen revised fractionally higher on the back of the better than expected Q2 CapEx data, while the Economy Watchers (services) survey is likely to echo the Services PMI and drop back due to extended lockdown measures. Canada’s labour data are forecast to show the Unemployment Rate dipping further to 7.3% from 7.5%, with Employment expected to rise at a slightly slower 66.8K, while inflation data in Brazil are likely to see a further acceleration in y/y terms to 9.5% from 8.99%, though pipeline pressures as measured by FGV IGP-DI should ease to just 0.1% m/m, while Mexico’s CPI to ease modestly for a fourth month (5.6% vs. 5.81%).

 

– Opinions are divided on what the ECB may signal this week, and much may depend on the staff forecasts, which will certainly see upward revisions to near-term GDP and CPI forecast, but probably little change in longer-term estimates, i.e. still showing CPI below target on 2 and 3-yr time horizons. The question is whether they signal any changes from the ‘significantly higher’ PEPP purchase (ca. EUR 85 Bln per month) of recent meetings. If this were to be reduced, the emphasis will be that it should be seen as ‘tapering’ but rather an acknowledgement of very favourable ‘financing conditions’ and the improved near-term outlook. Given the internal tensions between hawks and doves, any decisions on the future of the PEPP, and accompanying adjustments to the APP will doubtless be posted to the Q4 council meetings. Australia’s RBA is seen holding rates, but the focus will be on whether it opts to reverse its July ‘taper’ decision (as had been expected at the last meeting), given the prolonged lockdowns due to the spread of the delta variant. If its narrative that fiscal measures would be a more appropriate tool to counter the impact of the lockdowns, then it may well stick to its tapering timeline. As for the Bank of Canada, a more dovish policy narrative may emerge, with no further reduction in its already heavily reduced QE pace expected, given the spike higher in infection rates, and the unexpected Q2 GDP contraction, with elevated headline inflation likely to persist through much of the year, while core measures remain above target, though much better contained than in the US. In the EM space, Russia’s Bank Rossi is expected to hike rates a further 50 bps to 7.0%, that would represent a cumulative 275 bps since March. But with the economy clearly losing momentum, and inflation showing signs of topping out, it will likely suggest that this hike will be the last for the time being. Ukraine’s NBU is also set for another 50 bps hike to 8.0%, but hint at the possibility of further tightening given that this would still leave real rates in negative territory. Peru’s BCRP has stood firm in adjusting policy rates in response to the political turmoil and the accompanying slide in the PEN, but with inflation picking up, it is expected to initiate a rate hike cycle with a modest 25 bps hike to 0.75%.

 

As noted, the corporate earnings schedule is light, with Bloomberg News identifying the following as likely to be among the headlne makers: African Rainbow Materials, Bidvest Group, Casey’s General Stores, Couchbase, Dechra Pharmaceuticals, Dollarama, Exor, Partners Group Holding, Shoprite Holdings, Sun Hung Kai Properties, UiPath, United Super Markets, Wm Morrison Supermarkets and Zscaler.The Week Ahead – Preview: 

 

The new week has a relatively modest run of US data, after the Labor Day holiday on Monday, but a much busier one in China, Eurozone and the UK, with the ECB (a case of ‘when’s a taper not a taper?’) front and centre in terms of monetary policy meetings, which will also see rate decisions in Australia, Canada, Russia, and a number of other EM countries. China will look to Trade, CPI, PPI and monetary & credit aggregates, the UK has monthly GDP, Industrial Production, Trade, Index of Services, BRC Retail Sales and RICS House Price Balance. Germany awaits Factory Orders, Industrial Production and Trade (the latter two are also on hand from France and Italy), with JOLTS Job Openings, PPI and the Fed’s Beige Book on hand in the US, while elsewhere there are Canada’s labour data, Japanese Wages, Household Spending and final Q2 GDP, and Brazil, Mexico and Russia have inflation data. The corporate earnings schedule is seasonally light, while a busier week for govt bond auction is led by the US with $120 Bln 3, 10 & 30-yr, with the UK selling 4 & 50 yr conventionals and 10-yr Index-linked, while the Eurozone sees sales in Germany, Austria and Ireland.

 

Politically, the UK Conservative Party’s internal fight over the proposal to hike national insurance to cover social care costs adding to the woes of PM Johnson’s govt, along with the increasingly acute haulage crisis, which is disrupting retail and restaurants. The revival of the SPD in the German election race continues to require careful monitoring, though probably not to the extent that a two party coalition might emerge; while the fall-out from the US/NATO exit from Afghanistan continues to reverberate across the world.

 

In the Commodities space, all eyes will be on the latest monthly USDA WASDE report, while the EIA publishes its Short-term Energy Outlook, as the fall-out in terms of destruction and disruption from Hurricane Ida is assessed, with China’s commodity import and export data the other point of focus. Brazil’s CONAB and China’s Farm Ministry CASDE crop reports are also due, while weather events and drought conditions in the Black Sea/Volga regions and the Americas, above all US and Brazil, will continue to be the other talking point.

 

– Statistically, there are a good number of major data points, but as has been the case for some time, markets have been riding roughshod over many of them, preferring to oscillate between fixating on infection rates and supply chain disruptions on the one hand, and central bank policy narratives on the other, leaving aside the fact that the data are and will remain noisy. Be that as it may, in the US July JOLTS Job Opening are expected to remain extraordinarily high at 10.0 Mln vs. June’s 10.073 Mln, but the question is when will these start to be filled at a more rapid pace, given skills mismatches and shortages. The Beige Book will be scoured for evidence on price, wage and labour pressures, supply chain disruptions impact on inventories of raw materials and finished goods, and above all on business outlooks. Weekly jobless claims are expected to edge lower again, while Friday’s PPI is expected to see some easing in the headline m/m pace to the lowest since December on the back of energy prices, while core is expected to drop back to the still high average pace that prevailed in March through June, but both would still pick up in y/y terms.

 

China’s inflation data are expected to remain heavily bifurcated, with PPI remaining very high at an unchanged 9.0% y/y, while CPI continues to show little of any ‘pass through’ at an unchanged 1.0% y/y, effectively evidencing the sluggish recovery in private consumption, though there may be some sector spikes and dips related to the localized lockdown measures. Trade data are forecast to see a marginal slowing in the pace of Export and Import growth in y/y terms at 17.2% and 27.0% y/y respectively, with the inherent volatility of the series, along with port and airport shutdowns implying a quite high probability of outlier readings. Credit aggregates are expected to see a sharp rebound after a typical seasonal drop in July, with hefty local govt bond issuance in August expected to boost Aggregate Social Financing to CNY 2.75 Trln from July’s CNY 1.056 Trln, and a much smaller boost to New Yuan Loans to CNY 1.35 Trln, with the PBOC’s easing of bank capital requirements more likely to be evident in September / Q4. But all of this remains rather secondary to speculation about the impact of the raft of regulatory interventions, and where the authorities might look to greater state control next.

 

In the UK, the ‘pingdemic’ is seen dragging monthly GDP for July back to a more modest 0.5% m/m from June’s 1.0%, and the Index of Services down to 0.6% m/m from 1.5%, with falling auto output set to continue to constrain Manufacturing Output, which is expected to post another marginal rise of 0.1% m/m. BRC Retail Sales are expected to slow to 3.2% y/y, in part due to base effects, but also the ‘pingdemic’; while the RICS House Price balance is forecast to remain very high at 75 vs. July’s 79, and thus far seeing little impact from the end of the Stamp Duty cut. In Germany, some role reversal is expected for orders and output, with Orders expected to dip 0.7% m/m following a robust 4.1% m/m rebound in June, while anecdotal evidence from the VDA automakers association suggests that auto output should allow Industrial Production to post a rise of 0.9% m/m, that would be only the second m/m gain in 2021. Trade data are forecast to see little change in m/m terms in either Exports or Imports, while the ZEW survey is anticipated to show a further dip in Expectations, contrasting with a further uptick in Current Conditions.

 

Elsewhere, Japan’s Q2 GDP is seen revised fractionally higher on the back of the better than expected Q2 CapEx data, while the Economy Watchers (services) survey is likely to echo the Services PMI and drop back due to extended lockdown measures. Canada’s labour data are forecast to show the Unemployment Rate dipping further to 7.3% from 7.5%, with Employment expected to rise at a slightly slower 66.8K, while inflation data in Brazil are likely to see a further acceleration in y/y terms to 9.5% from 8.99%, though pipeline pressures as measured by FGV IGP-DI should ease to just 0.1% m/m, while Mexico’s CPI to ease modestly for a fourth month (5.6% vs. 5.81%).

 

– Opinions are divided on what the ECB may signal this week, and much may depend on the staff forecasts, which will certainly see upward revisions to near-term GDP and CPI forecast, but probably little change in longer-term estimates, i.e. still showing CPI below target on 2 and 3-yr time horizons. The question is whether they signal any changes from the ‘significantly higher’ PEPP purchase (ca. EUR 85 Bln per month) of recent meetings. If this were to be reduced, the emphasis will be that it should be seen as ‘tapering’ but rather an acknowledgement of very favourable ‘financing conditions’ and the improved near-term outlook. Given the internal tensions between hawks and doves, any decisions on the future of the PEPP, and accompanying adjustments to the APP will doubtless be posted to the Q4 council meetings. Australia’s RBA is seen holding rates, but the focus will be on whether it opts to reverse its July ‘taper’ decision (as had been expected at the last meeting), given the prolonged lockdowns due to the spread of the delta variant. If its narrative that fiscal measures would be a more appropriate tool to counter the impact of the lockdowns, then it may well stick to its tapering timeline. As for the Bank of Canada, a more dovish policy narrative may emerge, with no further reduction in its already heavily reduced QE pace expected, given the spike higher in infection rates, and the unexpected Q2 GDP contraction, with elevated headline inflation likely to persist through much of the year, while core measures remain above target, though much better contained than in the US. In the EM space, Russia’s Bank Rossi is expected to hike rates a further 50 bps to 7.0%, that would represent a cumulative 275 bps since March. But with the economy clearly losing momentum, and inflation showing signs of topping out, it will likely suggest that this hike will be the last for the time being. Ukraine’s NBU is also set for another 50 bps hike to 8.0%, but hint at the possibility of further tightening given that this would still leave real rates in negative territory. Peru’s BCRP has stood firm in adjusting policy rates in response to the political turmoil and the accompanying slide in the PEN, but with inflation picking up, it is expected to initiate a rate hike cycle with a modest 25 bps hike to 0.75%.

 

 

As noted, the corporate earnings schedule is light, with Bloomberg News identifying the following as likely to be among the headlne makers: African Rainbow Materials, Bidvest Group, Casey’s General Stores, Couchbase, Dechra Pharmaceuticals, Dollarama, Exor, Partners Group Holding, Shoprite Holdings, Sun Hung Kai Properties, UiPath, United Super Markets, Wm Morrison Supermarkets and Zscaler.

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The information within this publication has been compiled for general purposes only. Although every attempt has been made to ensure the accuracy of the information, ADM Investor Services International Limited (ADMISI) assumes no responsibility for any errors or omissions and will not update it. The views in this publication reflect solely those of the authors and not necessarily those of ADMISI or its affiliated institutions. This publication and information herein should not be considered investment advice nor an offer to sell or an invitation to invest in any products mentioned by ADMISI.

Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.

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.                  

A subsidiary of Archer Daniels Midland Company.

© 2021 ADM Investor Services International Limited.

Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.

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.                  

A subsidiary of Archer Daniels Midland Company.

© 2021 ADM Investor Services International Limited.

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